Lecture 2: INCOME TAXATION INDIVIDUAL

I. Pro-Forma Computation
1. For INDIVIDUALS whose gross income solely includes compensation, allowances and other
remunerations arising from the employer-employee relationship, passive income and capital gains not
subjected to final tax and CGT:
Compensation income
Add: Passive Income, not subjected to FT
Capital Gains, not subjected to CGT
Gross Income
Less: Deductions for:
PHHI
Personal Exemptions
Taxable Income

xx
xx
xx
xx
(xx)
(xx)
xx

2. For INDIVIDUALS with business or professional income:

Gross receipts/sales
Less: Cost of service/sales
Gross income from business or profession
Less: Deductions for:
Itemized Deductions or OSD
NCLCO, if there is any
NOLCO, if there is any
Net income from business or profession
Less: Deductions for:
PHHI
Personal Exemptions
Taxable Income

xx
(xx)
xx
(xx)
(xx)
(xx)
xx
(xx)
(xx)
xx

3. For INDIVIDUALS whose income includes both compensation, business income and passive incomes
and capital gains not subjected to final tax and CGT:
Gross receipts/sales
Less: Cost of service/sales
Gross income from business or profession
Add: Passive Income, not subjected to FT
Capital Gains, not subjected to CGT
Total Gross Income before compensation income
Less: Deductions for:
Itemized Deductions or OSD
NCLCO, if there is any
NOLCO, if there is any
Net Income from Business or Profession
Add: Compensation Income
Total Income
Less: Deductions for:
PHHI
Personal Exemptions
Taxable Income

xx
(xx)
xx
xx
xx
xx
(xx)
(xx)
(xx)
xx
xx
xx
(xx)
(xx)
xx

II. Classes of Individual Taxpayer and Their Situs

1. Resident Citizen (RC) taxable globally (within and outside)
2. Non-resident Citizen (NRC) taxable for incomes derived within the Philippines only
a. Who establishes to the satisfaction of the CIR the fact of their physical presence abroad with a definite
intention to reside therein;
b. Who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis;
c. Who stays outside the Philippines for more than 183 days
d. A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines
shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines
with respect to his income derived from sources abroad until the date of his arrival in the Philippines.
e. Overseas Contract Workers (OCWs). They are Filipino citizens employed in foreign countries who are
physically present in a foreign country as a consequence of their employment thereat. To be considered
as an OCW or OFW, he or she must be duly registered as such with the Philippine Overseas
Employment Administration (POEA) with a valid Overseas Employment Certificate (OEC).

Lecture 2: INCOME TAXATION INDIVIDUAL

3. Resident Alien (RA) taxable for incomes derived within the Philippines only
a. We generally consider as residents those whose length of assignments are indefinite or exceeding two (2)
years (BIR Rulings Nos. 051-81 and 052-81).
4. Non-resident Alien Engaged in Trade or Business (NRAETB) taxable for incomes derived within the
Philippines only.
a. The term trade or business shall not include performance of services by the taxpayer as an employee.
b. A nonresident alien individual who shall come in the Philippines and stay herein for an aggregate period
of more than 180 days during any calendar year shall be deemed as doing business in the Philippines
5. Non-resident Alien Not Engaged in Trade or Business (NRANETB) taxable for incomes derived within
the Philippines only
6. Special Taxpayer Taxed at their gross income at 15% when:
a. Any Filipino or Foreign individual employed, either holding a managerial or supervisory position, or a
rank-and-file, in any of the following:
i.
Offshore Banking Units (OBUs)
ii.
Regional Area Headquarter or Regional Operating Headquarter of a multinational company
iii.
Petroleum contractor or subcontractor
b. A special taxpayer, generally, shall be taxed at 15% of his total GROSS COMPENSATION INCOME. Thus,
he cannot claim personal exemptions. However:
i.
If a special taxpayer is a Filipino, he may opt to be taxed at 15% final tax or using the tabular tax if his
gross compensation income is at least P 975,000.
ii.
Aliens are only taxed at 15%.
iii.
All other income shall be taxed according to pertinent provisions of NIRC.
III. Components of Gross Income
1. Compensation Income
All remunerations paid to the employee arising from an employer-employee relationship which include,
but not limited to:
a. Salaries and wages
b. Bonuses and allowances
c. Holiday pay, Overtime pay, Night shift differential, and Hazard Pay received by persons other than
an MWE.
d. De minimis and other fringe benefits not subjected to fringe benefit tax (given to rank-and-file),
subject to P82,000 limit
e. Separation Pay, Retirement pay, and similar remunerations which do not meet the requirements.
f. De Minimis and other Fringe Benefits (See discussions on Fringe Benefits)
g. Fees, honoraria, emoluments, commissions, etc.
Remember:
Every income is generally taxable, unless, specifically exempted by the law and the requirements to be
exempted are met.
Situs of Compensation Income: place where the services are rendered regardless of the residence of
payor (Sec. 155, RR 02-40)
2. Business and/or Professional Income
a. Arise from selling goods or services.
b. Whether individual or corporate taxpayer, may include:
- Sale of goods and properties (real or personal)
- Sale of services (professional services, lease of properties, etc.)
Note: Withholding taxes from professional incomes and other sale of services which are subject to
CWT must be correctly withheld.
3. Passive Income
General Rule: Passive income earned within the Philippines are taxable unless specifically exempted by law.
Exception: If the passive income is not subjected to final tax, such is added to the gross income subject to
normal tax.

