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GROSS INCOME
Why is income subject to tax?
• It is the best measure of taxpayer’s ability to pay tax
• It is an excellent object of taxation in the allocation of government cost
• Any inflow of wealth to the taxpayer that increases net worth from whatever source, legal or
illegal
➢ Anything we received
➢ Should increase net worth; mere return of investment is NOT a gross income
• Include income from employment, trade, business or exercise of profession, income from
properties, and other sources such as dealings in properties and other regular or casual
transaction
Elements of Gross Income
1. A RETURN ON CAPITAL that increases net worth
• Return ON capital: TAXABLE INCOME
➢ Any amount you receive each year in exchange for making your initial
investment
• Return OF capital: NOT GROSS INCOME
➢ Takes place when an investor receives a portion or entire investment back,
including income or dividends
2. REALIZED BENEFIT
• Realized Benefit
➢ Refund or reduction of tax liability resulting from the use of an item of loss,
deduction or credit in accordance with the ordering rules
➢ Something you own, you can dispose and use it in any ways that you can enjoy
the benefit of the income
• Unrealized Benefit (gain/loss)
➢ NOT TAXABLE YET
➢ Value of an asset has increased or decreased, but it has not yet been sold
➢ Considered unrealized because it only exists on mere paper and does not
impact your taxes until you sell the asset for a profit or loss
➢ Paper income: Taxable only when realized
3. NOT EXEMPTED by law, contract, or treaty
EXEMPTION
→ The law must expressly exempt and subject it
→ Always decide IN FAVOR of the government
✓ Not sure if it is a taxable income? It is taxable.
✓ Not sure if it is a deductible income? Do not deduct.
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GROSS INCOME (SEC 32A)
→ All income derived from WHATEVER SOURCE including, but NOT LIMITED to the following:
1. Compensation for services
2. Gross income derived from conduct of trade or business or the exercise of profession
3. Gains derived from dealings in property
4. Interests
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions
11. Partner’s distributive share from net income of the General Professional Partnership (GPP)
COMPUTATION OF TAX DUE (INCOME TAX MODEL)
Gross Income xxx
Less: Allowable Deductions xxx
NET TAXABLE INCOME xxx
Apply: Tax Rate %
INCOME TAX DUE xxx
Less: Tax Credit, if any xxx
INCOME TAX STILL DUE/PAYABLE xxx
Gross Income Classification
1. Final Tax
2. Basic Tax – included in income tax model
3. Exempt – not subject to any taxes, EXCLUDED
Types of Allowable Deductions
1. Optional Standard Deductions (OSD)
2. Itemized Deductions – presented line per line
Types of Income Taxpayer
→ Computing income tax due depends on income taxpayer
1. Individual
2. Corporation
3. Trusts
4. Estates
5. Partnership
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Withholding Tax
→ Income subjected to basic taxes may be subjected to CWT
→ All income subject to final tax will be subject to FWT
1. Final withholding Tax (FWT)
• What is withheld is already the tax
• Items subjected to FWT is not included in the income tax model; NOT TAXED AGAIN
• The customer will withhold the taxes and will be the final tax withheld
• The company/income earner upon receiving the income WILL NOT DO ANYTHING;
the amount is not included and declared
2. Creditable withholding Taxes (CWT)
• Taxes withheld by customers/payee
• Considered as an ADVANCE TAX PAYMENT (application of administrative feasibility)
• Still subjected to taxes
• A tax credit
General Rule
1. Resident citizens taxable globally; Others: within only
2. NRA NETB – income subject to 25% final tax
3. Domestic corporation taxable globally; Foreign corporation: within only
4. NR FC – income subject to 25% final tax
5. Passive income EXCEPT RENT is subject to final tax
6. All income without the Philippines (RC and DC) is subject to basic tax
→ Ex. deposit in Australian bank earning interest; Ph gov’t can’t demand the bank to
withhold taxes on their behalf (outside its territorial jurisdiction)
COMPENSATION INCOME
→ Remuneration received by an employee from an employment or an income earned by an
individual as a result of an employer-employee relationship
1. Power to hire
2. Power to fire
3. Power to compensate
4. Power to define the work to do
Classification of Compensation Income
1. Regular Compensation Income
• Includes fixed remunerations due to be received by an employee every payroll period
such as basic salary and fixed allowances (COLA)
2. Supplementary Compensation Income
• Pertains to the performance-based pays to employees with or without regard to the
payroll period
