LESSON 5 - the value of property acquired by way of these are taxable under Donor’s Taxation.

- the value of property acquired by way of these are taxable under Donor’s Taxation. However, incomes from such property, as well as, gift, bequest, devise, or
GROSS INCOME: REGULAR INCOME TAX descent of income from any property, in case of transfer of a divided interest, are included in gross income.
4. Compensation for injuries and sickness
- amounts received under Accident or Health Insurance or under Workmen’s Compensation Acts, as compensation for personal injuries plus the amount of
damages received whether by suit or agreement on account of such injuries or sickness.
● REGULAR INCOME TAX
5. Income exempt under treaty
⮚ applies to all other items of gross income that are not subjected to final tax or capital gains tax on certain passive income. - income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines.
6. Retirement Benefits, Pensions, Gratuities, etc.
⮚ Most of these items of gross income are derived in the regular conduct of business, trade, profession or employment.
For employers with retirement plans: Retirement benefit under RA 4917
● REQUISITES OF EXEMPTION:
● FEATURES OF THE REGULAR INCOME TAX
1. GENERAL COVERAGE
a. The employer maintains a reasonable private benefit plan.
2. NET INCOME TAX b. The retiring official or employee has been in the services of the same employer for at least ten (10) years.
3. ANNUAL TAX THAT IS PAID IN QUARTERLY ESTIMATED PAYMENTS
4. ADVANCED PAYMENT THROUGH CREDITABLE WITHHOLDING TAXES
c. The retiring employee is at least fifty (50) years of age at the time of retirement.

d. This is the first time availment of the exemption.

● TYPES OF REGULAR INCOME TAX ● Reasonable private benefit plan
A. PROGRESSIVE INCOME TAX o A reasonable private benefit plan is a pension, gratuity, stock bonus or profit-sharing plan maintained by the employer for the benefit of its
⮚ This is applicable to individuals, taxable estates and trusts. employees covered (plan members), wherein contributions are made by the employer, employees or both, for the purpose of distributing the
corpus (principal) or earnings thus accumulated to plan members; provided that in no time shall any part of the corpus or income of the fund
TAX RATES FOR YEAR 2018 TO 2022
be used for, or diverted to, any purpose other than the exclusive benefit of said plan members.
Taxable Income per year Income Tax Rate
P250,000 and below 0% ● For employers without retirement plans: Retirement benefit under RA 7641
Above P250,000 to P400,000 20% of the excess over P250,000 o Requisites of exemption:
Above P400,000 to P800,000 P30,000 + 25% of the excess over P400,000 a. Retiring employee is at least 60 years old
Above P800,000 to P2,000,000 P130,000 + 30% of the excess over P800,000
b. He must have serve the company for at least 5 years
Above P2,000,000 to P8,000,000 P490,000 + 32% of the excess over P2,000,000
*Private employees retiring between June 5, 2020 to December 31, 2020 are excluded in gross income (Bayanihan to Heal as One Act)
Above P8,000,000 P2,410,000 + 35% of the excess over P8,000,000
7. Separation or Termination

TAX RATES FOR YEAR 2023 ONWARDS ● REQUISITE OF EXEMPTION:

Taxable Income per year Income Tax Rate a. Due to sickness, death or other physical disability;
P250,000 and below 0%
Above P250,000 to P400,000 15% of the excess over P250,000
b. Any cause beyond the control of the employee or official (i.e.: redundancy and closure of business)
8. Retirement Gratuities, Social Security Benefits and Other similar benefits from foreign government agencies and other institutions,
Above P400,000 to P800,000 P22,500 + 20% of the excess over P400,000
- private or public, by resident or non-resident citizens or aliens who come to settle permanently in the Philippines
Above P800,000 to P2,000,000 P102,500 + 25% of the excess over P800,000
9. United States Veterans Administrations
Above P2,000,000 to P8,000,000 P402,500 + 30% of the excess over P2,000,000 - administered benefits under the laws of the United States received by any person residing in the Philippines
Above P8,000,000 P2,202,500 + 35% of the excess over P8,000,000 10. SSS benefits
- under RA 8282 received or enjoyed
B. CORPORATE INCOME TAX: 25% ON TAXABLE INCOME 11. GSIS benefits
⮚ This is applicable to corporations, partnership and joint venture. - under RA 8291 and including retirement gratuity received by government officials and employees
12. Investment Income in the Philippines in loans, stocks, bonds, or other domestic securities, or form interest on deposits in banks in the Philippines by:

TAXABLE INCOME means the pertinent items of gross income subject to regular tax less the deductions and/or exemptions, if any, authorized for such types of income under the a. Foreign governments
NIRC or other special laws. b. Financing institutions owned, controlled, or enjoying refinancing from foreign government
● GROSS INCOME
c. International or regional financial institutions established by foreign governments
13. Income of the government and its political subdivisions from
⮚ Gross income includes gains, profits, and income derived from whatever sources, whether legal or illegal not covered by either final taxation or capital gains taxation. a. any public utility or
b. exercise of essential government function
14. Prizes and Awards in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievements but only if
● EXCLUSIONS FROM GROSS INCOME
a. the recipient was selected without any action on his part to enter the contest or proceeding; and
1. Proceed of a Life Insurance policy b. the recipient is not required to render substantial future services as a condition to receiving the prize or award
- received, whether in lump sum or otherwise, by the heirs or beneficiary upon the death of the insured is tax exempt. However, if the proceed are retained by 15. Prizes and Awards in Sports Competitions granted to athletes:
the insurer under an agreement to pay interest, the interest is included in gross income. a. in local or international competitions and tournaments
2. Amount received by the insured as a return of premium b. whether held in the Philippines or abroad; and
- under a life insurance, endowment, or annuity contracts paid during the term or at the maturity of the term mentioned in the contract or upon surrender of c. sanctioned by their national sports associations
the contract. 16. 13th Month Pay and Other Benefits
3. Gifts, Bequests, and Devises or Descent - provided not to exceed the P90,000 ceiling (non-adjustable to inflation).
17. Contributions for GSIS, SSS, PhilHealth, HDMF and Union Dues