a. Subject to Final Withholding Tax

INDIVIDUALS

Lecture 2: INCOME TAXATION INDIVIDUAL

i.
ii.
iii.

Interest on currency bank deposits, yield and other monetary benefit from deposit substitute,
trust and similar arrangement within the Philippines; Royalty from patents and franchises,
prizes exceeding P10,000 and winnings regardless of the amount: 20% final tax
Royalty from books, literary works and musical compositions, and cash and property
dividend from domestic corporation: 10% final tax
Interest on FCD under the expanded FCDS: 7.5%, except non-residents (NRC and NRAs)

CORPORATION
i.
ii.
iii.

Interest on FCD under the expanded FCDS: 7.5%, except non-resident foreign corporation
Interest on currency bank deposits, yield and other monetary benefit from deposit substitute,
trust and similar arrangement; Royalty from patents and franchises, prizes exceeding
P10,000 and winnings regardless of the amount: 20% final tax.
Dividend from domestic corporation: exempt, intercorporate principle

b. Not Subject to Final Withholding Tax those which are not subjected to final tax like those which are
earned abroad, prizes not exceeding P10,000, and interest from loans, trade and accounts receivables
and those which are earned outside the Philippines shall be included in the computation of gross income.
4. Capital Gains
Capital gains arising from the sale of capital assets (real or personal assets) are taxable as follows:
a. If REAL property not used in business, subject to capital gains tax of 6% of the selling price, or FMV,
or Zonal Value, whichever is the highest.
b. If shares of stocks not traded in the local stock exchange, subject to 5-10% capital gains tax.
c. All other capital gains, which are not subject to CGT, are subject to normal tax (5-32%), subject to the
pertinent rules in property. (See discussions on Dealings in Property.)
IV. Exclusions from Gross Income
1. Holiday pay, Overtime pay, Night shift differential, and Hazard pay (HONsHa) earned by MWE (non-taxable).
2. 13th Month Pay, productivity incentives, Christmas bonus and other bonuses and benefits (de minimis) not
exceeding PhP 82,000.
3. Gifts, bequests and devises (subject to transfer taxes) are not subject to income tax, but income derived from
the use of such gifts, bequests and devises are subject to income tax.
4. Income derived by foreign government
5. Income derived by the Philippine government or its political subdivisions.
6. De Minimis not exceeding their statutory limits.
7. Proceeds of life insurance paid to the heirs upon death of the insured or whoever the beneficiary is (also not
subject to estate tax if the beneficiary is the third person irrevocably designated as heir; subject to
estate tax if the beneficiary is the estate, administrator or executor or if the designation to third persons is
revocable).
8. Retirement benefits under RA 7641 (private benefit plan), provided:
a. The employee is at least 50 years old at the time of retirement;
b. The employee has rendered 10 years in the same company;
c. The employee availed it for the first time
d. Such private benefit plan is approved by the BIR.
6. Separation pay paid to the employee for causes beyond the control of said employee (involuntary). If the
cause of separation is voluntary, such payment shall be taxable.
7. Mandated contributions such as SSS, GSIS, PHIC and HDMF contributions and union dues.
8. Amounts received as a return of premiums paid.
9. Prizes and awards in recognition of religious, charitable, scientific, educational, artistic, literary or civic
achievement as well as awards in authorized sports competitions.
10. Gains from sale of bonds, debentures or other certificates of indebtedness with a maturity of longer than five
years.
V. Deductions from Gross Income (See discussions on Deductions.)
Note: Only those self-employed taxpayers or those having business may claim the following:
1. Optional Standard Deduction
2. Itemized Deductions
VI. Exemptions and Other Deductions
1. Personal Exemptions
a. Personal exemptions are only given to individuals whether RC, NRC, RA and NRAETB (subject to
reciprocity rule).
b. RC, NRC and RA may claim a basic personal exemption of PhP 50,000 regardless of the status.
c. NRAETB can only claim basic personal exemption if there is a reciprocity between Philippine laws and
the laws of his country where he resides. However, the BPE cannot exceed Php 50,000, but may be
lower instead.

