Tax Midterm Transcript

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TAXATION MIDTERM TRANSCRIPT
ATTY AMAGO
BARCENAS | VILLALON | REGALADO | MONTERO | MEJICA | DELA PENA |GARCIANO
|EXCLUSIVE USE FOR ROOM 403|
-Only that which is in excess of the capital that you

invested is considered as income
January 4 2015 discussion:
Income tax is a tax on all yearly profits arising from
property, professions, trades or offices.
How about if there is no property, professions, trades or
offices to speak of? As in the middle of the road, you
found something?
Answer (classmate): also called income sir because of
the welfare that comes to the hands of the taxpayer
So is it imposable on you?
Income is a tax on income. Income as mentioned in
some books would say that it is a tax on all yearly
profits arising from property, profession trade or even
services but in addition to that it should also refer to tax
on increases in your net worth.
What is this net worth: In accounting, it is defined in
formula which is Assets-Liabilities= Capital/net worth
If ever there is an increase in your net worth, even if it
does not arise from the exercise of professions, dealings
with properties or rendition of a service, it will still be
considered income for purposes of income tax. It could
still include increases in your net worth, even if you do
not do anything. These are called win hole profits.
It is then necessary for us to determine on what is
income?
Broad sense: all wealth which flows into the hands of
the taxpayer other than as a mere form of capital
Strict sense: It is an amount of money coming to the

taxpayer for the service performed or an activity which
he engaged in or for an investment he has made but it
is not all exclusive because as what we have said
anything that is seen without anybody owning that
income or what can be considered as income in so far as
the client is concerned.
-so including those who does not have a specific owner
but can be found in the hands of the finder. SO we have
to include those that are not mere profits like those of
found by mere luck without spending any capital at all.
So when you get into the specific activities, you get into
the services rendered, that is when is becomes in strict
sense . So there has to be something that you have to
do before you can earn this income, except when these
are win hole( wa ko sure sa term) profits, as in the case
of mere luck.
Nature on income tax:
It is an excise tax which means it is a tax on your
privilege to earn the income. It is not a tax on the profit.
It is just that the basis of the tax is the profit which you
earn. But you are being taxed not because there is profit
but because you got the right or the privilege to earn
such profit.Compare to to real property tax( lahi sya)
kay ang gitaxan ka yang property gud. So ug mere luck:
di gud d y ka mataxan ug income tax ka yang pag
engage man sa business.
Purpose of income tax:
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Primary: For the government to raise revenue

Secondary purpose:
to offset regressive sales and consumption of taxes
How?
When you have VAT which was being discussed in the
case of Tolentino to be regressive in effect ,so that
means that we the
consumers get to be burdened by the imposition of VAT
because we cannot pass it to them but who earns the
income? It is actually the people above us: those who
are prior to the distribution line, so those who are
manufacturers, wholesalers or retailers.
How can then the income tax curtail the effects of this
tax?
So since they are earning more income, they should be
subject to more taxes and so one way of imposing tax
on them is by imposing income tax. Will we be the
consumers subject to more taxes or now the
manufacturers or wholesalers? It will be the latter
because they are earning more income compared to us,
considering that we spend the money including the
taxes that we are burdened to pay. The higher the
income, they will be subject to more taxes compared to
the consumer effect.
Regressive effect: masubject to higher taxes ang
katung niearn ug higher income compared sa nagbayad
sa indirect tax.
To mitigate the evils arising in the unequal distribution
of income and wealth
-those earning more are subjected to more taxes and
these taxes will be used for the benefit of those who
have less income seems to distribute the wealth
-review daw sauna:
Regulation, promotion of gen welfare, reduction of social

inequality, encourage economic growth
Kita na daw sa Historical Background
Sources of Income tax law:
National Internal Revenue Code
Is it the primary source? No, it is the constitution
-constitution, Legislations and statutes, Admin or
revenue rules and regulations, judicial
decisions(persuasive-CTA. Conclusive- Supreme Court
and tax treaties)
Definition of terms
Sge b, try daw natu(ana si sir)
The term "person" means an individual, a trust,
estate or corporation.
-so you will see that a person is different from what a
layman knows. It also includes artificial
persons,partnership.. could mean artificial persons
General Principles of income taxation
Except when otherwise provided in this Code:
(A) A citizen of the Philippines residing therein is
taxable on all income derived from sources within
and without the Philippines;
(B) A nonresident citizen is taxable only on income
derived from sources within the Philippines;
(C) An individual citizen of the Philippines who is
working and deriving income from abroad as an
overseas contract worker is taxable only on income
derived from sources within the
Philippines: Provided, That a seaman who is a
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citizen of the Philippines and who receives

compensation for services rendered abroad as a
member of the complement of a vessel engaged
exclusively in international trade shall be treated
as an overseas contract worker;
(D) An alien individual, whether a resident or not of
the Philippines, is taxable only on income derived
from sources within the Philippines;
(E) A domestic corporation is taxable on all income
derived from sources within and without the
Philippines; and
(F) A foreign corporation, whether engaged or not
in trade or business in the Philippines, is taxable
only on income derived from sources within the
Philippines.
System of income taxation