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 - these are deducted from the relevant income to which they relate; for example, they are netted with the compensation income of employees K. PARTNER’S DISTRIBUTABLE SHARE IN THE NET INCOME OF THE GENERAL PROFESSIONAL PARTNERSHIP AND EXEMPT JOINT
18. Gains from Sale of bonds, debentures or other certificate of indebtedness with a maturity of more than 5 years. VENTURE
19. Gains realized from redemption of shares
- in mutual fund by the investor.
● OTHER SOURCES OF GROSS INCOME
20. Certain benefits of minimum wage earners (HHON)
A. FARMING TAXATION OF FARMING GROSS INCOME REQUIRES CLASSIFICATION OF THE FOLLOWING:
21. Income exempt under special laws or subject to special tax rules
a. Livestock and farm products raised and sold – the selling price of the livestock or farm products is considered gross income.
a. Income of BMBE
b. Livestock and farm purchased and sold – only the accounting gross income (sales less cost of sales) is included in gross income
b. Income on sale of gold to the BSP
TAXATION RULES:
c. Income of BOI-registered entities under ITH
1. Taxpayer may follow accrual or cash basis in accounting for inventories.
2. Expenses in raising the livestock and farm products are deductions from the computed gross income.
Notes:
3. The proceeds of crop insurance or livestock insurance constitute gross income because it represents recovery of lost profits rather than lost capital.
A. Exclusion is different with deductions. When an item of income is exempted under the above paragraph, or under special laws, it is deducted from gross income if it was initially
B. TAX BENEFITS
included therein. It is not shown as a deduction from gross income rather it is “excluded” in gross income amounts.
B. Interest income from government securities are already excluded from the list of exemptions ✔ When a taxpayer gains an advantage by an income tax deduction claimed in the past but were subsequently recovered, the tax benefit should be included in
income in the year recovered as item of gross income.
✔ Examples:
● SOURCES OF GROSS INCOME 1. BAD DEBT RECOVERY
A. COMPENSATION FOR SERVICES in whatever form paid, including but not limited to fees, salaries, wages, commissions, and similar items GENERAL RULE: The recovery of bad debts previously written off constitute a receipt of taxable income
✔ if received in promissory notes, the taxable portion at the time of receipt is the fair value of the note (i.e.: its discounted value); The interest portion will be 2. TAX REFUND
GENERAL RULE: Refund of taxes that entered the determination of taxable income should be reverted back to gross income. Hence, refunds of the
recognized as income over the related period
following taxes that will not enter the determination of taxable income will not be included in gross income:
✔ Fringe benefits are not direct item of compensation. Please refer to your handouts on Fringe Benefits Taxation.
a. Estate or donor’s tax
B. TRADE, BUSINESS OR EXERCISE OF A PROFESSION, except self-employed and or professionals opting to the 8% commuted tax under TRAIN law
C. GAINS DERIVED FROM DEALINGS IN PROPERTY b. Philippine income tax, except the fringe benefit tax
D. INTERESTS – these refers to interest other than those subject to final taxes, except: c. Stock transaction tax
a. Interest income under the land reform earned by the landowner to which the tenant-purchaser pays him
b. Imputed interest d. Special assessment
E. RENTS e. Income tax paid or incurred to a foreign country, if the taxpayer claimed a credit for such tax in the year it was paid or incurred.
Special considerations:
3. UNAMORTIZED COST OF PROPERTY ABANDONED AND WRITTEN OFF BUT WAS SUBSEQUENTLY RE-ENTERED INTO USE
a. Obligations of the lessor that are assumed by the lessee is additional rental consideration.
GENERAL RULE: The cost previously expensed should be reverted back into gross income in the year extraction operation is resumed.
b. Advance rentals:
Requisites in the taxability of expense recoveries:
i. If unrestricted, the entire amount is income at the time of receipt.
ii. If it constitutes a loan – not rent income. a. The expense is claimed as deduction against gross income in previous year/s.
iii. As security deposit to guarantee payment or rent – income only when the event or condition which makes it the property of the lessor occurs b. The expense resulted in tax benefit to the taxpayer
(i.e.: when there is default) C. CANCELLATION OF INDEBTEDNESS
iv. If it is to be applied at the termination of the lease, it is income at the time of receipt a. IN CONSIDERATION OF SERVICE – treated as compensation income
v. Improvements made by the lessee on the property – to be recognized as income by the lessor in two ways: b. WITH NO CONSIDERATION – not an income but a gift taxable under Donor’s Taxation
1. OUTRIGHT METHOD – the fair value of the property that will remain and be turn-over to the lessor upon termination of the c. BY A CORPORATION IN FAVOR OF A SHAREHOLDER - treated as declaration of dividend subject to final tax
lease (the real book value of the property at termination, i.e.: not the lessee’s book value) is recognized as income at the point of d. AS CAPITAL TRANSACTION SUCH AS FORFEITING THE RIGHT TO RECEIVE DIVIDEND IN EXCHANGE OF THE DEBT – treated as
completion of the improvement NOT the fair market value of the improvement upon completion. (Note: Although the latter is dividends and is subject to dividend taxation rules
the wordings of the law, apparently, the whole fair value is, by common sense, not income.) D. DAMAGE RECOVERY
2. SPREAD-OUT METHOD – recognize the book value of the property at the termination of the lease as income over the period of a. COMPENSATORY DAMAGES - this constitute return of capital and hence, not taxable. For example: moral damages from personal action such as libel,
the related lease slander; and breach of promise to marry.
F. ROYALTIES b. RECOVERED DAMAGES – this constitute taxable income since they are recoveries of lost profit. For example: damages recovered from patent
G. DIVIDENDS infringement suit
✔ Dividends are subject to regular income tax when it is declared by foreign corporations.