Lecture 2: INCOME TAXATION INDIVIDUAL

d. For incomes of the estates, the estate may claim only to the extent of P 20,000.
2. Additional Personal Exemptions
a. RC, NRC and RA may claim an additional personal exemption of Php 25,000 for every qualified
dependent CHILD, but not exceeding four children, PROVIDED that the child is:
i. Not more than 21 years old
ii.
Living with the taxpayer
iii.
Depending upon the taxpayer at least plus 1 for his living.
iv.
Legitimate, illegitimate or legally adopted
v.
Unmarried and not gainfully employed
b. Provided that, the taxpayer may also claim an additional exemption even if the child reaches above 21 years
old when such child is incapable of self-support because of mental defect.
c.

Rules on determining the status of the taxpayer who claim personal exemptions:
1. Whether single, married, head of the family or legally separated, the taxpayer can claim only to the
maximum amount of P 50,000 basic personal exemption.
2. If the taxpayer should marry or should have additional dependents during the taxable year, he may
claim the corresponding exemption in full for such year.
3. If the taxpayer should die during the taxable year, his estate may claim his corresponding
exemptions (both personal and additional) as if he died at the end of such year.
4. If the spouse or any of the qualified dependent should marry or become twenty-one years old
during the year, or should become gainfully employed, the taxpayer may still claim the exemption
as if the spouse or dependent died or as if such dependent married, became twenty-one years old
or became gainfully employed at the close of such taxable year.

3. Premiums on Health and/or Hospitalization Insurance

Aside from the allowable deductions and personal exemptions, an individual taxpayer may also deduct from
his gross income SSS, Philhealth, Pag-IBIG and PHHI contributions. Provided, that in the case of PHHI, the
total family income shall not exceed PhP 250,000 per year and the total claimable amount shall not exceed
PhP 2,400 per year.
VII.

Computation of Income Tax Due

1. Resident Filipinos (RC) who are taxable globally may claim tax credit for taxes paid in foreign countries,
however, the amount to be credited shall be subject to limitations. The claim must be made in the year the tax
is paid.

VIII.

Income Tax Return Filing and Payment of Income Tax

General Rule: All taxpayers must file an income tax return.
Exceptions:
1. Married Individuals (Sec. 51(D),Tax Code)
a. May compute for their taxes separately, but shall file a single return for a taxable year;
b. If impracticable to file a single return, separate returns may be filed. The BIR will consolidate the filed
returns for purposes of verification for the taxable year.
2. Those who qualified under the substituted filing method (for purely compensation income earners).
a. It is when the employers annual return (BIR Form 1604 CF Annual Information Return of Income
Taxes Withheld on Compensation) may be considered as the substitute income tax return of
employee in as much as the information provided in his income tax return (BIR Form 1700) would
exactly the same information contained in the employers annual return. [RMC No. 1-03].
b. BIR Form 2316 is a statement signed by both teh employee and the employer and serves as the
same purpose as if the BIR Form 1700 had been filed. This, however, is not submitted or filed with the
BIR if the employee is qualified for substituted filing.
c. Requirements:
i.
The employee is a purely compensation income earner;
ii.
The empolyee receives income only from one employer in the Philippines during the
calendar year;
iii.
The amount of tax due from the employee at the end of year equals the amount tax
withheld by the employer;
iv.
In case of married individuals, the employees spouse also complies with all the three
stated conditions above;
v.
The employer files the annual information return (BIR Form 1604 CF); and
vi.
The employer issues BIR Form 2316 (Oct 2002 ENCS) version to each employee.
d. NRAETB are expressly prohibited from using the substituted filing method [RMC No. 01-03].
e. Individuals deriving income from two or more employees, concurrently or successively at any time
during the year are also disqualified from substituted filing method [RMC No. 01-03].
f. Individuals under the split-pay scheme (portion of the salary is paid outside the Philippines) is also not
allowed to substituted filing method.