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3. 13th Month Pay and Other Benefits
• This is a residual category which generally includes incentive pays and all other
taxable employee benefits
• Ex. Christmas Bonus, Cash Gifts, 14th and 15th
REGULAR COMPENSATION INCOME
1. Salary - general earning paid on a regular interval
Wage - paid on an hourly or daily basis
*Mandatory GSIS, SIS, Philhealth, PAG-IBIG contributions and union dues are considered as tax-
exempt contributions (MANDATORY ONLY)
*You can contribute more (VOLUNTARY CONTRIBUTION)
The following pertains to an employee in 2024:
Gross Salaries P 50,000
Less: Withholding Tax P 1,400
SSS Contributions 550
PHIC Contributions 100
PAG-IBIG Contributions 100
Union Dues 150
SSS Calamity Loan 1,000
Employee Loan 2,000 5,300
NET PAY 44,700
2. AIIowances
• May be fixed or variable
• Fixed Allowances - Allowances which are fixed in amounts and regularly received as
part of the basic monthly, bi-weekly, weekly or daily salaries or wages are part of
regular compensation. This applies even if a portion of the allowances are actually
used in the employer’s business.
• GENERALLY SUBJECT TO TAX, except:
➢ If the allowance is an ordinary and necessary travelling, representation, or
entertainment expense of employee in the pursuit of his trade, business or
profession.
➢ The employee is required to account/liquidate for the foregoing expenses
➢ Any excess advances are returned to the employer
• Hence, variable and liquidated allowances are not subject to tax. However, amounts
of allowances that are retained by the employee for himself shall be considered
compensation.
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SUPPLEMENTARY COMPENSATION INCOME
1. Fees
• Retainer fees of consultants, talents & directors who have no management functions
in the business are professional income, not compensation income of the recipient.
2. Commissions
• To non-employees such as independent sales agent are business income to the sales
agent
3. Tips and Gratuities
• Tips and gratuities paid directly to an employee by customers of the employer which
are not accounted for by the employee to the employer are not considered as
compensation income, but are to be reported as “other income” in the income tax
return of the employee.
• Not withheld by the employer
4. Overtime Pay
• Premium payment received for working beyond
5. Hazard Pay
• Amount paid by employer to employees assigned to danger or strife torn areas,
disease-infected, distressed which exposed them to great danger
6. Night Differential
• Pay received by an employee for every hour of work performed between 10pm and
6am
7. Holiday pay
• Received by an employee on the occasion of regular holiday or special day
Other Forms of Compensation
→ Anything that increase wealth
1. Property as payment of compensation
• Fair Market value of property at the time of payment
2. Services as payment of compensation
• Fair value of services at the time rendered
3. Debt Cancellation
• Recognition of Income: if creditor/employer cancels debtor/employee in consideration
for services rendered, the debtor/employee realizes income amounting debt
• Resulting to Donation: creditor/employer cancels debt of debtor/employee without any
consideration, con sidered as gift or donation
• Cancelation of debt resulting to/in capital transaction: stockholder is indebted to his/her
own company
4. Issuance of shares of stock as payment of compensation
• Fair market value of stock at the time the shares are issued
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5. Issuance of notes as payment of compensation
• Fair value of notes
➢ Interest-bearing
o Year end: taxable amount = face value
o At collection: taxable amount = note – face value
➢ Noninterest-bearing
o Discounted to its present value
13TH MONTH AND OTHER BENEFITS
1. Thirteenth Month Pay
• Equivalent to mandatory one-month basic salary of officials and employee
Basic salary 30,000
Date hired 4/1/24
30,000 x 9
13th month pay = P 22,500
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2. Other Benefits
• Christmas bonus, productivity incentive bonus, loyalty award, gift in cash or in kind,
and other benefits similar in nature
• 13th month pay and other benefits are NOT TAXABLE if the total amount received is
P90,000 or less
Government Employees Private Employees
Christmas bonus 13th month pay and other benefits 13th month pay and other benefits
th
Christmas gift 13 month pay and other benefits De minimis
Mr. Wang is the vice president of CID Corporation. He receives an annual salary of P720,000, 10% of
which pertain to SSS, PHIC, and PAG-IBIG Contributions. At the end of the year, he received 13th and
14th (equivalent to one-month salary for each pay), Christmas bonus of P120,000.