✔ Dividends can either be:

i. CASH DIVIDEND
ii. PROPERTY DIVIDEND – when taxable, taxable at the fair market value of the property received as dividend. Note property dividend includes
stock of another corporation declared by the distributing corporation.
iii. STOCK DIVIDEND – generally not taxable except when the declaration confers to the recipient a different interest or right after the
declaration. When taxable, the measure of taxable amount is the fair market value of the stock dividend received.
iv. LIQUIDATING DIVIDENDS - This is considered an exchange or sale of property. Gain or loss is fully taxable or deductible.
✔ Dividends received from resident corporations are subject to the Dominance Test.
H. ANNUITIES
I. PRIZES AND WINNINGS
J. PENSIONS; AND

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 6. Actual Medical Assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine
consultations – not exceeding P10,000 per annum
7. Laundry allowance – not exceeding P300 per month
8. Employee achievement award, e.g. for length of service or safety achievement, which must be in the form of tangible property other than cash or gift certificates, 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.
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum (i.e. Christmas gift and anniversary gifts)
10. Daily meal allowance for overtime work and night or graveyard shift not exceeding 25% of the basic minimum wage on a per region basis (i.e. overtime meal)
11. Productivity incentive bonus and benefits under CBA amounting to P10,000

● EXEMPT BENEFITS OF MINIMUM WAGE EARNERS

1. BASIC MINIMUM WAGE
2. OVERTIME PAY
3. HOLIDAY PAY
4. NIGHT SHIFT DIFFERENTIAL PAY
5. HAZARD PAY

● REGULAR COMPENSATION
1. BASIC PAY
2. FIXED ALLOWANCES (COLA, fixed housing, RATA, etc.)

● EXAMPLES OF SUPPLEMENTAL COMPENSATION

1. OVERTIME PAY
2. FEES, INCLUDING DIRECTOR’S FEES (for employed directors)
3. COMMISSION
4. EMOLUMENTS AND HONORARIA
5. HAZARD PAY
6. TAXABLE RETIREMENT/SEPARATION PAY
7. HOLIDAY PAY
8. PROFIT SHARING AND TAXABLE BONUSES
LESSON 6
9. NIGHT SHIFT DIFFERENTIAL
COMPENSATION INCOME: REGULAR INCOME TAX
10. VALUE OF LIVING QUARTERS/MEALS AND STOCK OPTIONS

● NON-COMPENSATION INCOME ITEMS

FEATURES OF EMPLOYER-EMPLOYEE RELATIONSHIP
o The following are items may be received out of employment but are not taxable:
1. SELECTION AND ENGAGEMENT OF EMPLOYEES
1. Remuneration for agricultural labor paid entirely in production of the farm
2. PAYMENT OF WAGES
2. Remuneration for domestic services
3. POWER OF DISMISSAL
3. Damages paid by the employer to employees
4. POWER OF CONTROL
4. Remunerations received as incidents of employment
o The following non-compensation income items are taxable as other income:
● COMPOSITION OF COMPENSATION INCOME
1. Tips from customers
1. REGULAR COMPENSATION INCOME – fixed benefits every payday
2. Remuneration for casual labor not in the course of the employer’s trade or business
2. SUPPLEMENTAL COMPENSATION INCOME
a. Variable performance-based pay
● THE SUBSTITUTED FILING OF TAX RETURNS
b. Excess 13th month pay and other benefits above P90,000
Criteria for the substituted filing system:
1. Employee receives purely compensation income (regardless of amount) during the taxable year
● NON-TAXABLE COMPENSATION
2. Employee receives income from a single employer in the Philippines during the taxable year
1. Exempt retirement benefits
3. The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer
2. Exempt separation benefits
4. If married, the employee’s spouse also complies with all three aforementioned conditions, or otherwise receives no income;
3. De minimis benefits – within limits
5. The employer files BIR Form 1604CF (Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes); and
4. Mandatory contributions to SSS, PhilHealth, HDMF and union dues
6. Employee has BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld) or Certificate of Final Tax Withheld at Source (BIR Form 2306) issued by his
5. Exempt benefits of minimum wage earners
employer.
6. Fringe benefits subject to fringe benefits tax
7. Employee benefits exempt under treaty or international agreements
8. Employee benefits required by the nature of, or necessary to, the trade, business or conduct of profession or business of the employer ● WITHHOLDING TAX TABLE FOR COMPENSATION INCOME
9. Employee benefits for the convenience or advantage of the employer

● DE MINIMIS BENEFITS
1. Monetized unused vacation leave credits of private employees – not exceeding 10 days during the year
2. Monetized unused vacation and sick leave credits paid to government officials and employees
3. Medical cash allowance to dependents of employees – not exceeding P1,500 per employee per semester, or P250 per month
4. Rice subsidy – P2,000 or 1 sack of 50-kg rice per month amounting to not more than P2,000
5. Uniform and clothing allowance – not exceeding P6,000 per annum

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 4. Fixed or variable transportation, representation and other allowance given an employee. Advance or reimbursement-type allowance is exempt.
5. Performance bonus, relay station allowance, and danger exposure allowance.
6. Personnel economic relief allowance (PERA) granted to government employees.
7. Salaries and allowances during leaves of absences (vacation and sick leave).
8. Fees received by an employee (including director’s fees) for the performance of a service for the employer.
9. Dismissal payments (this is different with separation pay).
✔ Exempt Fringe Benefits to Rank and File Employees:
1. Meals, living quarters, de minimis entertainment, medical services, courtesy discounts on purchases, sack or rice, etc. given for the convenience of the
employer or for promoting the contentment, health, efficiency or goodwill of the employee.
2. Reimbursement-type traveling, representation and other allowance. Excess advances retainable by the employee is taxable
3. Retirement and separation benefits exempt under the law