Lecture 2: INCOME TAXATION INDIVIDUAL

3. Those whose sole income has been subjected to final withholding tax.

The due date for filing the return (with no extension allowed)
a. On or before the 15th day of April each year covering income for the preceding taxable year (Sec. 51
(CX1), Tax Code)
b. Extensions are not allowed, except in meritorious cases, as determined by the Commissioner of the
Bureau of Internal Revenue (Sec. 53, Tax Code)
The modes of settling income tax liability may be:
a. Cash payment if the amount does not exceed P 10,000;
b. Bank Debit System
c. Cashiers or managers check
Penalties for failure to file the return, and/or pay the tax on time:
i. Civil Liabilities
a. Surcharge, amounting to 25% of the tax due; 50% in case of willful neglect to file a return, or in case
of filing a false or fraudulent return;
b. Interest at 20% per annum;
c. Compromise penalties for failure to file the return, and/or failure to pay the tax, at an amount not
exceeding P 50,000 [Sec. 255, Tax Code; RMO 19-2007]
ii. Criminal Liability
a. Violations of tax laws are generally punishable by a fine and/or imprisonment, which depends on the
act committed or omitted
Example:
The attempt to evade or defeat tax is punished, upon conviction, by a fine of not less than P
30,000 but not exceeding P 100,000, and imprisonment of not less two (2) years, but not more than
four (4) years. Conviction or acquittal does not bar the filing of civil suit for collection of taxes. [Sec.
254, Tax Code]

Tax Returns forms

1. BIR Form 1700, for purely compensation income earners
2. BIR Form 1701, for business or mixed earners
The fact than an individuals name is signed to a filed return is a prima facie evidence for all
purposes that the return was actually signed by him.
Attachments:
1. BIR Form 2316 Certificate of Compensation Payment/ Tax Withheld for Compensation Payment with or
without Tax Withheld
2. BIR Form 2306 Certificate of Final Income Tax Withheld
3. BIR Form 2307 Certificate of Creditable Tax Withheld at Source
Disclosure of Supplemental Income
1. Revenue Memorandum Circular (RMC) 9-2014 futher amends the forms under RMC 40-2011 and
making the disclosure of supplemental income OPTIONAL on the part of the taxpayer for the
calendar year 2013 tax filing. However, for the income tax filing covering and starting with calendar
year 2014, the disclosures required under the Supplemental Information portion of the said forms
will be MANDATORY. Thus, the taxpayers are advised to demand from their payors and properly
document their BIR Form No. 2307 and other pieces of evidence for final taxes withheld as well as
information on the other tax exempt income.
2. In any returns filed with the BIR, individual taxpayers are given the option to use either:
a. Their Community Tax Certificates (CTC)
b. Passport
c. Drivers License
Where to FILE?
1. The return shall be filed with:
a. An authorized agent bank (AAB);
b. Revenue District Officer;
c. Collection Agent; or
d. Duly authorized Treasurer of the City or municipality
2. Filing with the incorrect RDO renders the taxpayer liable for a penalty
3. RR 5-2015 dated March 17, 2015, amending RR 6-2014
a. Mandatory for taxpayers enumerated under RR 6-2014 to use eBIR forms and must be filed online
through the eBIR Forms System
b. Penalty of P1,000 will be imposed for each return not filed electronically
c. Liable for surcharge amounting to 25% of the tax due to be paid.