How much is the gross compensation income?
Annual Salary 720,000 13th & 14th 120,000
Less: SSS, PHIC, PAG-IBIG (72,000) Christmas bonus 120,000
Taxable Compensation P 648,000 Less: Exempt (90,000)
Taxable 13th and others P 150,000
Gross Compensation Income = 648,000 + 150,000
P 798,000
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3. De Minimis Benefits
• Benefits considered minimal, in value, when given to employer, NOT TAXABLE
• Conversion of leaves to money (when retiring)
➢ Excess over Threshold
o NOT EXACTLY TAXABLE
o Part of 13th
• Monetized unused vacation leave credits of private employees, not exceeding 10
days during the year
• Monetized unused vacation and sick leave credits paid to government officials
and employee (No limit)
• Medical cash allowance to dependents of employees not exceeding P1,500 per
employee per semester, or P250 per month
• Rice subsidy not exceeding P2,000 or 1 sack of 50-kg rice per month amounting to
not more than P2,000
• Uniform and clothing allowance not exceeding P6,000 per annum
• Actual medical assistance not exceeding P10,000 per annum
• Laundry allowance not exceeding P300 per month
• Employees achievement award, in form of tangible personal property other than
cash or gift certificate, with an annual monetary value not exceeding P10,000 received
by the employee under an established written plan which does not discriminate in favor
of highly paid employees.
• Gifts given during Christmas and major anniversary celebrations not exceeding
P5,000 per employee per year
• Daily meal allowance for overtime work and night/graveyard shift not exceeding
25% of the basic minimum wage
• Benefits received, by virtue of a collective bargaining agreement (CBA) and
productivity incentive schemes provided total annual monetary value of both not
exceeding P10,000 per employee per taxable year
Taxable de minimis benefits
→ Excess de minimis over their limits
→ Treatment for rank and file employees: treated as other compensation income under
the category 13th month pay and other benefits
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REQUIRED: Compute the gross annual compensation income of Albert.
Albert received the following compensation from his employer:
Monthly salary of P50,000 / month 50,000 x 12 600,000
Fixed monthly allowance of P5,000 / month 5,000 x 12 60,000
Monthly benefits
✓ Rice subsidy, P2,500 2,000 EX 500 x 12 6,000
✓ Laundry allowance, P250 ALL EX
Yearly benefits
✓ 13th month pay, P50,000 50,000
✓ 14th month pay, P50,000 50,000
✓ Clothing allowance, P8,000 6,000 EX 2,000
✓ Medical benefits to employee’s
3,000 EX 7,000
dependents, P10,000
✓ Medical benefits to employees,
10,000 EX 5,000
P15,000
✓ Productivity bonus, P20,000 10,000 EX 10,000
130,000
(90,000) 40,000
700,000
REGULAR COMPENSATION INCOME
1. Statutory Minimum Wage (SMW)
• Rate fixed by the Regional Tripartite Wage and Productivity Board of the Department
of Labor and Employment
• The following types of compensation income all inclusive earned by minimum wage
earners are also exempted from income tax: (basis: SMW)
➢ Holiday pay
➢ Overtime pay
➢ Night shift differential
➢ Hazard pay
• Minimum wage is different in every region
• Minimum wage for every 8 hours of work
• Against the law to give below the minimum wage EXCEPT Barangay Micro Business
Enterprise (BMBE)
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Minimum Wage Earners (RA 9504)
• Rules governing EXEMPTIONS:
➢ MWE receiving other income, such as income from conduct of trade/business,
or practice of profession, EXCEPT income subject to final tax, in addition to
compensation income shall be subject to tax on their income from business.