B. GIVEN TO MANAGERIAL OR SUPERVISORY EMPLOYEES

1. HOUSING BENEFITS
Exception:
a. Housing benefits provided to military officials of the Armed Forces of the Philippines consisting of officials of the Philippine Army, Philippine
Navy and Philippine Air Force
b. Housing unit which is within or adjacent to the premises of a business or factory. Adjacent means within 50 meters of the perimeter of the
business premises of the employer.
c. Temporary housing for an employee who stays in a housing unit for three months or less.
2. INTEREST ON LOANS at less than market rate or at 0% rate. The differential interest from 12% (as fixed by regulation) shall be the taxable fringe benefit.
3. MEMBERSHIP FEES, DUES, and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations – these
are taxable employee benefits of the employee in full.
4. EXPENSE FOR FOREIGN BUSINESS TRAVEL
a. First class airplane ticket – 30% of the cost of ticket
b. Lodging cost in a hotel or similar establishment in excess of US$300 per day.
c. Traveling expense paid by the employer for the travel of the family members of the employee
In connection with this, there must be a documentary evidence to support that the foreign travel was for business meetings or convention; otherwise the
entire cost of the ticket including hotel accommodation and other expenses incidental thereto shouldered by the employer shall be treated as taxable
fringe benefits.
i. BUSINESS MEETINGS – to be supported by official communication from business associates abroad indicating the purpose of
the meeting
ii. BUSINESS CONVENTIONS – to be supported by invitations or communications from the host organization or entity abroad
Reasonable foreign travel expenses are exempt under fringe benefit tax; hence, inland travel expenses such as for food, beverages and local
transportation; cost of economy and business class airplane ticket; and those within the limits as set out in 4a and b above.
5. HOUSEHOLD PERSONNEL
If shouldered by the employer the following personal expenses shall be taxable fringe benefit:
LESSON 7 a. Salaries of household help
FRINGE BENEFIT TAX b. Personal driver of the employee (if not for the convenience of the employer such as doctor on call)
● FRINGE BENEFIT c. Similar expenses as payment for homeowners’ association duties, garbage dues, etc.
o means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees). 6. EXPENSE ACCOUNT
General Rule: expenses of the employees that are paid for the employer are taxable fringe benefit:
● NATURE OF THE FRINGE BENEFITS TAX a. expenses of a reimbursement type (direct payment by the employer is not necessary since subsequent reimbursement for the expense of the employee,
1. FINAL TAX makes him the indirect payer of the expense)
2. IMPOSED UPON THE FRINGE BENEFITS OF MANAGERIAL OR SUPERVISORY EMPLOYEE b. personal expenses (groceries etc.) even if receipted in the name of the employer
3. WITHHELD AT SOURCE; HENCE, PAID BY EMPLOYERS Exception:
4. GROSSED-UP TAX i. Regular fixed entertainment and representation allowance – this is treated as additional compensation to the employee
5. QUARTERLY TAX ii. Expenses connected with the trade of the employer and is duly receipted in the name of the employer - these are expenses of the employer
7. HOLIDAY AND VACATION EXPENSE
● EXEMPT FRINGE BENEFITS If incurred by the employees and shouldered by the employer, this constitute taxable fringe benefit.
1. MANDATORY FRINGE BENEFITS 8. LIFE AND HEALTH INSURANCE AND OTHER NON-LIFE INSURANCE PREMIUM or similar amounts in excess of what the law allows
2. DE MINIMIS BENEFITS Exception:
3. FRINGE BENEFITS OF RANK AND FILE EMPLOYEES a. contributions of the employer for the benefit of the employee pursuant to the provision of existing laws, i.e. SSS, GSIS, PhilHealth; etc.
4. THOSE PROVIDED UNDER CONVENIENCE OF THE EMPLOYER RULE b. the cost of premium by the employer for the group insurance of its employees
5. THOSE THAT ARE NECESSARY TO THE TRADE OR BUSINESS OF THE EMPLOYER 9. VEHICLE OF ANY KIND
The same rules in housing benefits apply herein.
● CLASSIFICATION OF FRINGE BENEFITS Exception:
A. GIVEN TO RANK AND FILE EMPLOYEES a. AIRCRAFT OR HELICOPTER OWNED AND MAINTAINED BY THE EMPLOYER – are treated as for business purpose only and hence, not
✔ Taxable Fringe Benefits to Rank and File Employees: subject to fringe benefit tax. (Note: it is very impractical to provide managerial or supervisory personnel with aircraft or helicopter for personal use due
1. Meals furnished or subsidized by employer (except OT meal which is subject a de minimis benefit) to the cost of maintaining them.)
2. Rental value of quarters furnished an employee. b. YACHT, whether owned or leased by the employer is considered not for business purpose (by nature for pleasure), and hence taxable fringe benefit.
3. Premium on life insurance of an employee where the insured employee is directly or indirectly the beneficiary – in essence a form of additional income for the Note: Yacht for purposes of determining the depreciation value is assumed to have a life of 20 years.
employee. 10. EDUCATIONAL ASSISTANCE GRANTED BY EMPLOYER TO

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 a. THE EMPLOYEE – generally, taxable as a fringe benefit 3. Except in cases of distribution in liquidation, corporations under direct or indirect common control by or for the same individual
Exception: 4. Grantor and fiduciary of any trust
i. the education or study involved is directly connected with the employer’s trade, business or profession; and 5. Fiduciaries of trusts with the same grantor
ii. there is written contract that the employee is under an obligation to remain in the employ of the employer for a period of time mutually 6. Fiduciary of a trust and beneficiary of such trust
agreed upon
b. THE DEPENDENTS OF EMPLOYEES – generally, taxable as a fringe benefit ● CREDITABLE WITHHOLDING TAXES
Exception: When the assistance is granted through competitive scheme under a scholarship program of the company ⮚ As a rule, remember the following for CWTs:
1. SALES OF GOODS – 1%
● BENEFITS NOT SUBJECT TO FRINGE BENEFIT TAX (SEC. 33 (C), NIRC): 2. SALES OF SERVICES – 2%, except for:
1. Fringe benefits which are authorized and exempt from tax under special laws a. RENTALS – 5%
2. Benefits given to rank and file employee, whether given on a Collective Bargaining Agreement or not b. PROFESSIONAL SERVICES
3. Benefits given as required by the nature of, or necessary to the trade, business or profession of the employer ● INDIVIDUALS
4. Benefits given for the convenience or advantage of the employer o GROSS RECEIPTS ≤ P3M – 5%
5. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; and o GROSS RECEIPTS > P3M – 10%
6. De minimis benefits promulgated by the Bureau of Internal Revenue ● GENERAL PROFESSIONAL PARTNERSHIP – 0%
● CORPORATION
o GROSS INCOME ≤ P720,000/year – 10%
● TAX RATES FOR FRINGE BENEFITS o GROSS INCOME > P720,000/year – 15%
Type of employee Tax Rate Gross-up rate Note: Remember that the final withholding tax rates applies if the income is subject to final income tax.
Resident or citizen 35% 65%
NRA-NETB 25% 75% ● SPECIAL CONSIDERATIONS WITH DEDUCTIONs
1. EFFECTS OF VAT ON DEDUCTIONS
● VALUATION OF TAXABLE FRINGE BENEFITS o VAT paid by non-VAT taxpayers are part of costs and expenses while VAT paid by VAT taxpayers are not.
1. If granted in money or is directly paid by the employer, the value is the amount of granted or paid for 2. EFFECTS OF ACCOUNTING METHODS
2. If furnished by the taxpayer in property and ownership is transferred to the employee, the value of the fringe benefit shall be the fair market value of the property transferred. o Accrued expenses would be deductible for accrual taxpayers but not for cash basis taxpayers. Regardless of the method used, prepayments are non-deductible.
3. If furnished by the taxpayer in property without transfer of ownership, the value of the fringe benefit is equal to the depreciation value of the property.
✔ For this purpose, personal property is assumed a depreciable life of 5 years (20%) while real property shall have a presumptive life of 20 years (5%) 3. EFFECT OF EXTENT OF TAXATION
✔ Furthermore, since the supervisory or managerial employee cannot reasonably be expected to use the property all the time, it is assumed that usage is 50% for business use and 50% for personal
o Taxpayers taxable globally could deduct global expenses while those taxable only in the Philippines could deduct Philippine expenses.
use.

