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SOURCE RULES
• INTERESTS – residence of the debtor or obligor (place of
contract is immaterial)
• DIVIDENDS – residence of the corporation paying the dividend
• SERVICES – Place of performance of the service
• CIR V. MARUBENI
• ONLINE VS. OFFLINE AIR CARRIER
• RENTAL AND ROYALTIES – location or use of the property or
interest in such property
• SALE OF REAL PROPERTY – Location of real property
TYPES OF GROSS INCOME
• COMPENSATION INCOME
• INCOME FROM TRADE OR BUSINESS / PROFESSIONAL INCOME
• GAINS IN DEALINGS IN PROPERTY
• PASSIVE INCOME
• OTHER INCOME
COMPENSATION INCOME
• All remuneration for services performed by an employee for
his employer under an Employer-Employee Relationship
• 4 elements: Control test.
• The income recipient is the person liable to pay the income
tax, but, to facilitate collection:
• income tax for compensation income is withheld by Employer.
• IS WITHHOLDING TAX A SEPARATE TAX?!?
• DOCTORS IN HOSPITALS? – Employees versus contractors?
• If only single income, from one employer, and income is
correctly withheld, FORM 2316 is sufficient. (Substituted
Filing) – N.B. Starting January 2019, withholding tax will only
be up to 15%
COMPENSATION INCOME
• MINIMUM WAGE EARNERS – exempt
• Benefits not considered wages, and beyond “de minimis” and the
90K threshold are taxable
• BACKWAGES, ALLOWANCES, BENEFITS AWARDED IN LABOR
DISPUTE?
• Backwages? Taxable
• Moral, Exemplary Damages? Not taxable
• FRINGE BENEFITS?
• RANK AND FILE – pays for the income tax on the fringe benefits
(Sec 24A)
• MANAGERIAL EMPLOYEE – FRINGE BENEFIT TAX (35% GROSSED
UP MONETARY VALUE OF FRINGE BENEFIT)
• DE MINIMIS FRINGE BENEFITS ARE EXCLUDED
FRINGE BENEFITS
1. DE MINIMIS BENEFITS? - Excluded
1. i.e., Monetized SL/VL, rice allowance 1500/month, laundry
allowance not exceeding 300/month, uniform and clothing
allowance 5K/year, Xmas gift and major anniversary
celebrations not exceeding 5K/year
2. Benefits for the Convenience of the Employer – Excluded
2. MEALS – taken when required to be on duty during the meal
period
3. LODGING – if the employee must accept the lodging on the
employer’s business premises as a condition for his
employment
3. Other Benefits? CEILING – P 90,000 – (RA 10963)
4. Stock Option Plans? – difference in fair value and option
price – only if realized gain
COMPENSATION INCOME:
BAR QUESTION
Nutrition Chippy Corporation gives all its employees (rank and
file, supervisors and managers) one sack of rice every month
valued at P800 per sack. During an audit investigation made by
the BIR, the BIR assessed the company for failure to withhold
the corresponding withholding tax on the amount equivalent to
the one sack of rice received by all the employees.
• CAPITAL ASSETS
• Property held by the taxpayer, but does NOT include:
• Stock in trade of the taxpayer
• Other property of a kind which would properly be included in the
inventory of the taxpayer (inventoriable property)
• Property held by the taxpayer primarily for sale to customers in the
ordinary course of trade or business
• Depreciable property
• Real property used in trade or business of the taxpayer
GAINS IN DEALINGS IN PROPERTY
• WHY DISTINGUISH?
• IF CAPITAL ASSET, the tax treatment is different from gains in
dealings in ordinary assets, which are lumped in the “basket” of
global income.
• If capital asset, the gains may be subject to either:
• CAPITAL GAINS TAX – 6% OF GROSS SELLING PRICE / FMV (IF REAL
PROPERTY LOCATED IN THE PHILS)
• CAPITAL GAINS TAX – SHARES OF STOCK OF A DOMESTIC
CORPORATION– NOT LISTED IN THE LOCAL STOCK EXCHANGE
• - 15% OF NET CAPITAL GAIN
• ORDINARY CAPITAL GAIN WHICH IS
• OFFSET AGAINST ORDINARY CAPITAL LOSS
• SUBJECT TO HOLDING PERIOD RULE(FOR INDIVIDUALS)
• SUBJECT TO NET CAPITAL LOSS CARRYOVER
CAPITAL GAINS TAX: LAND
• LOCATED IN THE PHILS
• Final Capital Gains tax of 6% based on the gross selling price or
current fair market value, whichever is higher, imposed on
presumed capital gains realized from the sale.
• File a Final Capital Gains Tax Return within 30 days after each
sale, exchange, transfer or other disposition of real property