➢ MWE shall be subject to income tax if he/she receives additional compensation
such as commissions, honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of P90,000, taxable allowances, and other taxable
income other than SMW.
Other Benefits
1. Separation Pay
• Amount due to the employee who has been terminated from service for causes
authorized by law
• GENERALLY, it is TAX EXEMPT
➢ Separation/termination must be due to job-threatening sickness, death, or
other physical disability
➢ Exempt from income tax and withholding tax
• NOT TAXABLE:
➢ if the reason is beyond the control of the employee/official, regardless of age
or length of service.
➢ Same must be due to any cause beyond control of employee/official:
o Redundancy
o Installation of labor-saving devices
o Retrenching
o Downsizing
o Closure of employer’s business
REQUIRED: Determine the taxable income.
1. Ysa is an employee of Goldfish Company which closed its business during the year. Ysa’s last
paycheck shows the following details:
Unpaid salary in the last two months P 30,000
Current monthly salary 15,000
Separation pay 100,000
→ Taxable income: P45,000 (30,000 + 15,000)
2. Helbert’s employer was downsizing its business operations. Helbert was identified among
other to be laid off. To avoid implications of inefficiencies on his part, Helbert filed a resignation
letter to the company and received a separation pay of P120,000.
→ Taxable income: P120,000
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2. Retirement Pay
• Received by employees/officials of private firms in accordance with a reasonable
private benefit plan maintained by the employer.
• Retiring employee receives half-month salary for every year of service. A fraction of at
least six (6) months is considered one (1) whole year in calculating the payment.
• REQUISITE OF EXEMPTION:
➢ General rule: NOT TAXABLE, except: (ALL must present)
(1) The employer maintains a reasonable private plan; registered in BIR
✓ If silent, assumed to be registered
(2) Retiring employee/official is at least 50 years of age
(3) Been in service of the SAME employer for at least 10 years
(4) First time availment of retirement benefit exemption
REQUIRED: Determine if the following items are taxable or not.
1. Angela was employed in 2002 when she was 25 years old. In 2024, she availed of early
retirement program of her employer.
→ Taxable; 47/22
2. Assume that Angela joined another employer and worked therein for 7 more years after which
she retired from her employment.
→ Taxable; 54/7
3. Assume that Angela joined another employer and worked therein for 10 more years after which
she retired from her employment.
→ Exempt; 57/10
4. Assume instead that Angela was 30 years old when she joined her first employer and worked
therein for 20 years after which she retired at 50. She immediately joined another employer
and retired after 10 years of service when she was 60 years old.
→ Exempt; 50/20
→ Taxable; 60/10
BUSINESS AND PROFESSIONAL INCOME
1. Business Income – arises from habitual engagement in any commercial activity involving
regular sales of goods or services by an individual or corporation.
2. Professional Income – arises from exercise of profession or business income from sales of
services
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Classification of Business Income
1. Farming
• Business methods engaged in agriculture, farm, or production of farm animals
• Methods of Recognizing Income:
➢ Cash basis: A method that recognizes revenues and expenses at the time
cash is received or paid out.
➢ Accrual basis: A method that recognizes income at the time the revenue is
earned and records expenses when liabilities are incurred regardless of when
cash is received or paid.
➢ Crop year basis: Only recognizes expenses when there is a harvest;
otherwise, defer the cost
REQUIRED: Determine the gross business income.
Assume the following data:
Cash sales P 1,950,000
Ending inventory 400,000
Cost of livestock 850,000
Beginning inventory 600,000
Determine the gross income under the cash and accrual basis.
CASH BASIS:
Cash sales P 1,950,000
Cost of livestock 850,000
P 1,100,000
ACCRUAL BASIS
Cash sales P 1,950,000
Less: Cost
Beginning inventory 600,000
Purchase 850,000
Ending inventory (400,000) 1,050,000
P 900,000
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REQUIRED: Determine the gross business income.