● MODES OF CLAIMING DEDUCTION

1. ITEMIZED DEDUCTIONS
● DEDUCTIBLE AMOUNT OF FRINGE BENEFITS
2. OPTIONAL STANDARD DEDUCTIONS
GENERAL RULE: Deductible amount =taxable fringe benefits + fringe benefit tax
a. 40% of gross sales or receipts for individual taxpayers
EXCEPTION RULE: Deductible amount = fringe benefit tax paid (If fringe benefit tax is based on the depreciation value, zonal value or assessed value)
b. 40% of gross income for corporations

● CLASSIFICATION OF ITEMIZED DEDUCTIONS

● FILING OF RETURN
1. Cost of sales or cost of services
o The fringe benefit tax withheld by the employer shall be remitted to BIR within 10 days after the end of each calendar quarter; however, for EFPS, 5 days later.
2. Regular allowable itemized deductions
3. Special allowable itemized deductions
4. Net operating loss carry-over
LESSON 9
DEDUCTIONS FROM GROSS INCOME
● ALLOCATION OF COMMON DEDUCTIONS
1. Common expenses between a taxable and non-taxable operations or between operations subject to regular tax and an operation subject to special tax regime must be
allocated based on gross income.
● DEDUCTIONS FROM GROSS INCOME
2. Expenses of non-traceable income
● Pertains to expenses of doing business or expenses of exercising a profession
3. Power of CIR to assign or allocate expenses
● Pertain to period expenditures rather than capital expenditures.
● Do not include personal living expenses. The TRAIN law provides for P250,000 annual income tax exemption to individual taxpayers in lieu of personal, living expenses of
● EXAMPLES OF NON-DEDUCTIBLE EXPENSES
individual taxpayers.
1. personal, living, or family expenses
2. any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any property or estate (this rule don’t apply to
● PRINCIPLES OF DEDUCTIONS
intangible drilling and development costs incurred in petroleum operations)
1. LOAN
3. any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made; or
⮚ The deductions are legal, ordinary, actual and necessary expenses of business or profession.
4. premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the
2. MATCHING PRINCIPLE
taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy
⮚ Only expenses of generating income subject to regular tax is deductible.
5. losses from sales or exchanges of property directly or indirectly between related parties
3. RELATED PARTY RULE
⮚ All incomes between related parties are taxable but losses, interest and bad debts are non-deductible.
4. WITHHOLDING RULE
⮚ No withholding, no deduction. Withholding taxes includes final taxes, withholding tax on compensation and expanded withholding taxes.
LESSON 10
DEDUCTIONS FROM GROSS INCOME: ITEMIZED DEDUCTIONS
● RELATED PARTIES
1. Members of a family
● ITEMS OF DEDUCTION
2. Except in cases of distribution in liquidation, and the direct or indirect controlling individual
A. INTEREST