Lecture 2: INCOME TAXATION INDIVIDUAL

STRAIGHT PROBLEMS
1. A, resident citizen, single had the following during the year:
Gross compensation income
P 480,000
Deductions from compensation income:
SSS contributions
3,600
Pag-IBIG contributions
1,200
Philhealth contributions
1,800
Union Dues
2,400
Premium Payments on Health insurance (P250/month)
3,000
Other Income:
Prizes and awards received as best athlete in the Palarong Pambansa
10,000
Prizes and awards received for the silver medal in the SEA games
25,000
Prize won in a Supermarket raffle
10,000
Prize won as Lucky Home Viewer of Eat Bulaga
20,000
13th Month Pay
40,000
Christmas Cash Gift
10,000
Midyear Bonus
40,000
Interest on bank deposit (net of WT)
16,000
Interest on foreign currency deposit (net of WT)
10,000
Gains (Loss) from sale of Properties:
Loss from agricultural land sold on October 21, 2015, the land was
inherited from his mother on September 25, 2005,
the FMV at that time was P 2.5M
475,000
Gain from the sale of car bought on August 1, 2013
150,000
Loss from the sale of household effects acquired last May 23, 2015
57,000
Shares of stocks:
1,000 shares sold directly to buyer sold at P25/share with a cost of
P17/share
5,00 shares sold in the local stock exchange at P10/share with a
cost of P3/share
a.
b.
c.
d.

Compute the taxable income.

Compute the income tax due for the taxable year:
Compute the final taxes (excluding CGT).
Compute the capital gain taxes.

____________________________
____________________________
____________________________
____________________________

2. B had 1000 common shares of XYZ, a domestic corporation, acquireed at P150 per share. On January 6,
2009, B received a 50% stock dividend in preferred shares. The FMV of the shares at that time of dividend
were P 160 per common share and P80 per preferred share. The common and preferred shares were later
sold at P 150 and P 72 per share, respectively. Assuming the shares are ordinary assets, determine the gain or
loss of B on the sale of (a) Common Shares and (b) Preferred Shares. ___________________________

3. A leased her lot as follows:

Lessee
X
Agreed annual rental
P 300,000
Start of lease
January 1, 2014
Rentals received by the lessor on the inception of the lease (3 years rent)
P 900,000
Security Deposit
P 250,000
Improvements introduced by the lessee, which shall bellong to the lessor upon
Expiration of the lease contract or termination
P 10,000,000
Estimated useful life of the improvements
25 years
Date of Completion of Improvements
July 1, 2014
Term of lease
20 years
From the above given information, answer the following:
a. The income to be reported by the lessor in 2014 and 2015, assuming he will spread his income on the
improvement over the term of the lease.
___________________
b. The income to be reported by the lessor in 2014 and 2015, assuming he will use the outright method
reporting of the income on the improvement. ___________________
c. Who shall bear the depreciation of:
The leased property?
___________________
The leasehold improvement?
___________________

Lecture 2: INCOME TAXATION INDIVIDUAL

d. The deductible expense of the lessee X in
2014
___________________
2015
___________________
e. Suppose the lease was terminated thru the fault of the lessee at the start of the 19th year, determine the:
Income to be reported by the lessor on the improvement
_____________________
Deductible expense of the lessee X
_____________________
f. Suppose the improvements were destroyed by fire on January 1 of the 15th year of the lease, determine
the deductible loss of the lessor on the improvements, if the salvage value is P 50,000.
___________________
4. Juan, a resident citizen had the following data for the years 2011 to 2014.
2011
2012
2013
Ordinary Taxable Income
P 200,000
P 250,000
P 300,000
Gain from Sale of Capital Assets:
a. Held for 12 months
20,000
2,000
100,000
b. Held for 13 months
8,000
10,000
20,000
Loss from Sale of Capital Assets:
a. Held for 19 months
22,000
20,000
60,000
b. Held for 7 months
3,000
30,000
50,000
Status of the taxpayer
Single
Married
Married w/
1 QDC
Compute the net taxable income of the taxpayer for the year:
a. 2011
_______________________
b. 2012
_______________________
c. 2013
_______________________
d. 2014
_______________________

2014
P 350,000
57,000
28,000
10,000
5,000
Married w/
2 QDC

5. Mr. Masaya,married, supporting his minor son has the following data for the year 2012:
Gross professional income, net of 10% w/tax
P 630,000
Brokers Commission, net of 5% w/tax
95,000
Other Income, net of 10% withholding tax
90,000
Deductions claimed:
Salaries of staff, net P5, 000 w/tax
250,000
Advertising expenses
3,000
Bad debt (P2, 500 actually written off)
4,000
Cost of office equipment purchased on
April 1, 2012 (useful life, 5years)
120,000
Fire insurance premium on office equipment for One year paid on August 1, 201
1,500
Rent of office space for 2 yrs. at P10,000 per month Paid on February 1, 2012
240,000
Traveling expense (business trip 50% only)
100,000
Charitable contribution to religious corp
100,000
a. Using itemized deduction, the taxable income is:
b. Using optional standard deduction, the taxable income is:

________________________
________________________

6. During the year, Micah was promoted as the new Marketing Manager of Port-to-Port Shipping Company. As
promotional incentives, the employer gave the following to Micah:
Check deposited on Micahs account
Acct. No. 89-000-4561
P 150, 000
House costing P500, 000 with a current FMV of
P 1, 000, 000
FMV of land where the house given is situated, only
the usufruct of which is furnished
P 1, 500, 000
List Price of Car subject to 5% discount,
half of the price was paid by Micah
P 1, 350, 000
a. If Micah is a resident citizen, how much is the total gross monetary value of the fringe benefits given to
her? ______________________
b. Assuming the same figure above, how much FBT would be withheld by the employer?
______________________
c. If Micah is an employee with the same position above working in a Regional Operating Headquarter of a
foreign corporation, how much would be the fringe benefit tax? ______________________
d. How much would be the deductible expense of the employer if Micah is a non-resident alien not engaged
in trade or business? ________________________
TRUE OR FALSE:

Lecture 2: INCOME TAXATION INDIVIDUAL

1. An alien individual whether resident or not of the Philippines is taxable only on income from within.
2. A foreign corporation with a branch office in the Philippines employed Mr. X, a British as its executive to supervise
the companys operation. He stayed in the Philippines for 4 months in the year 2008. Then left abroad. His salary
in the Philippines from the said corporation will be taxed at 25%. If a Filipino occupies the said position, he will be
taxed based on the 5-32%, schedular tax rates.
3. Overtime and holiday pay are included in computing the minimum wage.
4. The cost of educational assistance extended by an employer to the dependents of an employee shall be treated
as taxable fringe benefits if the assistance was provided through a competitive scheme under the scholarship
program of the company.
5. An exemption provided by law to take care of personal, living and family expenses of individual income taxpayers
and the amount of which is determined irregardless of their status is called personal exemption.
6. An exemption allowed to an individual income taxpayer who has qualified legitimate, and/or recognized
illegitimate or legally adopted children is called additional exemption.
7. Mr. X sold his 5 - door apartment for P10,000,000. The monthly rental per unit is P20,000. This sale is subject to
capital gains tax.
8. Mr. Nadal bought a lot for P2,000,000 which he intended to be used as family home. After 5 years, he abandoned
his plan and sold it for P3,000,000. This sale is subject to capital gains tax.
9. Rice subsidy of one thousand five hundred pesos or one sack of 50 kg. rice per month amounting to not more
than one thousand five hundred pesos is an exempt de minimis benefit.
10. Employee achievement awards such as for length of service, or safety achievement, which must be in the form of
a tangible property other than cash or gift certificate, with an annual monetary value not exceeding ten thousand
under an established written plan which does not discriminate in favor of highly paid employees is an exempt de
minimis.
11. If the property was acquired by gift, the basis is the value as it would be in the hands of donor or the last
preceding owner by whom it was not acquired by gift, except that if such basis is greater than the fair market
value of the property at the time gift, the basis shall be such fair market value, for purposes of determining the
loss.
12. If the property is included in the taxpayers inventory, basis is the latest inventory value.
13. Ordinary gain is the gain derived from the sale or exchange of ordinary assets.
14. Capital gain is the gain derived from the sale or exchange of capital assets which includes all real properties held
by the taxpayer, whether or not connected with his trade or business, and which are not included among the real
properties considered as ordinary assets.
15. Ordinary Assets include stocks in trade of the taxpayer, or other property of a kind which would properly be
included in the inventory of the taxpayer such as land held for sale by a real estate developer.
16. Real and personal properties held by the taxpayer other than for business or trade purposes, and those properties
other than those enumerated by the Tax Code are considered capital assets.
17. Gains and losses derived from sale or exchange of capital assets are subject to capital gains tax of 6% based on
selling price or fair market value, whichever is higher.
18. Gains and losses derived from sale or exchange of ordinary assets are included in the computation of taxable
income, subject to holding period in case of individuals.
19. When deferred payment sale is of a capital asset which is not subjected to capital gains tax, the gain or loss from
such sale may be reported on instalment method.
20. Initial payments, which is the sum of down payment, total collections received in the year of sale plus excess of
mortgage assumed by the buyer over the cost of property sold, is divided by selling price to determine whether
the gain is not exceeding 25% limit for instalment reporting purposes.