Juan Dela Cruz, a farmer, plants a certain crop that takes more than a year to harvest. Juan had the
following data on his farming operations:
2022 2023 2024
Proceeds of harvest P- P 750,000 P 1,000,000
1st cropping expense 400,000 200,000 -
2nd cropping expense 500,000 300,000
2023 2024
P 750,000 P 1,000,000
(600,000) (800,000)
Gross Income P 150,000 P 200,000
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2. Construction
• Business engaged in the construction of roads, bridges, etc.
• Methods of Recognizing Income:
➢ Completed Contract: Only recognize income once project is fully completed
➢ Percentage of Completion: Only recognize income based on the progress of
work completed
SDD Construction Company has entered into a contract with UNIV. Co. for the construction of a P40
million gymnasium. The project is expected to be completed within four years after signing of the
contract.
Based on engineering studies, the following are the estimates:
Cost incurred to date Percentage of completion
First year P 11,500,000 30%
Second year 21,000,000 55%
Third year 30,000,000 80%
Fourth year 36,000,000 100%
REQUIRED: Compute the gross income from year 1 to year 4 if the company is using:
COMPLETED CONTRACT METHOD
1st 2nd 3rd 4th
0 0 0 40,000,000
(36,000,000)
4,000,000
PERCENTAGE OF COMPLETION METHOD
1st 2nd 3rd 4th
Contract Price 40,000,000 40,000,000 40,000,000 40,000,000
x % completed 30% 55% 80% 100%
Total revenue to date 12,000,000 22,000,000 32,000,000 40,000,000
Less: Cost to date (11,500,000) (21,000,000) (30,000,000) (36,000,000)
Gross income to date 500,000 1,000,000 2,000,000 4,000,000
Less: GI-recognized - 500,000 1,000,000 2,000,000
GI for the year 500,000 500,000 1,000,000 2,000,000
4,000,000
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3. Interest Income
• Earning derived from depositing/lending money, goods, or credit
• Depends on the SOURCE:
➢ Bank – passive income; subject to FINAL TAX
➢ Nonbank – active income; subject to BASIC TAX
Interest Income from Bank
• Interest income yield from local currency bank deposits or deposit substitutes are
subject to FINAL TAX
• Short-term Deposits – are those made for a period of less than 5 years
• Long-term Deposits
➢ Certificate of time deposit or investment management accounts and other
investments
➢ With a maturity period of not less than 5 years, the form of which shall be
prescribed by the BSP and issued by banks only (not by non-bank financial
intermediaries and finance companies) to individuals in denominations of
P10,000 and other denominations as may be prescribed by the BSP.
INDIVIDUAL CORPORATION
NRA-NETB NRFC
(EX NRA-NETB) EX. NRFC
ST Deposits 20% 25% 20% 25%
LT Deposits EXEMPT 25% BASIC 25%
A taxpayer earned the following interest income from various deposits:
6-month time deposit P 9,000
3-year time deposit 15,000
6-year time deposit 20,000
Compute the final tax if the taxpayer is an individual and if a corporation.
INDIVIDUAL CORPORATION
9,000 20% 1,800 9,000 20% 1,800
15,000 20% 3,000 15,000 20% 3,000
20,000 exempt 20,000 basic tax
44,000 4,800 44,000 4,800
Net Cash Proceeds
44,000
4,800
39,200
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The Bank of Cebu has the following interest in its peso savings and deposit accounts from the following
depositors:
DEPOSITORS AMOUNT
Resident Individual P 600,000
Resident and Domestic Corporations 800,000
Non-Resident Aliens not engaged in business 200,000
Non-Resident Corporations 100,000
Compute the final income tax to be withheld by Bank of Cebu.
DEPOSITORS AMOUNT
Resident Individual P 600,000 20% 120,000
Resident and Domestic Corporations 800,000 20% 160,000
Non-Resident Aliens not engaged in business 200,000 25% 50,000
Non-Resident Corporations 100,000 25% 25,000
355,000
If the long-term deposits of individual taxpayers is pre-terminated before 5 years, any previously
untaxed or exempted interest income will be subjected to the following final taxes upon pre-
termination.