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 ⮚ Requisites: ⮚ REFUND OF TAXES: THE REFUND OF A DEDUCTIBLE TAX IS TAXABLE IF IT CREATED A TAX BENEFIT IN THE YEAR IT IS DEDUCTED
1. there should be a valid indebtedness
2. there must be legal liability to pay interest C. LOSSES
3. the indebtedness must have been incurred in connection with the taxpayer’s trade, profession or business 1. ORDINARY LOSS
4. for interest incurred abroad by taxpayers who are subject to income tax only on income earned within the Philippines, the indebtedness must have been REQUISITES:
actually incurred to provide funds for use in connection with the conduct or operation of trade or business in the Philippines a. loss must be actually sustained during the taxable year
5. the deductible amount of interest shall be reduced by an amount equal to 33% of interest income. b. not compensated for by insurance or other forms of indemnity
⮚ Non-deductible interest: c. it must be sustained in a close and completed transaction
1. Interest paid in advance through discount on indebtedness incurred by an individual taxpayer reporting income under the cash basis. If the discounted liability d. the loss must be that of the taxpayer
is payable in installment, the amount of interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as e. the loss must be reported to the BIR within 45 days from the date of loss or discovery
deduction in such taxable year. f. not claimed as a deduction in the estate tax return for individual income taxpayer only*
Note: If the borrower is a corporation, pre-deducted interest could be claimed as deduction in the year of granting of the loan. Note: *In estate taxation, losses incurred during the settlement of the estate such as theft of property or results of calamity may be claimed as deduction in
2. Interest payments with related parties determining the net taxable estate.
3. If indebtedness is incurred to finance petroleum operations DEDUCTIBLE LOSSES:
⮚ Capitalization of interest a. loss incurred in trade, profession or business
At the option of the taxpayer, interest incurred to acquire property used in trade, business or profession may be allowed as a capital expenditure b. loss due to fire, storm, shipwreck or other casualty of property connected with trade, profession or business
Note: the capitalization of borrowing cost under PAS 23 is not followed for taxation purposes. The interest expense up to repayment of the debt may be capitalized. c. loss due to theft, robbery, or embezzlement if the property is connected with trade, profession or business
⮚ Special Cases: MEASURE OF THE LOSS:
1. Interest on preferred stock – these are dividends; hence, not deductible on interest 1. TOTAL LOSS – book value of the property
2. Interest on scrip dividends – since there is evidence of indebtedness, these are deductible interest 2. PARTIAL LOSS – replacement cost of the damaged portion of the asset or the book value thereof at the time of loss, whichever is lower.
B. TAXES Note: The asset must be written-off before a loss can be claimed as a deduction.
⮚ Generally, taxes paid or accrued within the taxable year in connection with the taxpayer’s trade or business or exercise of a profession, are deductible from gross ABANDONMENT LOSSES
income. The deductible tax includes local taxes and some national taxes; however, the deductible tax component is the proper tax only. Interest on delinquent taxes is 1. PETROLEUM OPERATION – all accumulated exploration and development expenditures pertaining to partially or wholly abandoned of contract
deductible from gross income but as “interest expense” not taxes. area shall be allowed as a deduction, provided notice of abandonment shall be filed with the Commissioner of Internal Revenue
Note: no deduction is allowed for surcharges or penalties on delinquent taxes. Interest in tax delinquency is deductible as interest expense. 2. PRODUCING WELLS – the unamortized costs thereof, as well as the undepreciated costs of equipment directly used therein, shall be allowed as a
⮚ Requisites: deduction in the year such well, equipment or facility is abandoned by the contractor
B. must be paid or accrued within the taxable year Note: if the abandoned well is re-entered and production is resumed, or if such equipment is restored into use, the same cost claimed as deduction shall be
C. must be incurred in connection with the taxpayer’s trade, professional or business reverted back into gross income subject to the income tax benefit rule
⮚ Non-deductible Taxes: SPECIAL CASES:
1. Philippine income tax, except fringe benefit tax 1. If there is a pending proceeding in which the loss can be recovered, deduction for the loss is delayed until the recovery becomes impossible. Pending the
2. Estate or donor’s tax resolution of the proceeding, the transaction is not yet complete; hence, the loss is not yet sustained.
3. Special assessment 2. Loss of income – cannot be deducted unless the related income has already been included in gross income (For example: worthless receivable is not
4. Income tax imposed by a foreign country if the taxpayer opted to claim them as deduction rather than as tax credit deductible under cash basis of reporting income).
5. Stock transaction tax 3. Losses on sale or exchanges of property with related parties – not deductible.
6. Value-added tax on business NET OPERATING LOSS CARRY OVER (NOLCO)
o Any excess of allowable deductions over gross income of a business in a taxable year immediately preceding the current taxable year shall be carried over
⮚ Tax Credit for Foreign Income Tax Paid as a deduction from gross income for the next consecutive taxable years immediately following the year of such loss provided there is no substantial
Can be claimed only by those taxable on world income such as resident citizen and domestic corporations change in the ownership of the business.
⮚ Taxpayers have the option to claim the foreign income tax either as:
1. tax credit or 2. CAPITAL LOSS
2. deduction from income o Capital losses are deductible only to the extent of capital gains. But a net capital loss carry-over can be deducted in the following year it arose for non-
corporate taxpayers. (Please check handouts in Dealings in Properties.)
⮚ Limit of Tax Credit: D. BAD DEBTS
a. 1st Limitation: Per Country Evaluation - whichever is lower of the actual amount of foreign tax paid and the amount which reflects the ratio which the gross REQUISITES:
income from the foreign country bears with the total world taxable income to the Philippine income tax 1. There must be valid and subsisting debt due to the taxpayer.
For instance, the amount creditable or deductible for tax paid per foreign country is: 2. it must be connected with the taxpayer’s trade, profession or business
3. the debt is actually ascertained to be worthless
4. it must be charged-off within the taxable years
RECOVERY OF BAD DEBTS
a. Taxpayers under cash basis – Taxable but subject to Income Tax Benefit Rule
b. 2nd Limitation: Total Foreign Country Evaluation: whichever is lower of the aggregate lower values of the per-country evaluation and the amount which b. Taxpayers under accrual basis – Always taxable
reflects the ratio of the taxable income from all foreign countries bears with the total world taxable income to the Philippine tax. NON-DEDUCTIBLE BAD DEBTS:
1. Those incurred under cash basis of reporting gross income
2. Those sustained in a transaction entered into by related parties
3. For taxpayers not taxable on world income, those that represents loss of foreign income.
⮚ Rules on Income Taxes Paid: ⮚ The rules on bad debts may be applicable to debt securities becoming worthless for dealers in securities only such as domestic banks and trusts companies whose
major part of business are dealing with securities. For other taxpayers where such security is a capital asset, the rules on capital loss apply and are deductible subject to
limit.
SPECIAL CASES WITH BAD DEBTS:
o Receivables assigned without recourse – only the difference of amount paid and amount recovered is allowed as deduction.

E. DEPRECIATION
REQUISITES:

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 1. the property must be used in trade, profession or business 1. the contribution or gift must be actually paid
2. the property must have a limited useful life 2. the contribution of property must be measured based on acquisition cost
3. the provision must be charged off during the taxable year 3. it must be given to an organization specified by law
4. the provision must be reasonable 4. net income of the specified institution must not inure to the benefit of any private stockholder or individual
SPECIAL OPTION WITH DEPRECIATION: 5. the person making the contribution must be engaged in trade, business or profession
1. For a proprietary or private educational institution only Note: if the taxpayer is not engaged in trade, business or profession, the rules on Donor’s taxation applies. Similar gifts are usually exempt under donor’s taxation
2. May either choose to: provided that not more than 30% of the donation is used for administrative purposes by such done non-profit entity.
a. charged off as capital outlays of depreciable asset in the year of acquisition; or CLASSIFICATION OF CONTRIBUTIONS
b. deduct allowance for depreciation 1. FULLY DEDUCTIBLE CONTRIBUTIONS
BASIS OF DEPRECIATION - The fair market value at the time of acquisition a. Donation to the government or political subdivisions including fully owned government and controlled corporations to be used exclusively in
a. The taxpayer and the Commissioner of Internal Revenue shall agree in writing about the useful life and rate of depreciation. Such agreement shall be binding undertaking priority activities in:
upon the taxpayer and the National Government in the absence of circumstances not taken into consideration during the adoption of the agreement. i. Education
b. Any change in the agreed rate and useful life shall operate prospectively. ii. Health
c. In default of such agreement, the adoption of the taxpayer of useful life and depreciation rate for depreciable assets without the objection of the iii. Youth and sport development
Commissioner or his duly authorized representative shall be considered binding. iv. Human settlements
METHODS OF DEPRECIATION v. Culture and sports
1. Straight line vi. Economic developments
2. Declining balance Provided, donation to the government that is not in accordance with priority activities are subject to limit.
3. Sum of the years b. Donation to foreign institutions or international organizations in compliance with agreement or treaties.
4. Other methods which may be prescribed by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue c. Donations to accredited domestic non-government organizations. These include organizations exclusively for:
PETROLEUM OPERATION: i. Scientific
o The taxpayer may choose either declining-balance method or straight-line method at the option of the contractor. ii. Research
o Useful life of depreciable asset: iii. Educational
▪ used in or related to the production of petroleum – 10 years or shorter as may be permitted by the Commissioner of Internal Revenue iv. character building
▪ not used in or not related to the production of petroleum – 5 years under straight line method v. youth and sports development
MINING OPERATIONS: vi. Health
o For all properties used in mining operations, other than petroleum operation: vii. Social welfare
▪ 10 year useful life or less – At normal rate of depreciation viii. Cultural
▪ More than 10 years useful life – depreciated over any number of years between 5 and the expected life. Provided the taxpayer notifies the ix. Charitable
CIR at the beginning of the deprecation period of the rate to be used. x. Any combination of the listed purposes
Requisites:
F. DEPLETION (COST DEPLETION) – available only for oil and gas wells and mines. a. The donation must be utilized by the donee institution not later than the 15th day of the third month following the close of the taxable year
⮚ EXPLORATION EXPENDITURE – expenditures paid or incurred in ascertaining the existence, location and extent, or quality of any deposit or ore or other b. the administrative expense must not exceed 30% of the total expenses
minerals before the beginning of the development stage of the mine or deposit. c. Upon dissolution, assets must be distributed to another non-profit domestic corporation of to the Government
⮚ DEVELOPMENT EXPENDITURE – paid or incurred during the development stage of the mine. The development stage begins when ore or other minerals are ▪ If these conditions are not complied with, the donation is subject to limit
shown to exist in commercial quality and quantity and end upon commencement of actual commercial extraction. 2. CONTRIBUTIONS SUBJECT TO LIMIT
METHOD TO USE: COST-DEPLETION METHOD a. Donations to the Government of the Philippines or political subdivisions exclusively for public purposes (nonpriority activities)
⮚ Depletion should be provided only up to the extent of capital investment in the mine only. b. Donations to non-government organizations or to domestic corporations organized exclusively for the following purposes:
i. Religious
ii. Charitable
iii. Scientific
iv. Youth and sports development
Oil and Gas Wells or Mines: Treatment of Intangible Exploration and Development Drilling Costs v. Cultural
⮚ Provided that production in commercial quantities has commenced, if intangible development drilling cost are incurred for: vi. Educational
i. Non-producing wells and or mines – deductible in the year incurred vii. Rehabilitation of veterans
ii. Producing wells and or mines – at the option of the taxpayer, deduction in full in the year paid or incurred, or capitalized and amortized viii. Social welfare
Note: tangible development costs are capitalized and are subject to depreciation Limit of deduction:
⮚ If intangible exploration, drilling and development expenses are claimed as deductions, they should not be added to the adjusted cost basis of the mining o Based on the taxable income derived from business or profession prior to the deduction of contributions (either fully deductible or subject to
property for purposes of computing the cost depletion. limit)
Irrevocable Alternative Deduction: Applicable to Mining Operation only ▪ 10% for Individual
⮚ The taxpayer may, at his option, deduct exploration and development expenditures accumulated as cost or adjusted basis for cost depletion as of date of ▪ 5% for Corporations
prospecting, as well as exploration and development expenditures paid or incurred during the taxable year. Deductible Contribution subject to limit
⮚ Limit: the amount of deductible exploration and development cost shall not exceed 25% of taxable income, without the benefit of any tax incentive under o The deductible contribution subject to limit shall be whichever is lower of the actual contribution with the limit as set forth herein.
existing laws. H. CONTRIBUTION TO PENSION TRUST
⮚ Once elected, the scheme shall be binding and irrevocable in succeeding taxable years. B. CURRENT SERVICE COST – actually computed value of services rendered by a plan employee during the year
Deductibility of Depreciation or Depletion on Mining Properties: C. PAST SERVICE COST – value of services rendered by employees in the past that partially satisfy vesting conditions
⮚ Taxpayers who are taxable on: Rules for Pension Expense:
1. Payments to the trust to cover pension liability accruing during the year (current service cost) are fully deductible expense for the taxable year.
2. Payment to the trust in excess of the current period costs is attributed to past service cost up to the balance of unfunded past service cost. Funding of past
service cost is amortized over a period of 10 years starting from the year in which the contribution was made.
Actuarially, costs that accrue during the current year include the value of services rendered currently (current service cost and interest cost).
Note: Deductions claimed for non-vesting employees should be reversed to gross income.
G. CHARITABLE AND OTHER CONTRIBUTIONS
I. RESEARCH AND DEVELOPMENT COST
REQUISITES:
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 REQUISITES: ● Cost of services –covers all direct costs and expenses necessary to provide the service required by customers such as:
1. It must be paid or incurred during the taxable year a. Salaries and employee benefits of personnel, consultants and specialists directly rendering the service
2. it must be connected with the trade, profession or business of the taxpayer b. Cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used and cost of supplies
3. it is not chargeable to capital accounts (capitalizable expenditure) ● The cost of services of banks includes interest expense.
Amortization of Capitalizable Research and Development Costs that are not chargeable to a property of a kind that is subject to depreciation or depletion: 2. ORDINARY ALLOWABLE ITEMIZED DEDUCTIONS
1. The taxpayer should treat the expenditure as a deferred charge 3. SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS
2. amortized over a period of not less than 60 months starting from the month in which the taxpayer first derived benefits from such deferred expense 4. NET OPERATING LOSS CARRY OVER
Non-deductible research and development expenditures:
1. expenditure for the acquisition of the improvement of land (in connection with research projects) ● BIR FORM 1701 DEDUCTION CLASSIFICATIONS
2. any expenditure for the improvement of property to be used in connection with research and development of a kind which is subject to depreciation and 1. Amortizations
depletion; and (these items are capitalized then charged off to depreciation) 2. Bad debts
3. any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral, including oil 3. Charitable and other contributions
and gas. (exploration costs are non-deductible, only development costs) 4. Depletion
J. EXPENSES, IN GENERAL 5. Depreciation
REQUISITES: 6. Entertainment, amusement and recreation
1. it must be ordinary and necessary 7. Fringe benefits
2. it must be paid or incurred during the taxable year 8. Interest
3. it must be directly attributable to the development, operation, management and or conduct of the trade, profession or business 9. Losses
4. it must be reasonable 10. Pension trusts
5. the amount paid shall be allowed as deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the BIR 11. Rental
6. it must be supported by official receipts or adequate records 12. Research and development
A. COMPENSATION 13. Salaries, wages and allowances
REQUISITES: 14. SSS, PhilHealth, HDMF and other contributions
1. personal services must have been actually rendered 15. Taxes and licenses
2. the compensation for such services must be reasonable, including the grossed-up monetary value of fringe benefit furnished to the employee and the 16. Transportation and travel
applicable final tax remitted to the BIR 17. Others (janitorial, professional, security, etc.)
B. TRAVELING EXPENSES
REQUISITES: ● BIR FORM 1702 DEDUCTION CLASSIFICATIONS
1. must be incurred while away from home 1. Advertising and promotions
2. in pursuant of a trade, profession or business 2. Amortizations
C. ENTERTAINMENT, AMUSEMENT OR RECREATION EXPENSES (EAR) 3. Bad debts
REQUISITES: 4. Charitable contributions
1. it must be directly related to the furtherance of the conduct of trade, profession or business 5. Commissions
2. it must not be contrary to law, morals, good customs, public policy or public order 6. Communications, light and water
3. it must not have been paid directly or indirectly to an official or employee of the Government (local or national, including government-owned and 7. Depletion
controlled corporations) or to a private individual, corporation, General Professional Partnership or a similar entity, if it constitutes bribe, kickback or 8. Director’s fees
other similar payments 9. Fringe benefits
4. the official receipts, invoices, bills or statement of accounts should be in the name of the taxpayer claiming the deduction 10. Fuel and oil
11. Insurance
LIMIT OF DEDUCTIBLE AMOUNT FOR EAR: 12. Interest
1. Taxpayers deriving income from either sale of properties or sale of services: 13. Janitorial and messengerial services
o Whichever is lower of the following and the actual EAR expense 14. Losses
▪ Taxpayers engaged in sale of goods or properties – ½ of 1% (or .5%) of net sales (i.e.: sales less sales returns, allowances and 15. Managerial and consultancy fees
discounts) 16. Miscellaneous
▪ Taxpayers engaged in sale of services (profession, lessors) – 1% of net revenue (i.e.: gross revenue less discounts) 17. Office supplies
2. Taxpayers deriving income from both sales of properties and sales of services, the deductible amount shall be whichever is lower between the two tests below: 18. Other services
o 1st Limit Test: 19. Professional fees
▪ Note: The tentative deductible amounts are first determined using rules 1 and 2 above for each respective class of business (service 20. Rental
or sales). 21. Repairs and maintenance – labor and or materials
▪ The final deductible amounts shall be whichever is lower of the respective tentative deductible amount and the respective amounts 22. Repairs and maintenance – materials/supplies
which the total sales or revenue bears to the total sales and revenue bears to the actual entertainment, amusement or recreation 23. Representation and entertainment
expenses. 24. Research and development
o 2nd Limit Test: 25. Royalties
26. Salaries and allowances
27. Security services
28. SSS, GSIS, PhilHealth, HDMF and other contributions
29. Taxes and licenses
30. Tolling fees
31. Training and seminars
32. Transportation and travels
33. Others
● MAJOR CLASSIFICATION OF ITEMS DEDUCTIONS
1. COST OF SALES / COST OF SERVICES ● SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS

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 o THERE ARE TWO TYPES OF SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS:
1. Special expense under the NIRC and special laws – with outflows
2. Deduction incentives under special laws – no outflows

● SPECIAL EXPENSES
1. Income distribution of taxable estate and trust
2. Transfers to reserve funds and payments to policies and annuity contracts of insurance companies
3. Dividend distribution of REITs
4. Transfers to reserve funds of cooperatives
5. Discounts to senior citizens and PWDs

● DEDUCTION INCENTIVES
1. Additional compensation expense for SCs and PWDs
2. Cost of facility improvements for PWDs
3. Additional training expense on jewelry industry
4. Additional contribution expense on Adopt-a-School program
5. Additional deductions on rooming-in and breastfeeding program
6. Additional free legal assistance expense
7. Additional productivity incentive bonus expense
● REQUIRED DISCLOSURES:
1. Description of the special deduction
2. Legal basis
3. Amount

● NET OPERATING LOSS CARRY OVER (NOLCO)

o Measurement: Exclude NOLCO and deduction incentives
o Requisites:
1. Taxpayers must not be exempt from income tax during the taxable year the NOL was incurred.
2. There must be no substantial change in ownership of the business enterprise

LESSON 10
DEDUCTIONS FROM GROSS INCOME: OPTIONAL STANDARD DEDUCTION (OSD)
● PERCENTAGES OF OPTIONAL STANDARD DEDUCTION (OSD)
o FOR INDIVIDUALS = 40% of gross receipts or gross sales
o FOR CORPORATIONS = 40% of gross income subject to regular tax
Note: Individual taxpayers cannot claim any class of deductions whereas corporations can only deduct the cost of sales or cost of services.
● MANDATORY ITEMIZED DEDUCTIONS
1. Taxpayers that are exempt with no taxable income
2. Taxpayers that are subject to special/preferential tax rates
3. Taxpayers subject to mixed tax rates
● OSD AND GENERAL PROFESSIONAL PARTNERSHIP
o GPP net income shall be determined in the same manner as a corporation
o GPP OSD is 40% of gross income
o Partners can no longer claim expense against their share from GPP net income

NOTE: 2019 and 2020 NOLCO will be carried over a period of 5 years.