Holding Period Final Tax
Less than 3 years 20%
3 years to less than 4 years 12%
4 years to less than 5 years 5%
5 years or more 0%
On January 1, 2023, Alicia invested P1,000,000 in Bank of Cebu’s 5-year time deposit. The deposit
pays 10% interest annually. Alicia pre-terminated the deposit on July 1, 2026.
Compute the final tax to be withheld by Bank of Cebu before it releases the total proceeds to
Alicia.
Interest per year = 1,000,000 x 10% = 100,000
2023 = 100,000 Net Proceeds => Deposits
2024 = 100,000 Principal 1,000,000
2025 = 100,000 Add: Interest 50,000
2026 = 50,000 Less: Tax (42,000)
350,000 x 12% = 42,000 Net Proceeds 1,008,000
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4. Foreign Deposits
• The interest income from foreign currency deposits with foreign currency depositary
banks
Resident Non-Resident
DC and RFC NRFC
Individual Individual
Interest Income from
FCDU/OBU/Foreign 15% EXEMPT 15% EXEMPT
Depositary Banks
Mr. Seaman is an OFW. He deposits all his savings in an account under the FCDU of a domestic
bank. During the month, the account earned $1,500 interest equivalent to P45,000.
Scenario 1: Mr. Seaman deposited his savings through the account of his resident wife.
45,000 x 15% = 6,750
Scenario 2: Mr. Seaman deposited his savings through a joint account with his resident wife.
22,500 x 15% = 3,375
22,500 = exempted
Scenario 3: Mr. Seaman deposited his savings through his own account.
Interest Income subject to BASIC TAX
• Lending activities, whether or not in the course of business
• Investment in bonds
• Promissory notes
• Foreign sources, bank or non-bank (RC/DC)
• Penalty for legal delay or fault
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5. Rental Income/Rents
• Leasing properties of any kind
• Passive income but subject to regular income tax
• Rent income includes:
➢ Obligations of the lessor that are assumed by the lessee are additional rental
income to the lessor
➢ Advance rentals are:
(a) Items of gross income upon receipt if:
o Unrestricted
o Restricted to be applied in future years or upon the termination
of the lease
(b) Not an item of gross income if:
o It constitutes a loan
o It is a security deposit to guarantee payment or rent subject to
contingency which may or may not happen
• Leasehold improvements made by the lessee on the leased property are recognized
by the lessor as income using the outright or spread-out method
Income from Leasehold Improvements
✓ Outright Method – The lessor may report as income at the time when such building
or improvements are completed at the FAIR MARKET VALUE at the DATE OF
COMPLETION of such building and improvements
✓ Spread-out Method – The lessor may spread over the life of the lease the estimated
depreciate value of such buildings or improvements at the termination of the lease and
report as an income for each year of the lease an aliquot part thereof.
Cost
x Remaining Life at the End
Annual Income = Useful Life
Lease Term
On January 1, 2023, Kiara leased a vacant lot to Greg under a 20-year lease contract. Greg
immediately constructed a building on the lot at a total cost of P4,500,000. The building has useful life
of 30 years.
Compute the taxable income for year 2023 using the outright method.
2023 = 4,500,000
Compute the taxable income for year 2023 using the spread-out method
4,500,000 / 30 x 10
= P 75,000 / year
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FINAL TAX RATES
1. INTEREST INCOME
Interest Income from Local Banks
INDIVIDUALS CORPORATION
NRA-NETB NRFC
(RC, NRC, RA, NRA-ETB) (DC, RFC)
ST Deposits 20% 25% 20% 25%
LT Deposits EXEMPT 25% BASIC 25%
Long-term Deposits Pre-terminated
Holding Period Final Tax
Less than 3 years 20%
3 years to less than 4 years 12%
4 years to less than 5 years 5%
5 years or more 0%
Interest Income from Foreign Depositary Banks
Resident Non-Resident
Individual Individual DC & RFC NRFC
(RC, RA) (NRC, NRA)
Interest Income from
FCDU/OBU/Foreign 15% EXEMPT 15% EXEMPT
Depositary Banks
2. ROYALTIES
INDIVIDUALS CORPORATION
SOURCE NRA-NETB NRFC
(RC, NRC, RA, NRA-ETB) (DC, RFC)
Books, literary
works, and musical 10% 25% 20% 25%
compositions
Other sources 20% 25% 20% 25%
3. DIVIDENDS
INDIVIDUALS CORPORATION
SOURCE NRA-ETB NRA-NETB NRFC
(RC, NRC, RA) (DC, RFC)
Domestic 25% or
10% 20% 25% EXEMPT
Corporation 15%*
Foreign 25% or
BASIC BASIC 25% BASIC
Corporation 15%*
*if with TAX SPARING RULE
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4. PRIZES
AMOUNT OF INDIVIDUALS CORPORATION
NRA-NETB NRFC
TAXABLE PRIZES (RC, NRC, RA, NRA-ETB) (DC, RFC)
LOCAL SOURCES
Prizes
EXCEEDING 20% 25% BASIC 25%
P10,000
Prizes
NOT EXCEEDING BASIC 25% BASIC 25%
P10,000
FOREIGN
BASIC (RC ONLY) N/T BASIC (DC ONLY) N/T
SOURCES
5. WINNINGS
TYPES OF INDIVIDUALS CORPORATION
NRA-NETB NRFC
WINNINGS (RC, NRC, RA, NRA-ETB) (DC, RFC)
LOCAL SOURCES
PCSO or Lotto
Winnings LESS EXEMPT EXEMPT EXEMPT EXEMPT
THAN P10,000
Other Winnings 20% 25% BASIC 25%
FOREIGN
BASIC (RC ONLY) N/T BASIC (DC ONLY) N/T
SOURCES
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FRINGE BENEFIT TAX
FBT = MV / GUMR x FBTR
TAX BASE AND RATES
TAXPAYER
GUMR FBTR
CLASSIFICATION
RC, NRC, RA, NRA-ETB 65% 35%
NRA-NETB 75% 25%
MONETARY VALUE – GENERAL RULE
1. CASH
• MV = cash given / paid
• FBE = GUMV (MV + FBT)
• RENT (use only)
o Except for rent, MV = 50% or 1/2 of cash paid
o FBE for rent = cash given + FBT
2. IN KIND
• MV = purchase price / FMV / book value (whichever is the highest)
o FMV = zonal or market value (whichever is higher)
• FBE = book value + FBT
3. USE OF PROPERTY
• MV = 50% of depreciation
o Useful life:
→ 5 years: Personal property
→ 20 years: Real property
• FBE = FBT
OTHER BENEFITS
4. PURCHASE OF CAR IN INSTALLMENT
• MV = purchase price / 5
o 50% if use
o 100% if given
o Interest is not included in the MV
5. PURCHASE OF REAL PROPERTY IN INSTALLMENT
• MV = purchase price / 20
o 50% if use
o 100% if given
o Interest is not included in the MV
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6. FORGONE INTEREST ON LOANS GRANTED
• MV = principal x (12% - r) x t
o 12% is the standard interest rate
7. FOREIGN TRAVEL
• No documentary evidence = 100% of the cost
• With documentary evidence:
o First class ticket = 30% FB
o Business class / economy ticket = EXEMPT
o Lodging expense = EXEMPT
o Food, beverages, and local transportation = $300/day EXEMPT
→ Beyond $300 = TAXABLE
8. EDUCATIONAL ASSISTANCE
• Employee:
o If related to business or with obligation to remain in the employ of the employer
→ EXEMPT
→ Otherwise: TAXABLE
• Dependents:
o Provided under competitive scheme
→ NOT TAXABLE
9. USE OF AIRCRAFT, HELICOPTER, OR YACHT
• Aircraft or helicopter = NOT TAXABLE
• Yacht = MV (acquisition cost ÷ 20)