Schedular System is a system employed where the
income tax treatment varies and made to depend on
the kind or category of taxable income of the taxpayer.
A separate tax return or computation is required for
each type of income
-It accounts on different kinds of taxes at different
times. If you are earning compensation income. It is
different from that earning business income. Another
way is by basing on a category say an amount. Different
tax rates for different kinds on income.
- A separate tax return or computation is required for
each type of income
Global System is a system where the tax treatment
views indifferently the tax base and generally treats in
common all categories of income or the taxpayer
without any distinction as to their type or nature, and

subjects them to a single set of graduated or fixed tax
-In other words, you pull together all form of income, as
long as it is income and it is one the same thing
-How many returns you expect to file? One kay you can
pull together all
Philippines: Party Scheduler, Partly Global
combination of the two systems
Ex. April 15, how many returns do you file: only oneglobal. In that return, what do you see: a combination of
compensation and business income being subject to one
tax schedule of tax rate. However when you look at it in
a whole picture, while there is one return for
compensation income and business income, there are
other income that have different rates. Not all taxes are
subjected to the same rates as those that are filed in
april 15. This is where scheduler applies.
Global to extent-that you have one return on april 15
Schedular: there are other income subjected to different
tax rates
Kinds on income tax methods:
Gross income method- income is taxed at gross. The
taxpayers are not entitled to any deduction
Is it that in a gross income method, you do not deduct
anything? Because it actually defines those defined in
section 34 which cannot be deducted. GI does not say
the entire gross receipts, you also get to deduct certain
returns in your sales, direct expenses- Factory overhead,
labor, materials
COFFEE SHOP EXAMPLE
Raw materials: water, cup...
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Labor: one who will stir it

FO: can it be done manually? Pwede pero di practical.
Dghan ka maattain, like kanang magrent, sa pagsell pa.overhead expenses. These expenses, you can deduct
before GI.
These direct expnses are considered capital. Ang dir a
allowed ka yang naa sa tax code-katung naa sasec 34
Net income method- income is taxed on net.
Taxpayer may claim allowable deductions
-muvary sa imo giengage na business
-------------------------------------------------------------------------------------------January 8,2016
So the Philippines follows a semi scheduler, semi global
tax system. When we look at it as a whole, it is a
actually scheduler right because we apply different
rates for different types of income. When we look at
income tax return, you can file one income tax return at
the end of the year, but that return will account for
several types of income. It can be professional or
compensation income which is the same
category as business income. For example, I am an
employee of USC, I earn compensation income, I have
my own practice, and therefore I earn business income
as well. At the end of the year, I would have to file my
return. SO at the end of the year, sa return, I would
include both compensation and business income. To that
extent-global but for other types of income-dividends,
interest, royalties(passive income), these are subject to
a different rate-final withholding tax which is not
accounted for in your annual income tax return at the
end of the year. IN that sense- global. Pero sa bar: semischedular ,semi-global gud (para ni sir kay schedular)
Income:
all wealth which flows in to the hands of the taxpayer
arising from capital, labor, combination of both, as well
as dealings of property other than mere return of
capital. It is over and above your capital. When you
invest, there is profit there, there is income. But not all
instances that you would need capital because it should
also account for those which you come above by reason
of luck. When you file for hidden treasure, that is still
considered as income
Capital- a fund or property that exists at one point in
time that is used to generate income for a taxpayer.
One case discusses capital from income in a poetic way.
CASE: Madrigal vs. Rafferty - Income as contrasted
with capital or property is to be the test. The essential
difference between capital and income is that capital is
a fund; income is a flow. Capital is wealth, while income
is the service of wealth. "The fact is that property is a
tree, income is the fruit; labor is a tree, income the fruit;
capital is a tree, income the fruit."
So, Income could be the fruit, capital could the tree. So

whatever you put in your business is your capital.
Whatever you generate out of your business less the
sum the amount that you invested is your
capital(income ni,feel nko. Nasayop ra si sir ug sulti).
This is important for purposes of gross income because
while we define gross income method not to account for
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any deduction. It is not entirely true. Tan awa ag

formula:
Q: Upon applying it to our recent tax system. What

distinguishes the Philippine income tax system?
Gross Sales
(COGS/COS/COSe)-Why do we have to deduct this? Ans.
below
Gross Profit/Income
X Rate
Gross Income Tax
A: It is comprehensive it terms as to the tax situs. The

basis of taxation does not account for one factor alone.
There are several factors to consider when we consider
the tax situs in the Philippines. That is why we
characterize it as comprehensive. Comprehensive in
relation to tax situs
(COGS) Cost of Goods Sold- manufacturing concern)

(COS) Cost of Sales- Merchandising concern)
(CoSe)Cost of sevices- Service-oriented entity
Factors to determine tax situs in PH

-Citizenship/Nationality of taxpayer
-Domicile of the taxpayer/ Residence of the taxpayer
-source n income
Ans: This refers capital. And if we have to account for

income, it should not account for any return of capital.
So while you receive 1M, that is not income yet for a
portion of that may be considered return of capital. For
purposes of Gross Income taxation, while we say that it
does not amount to allowable deductions, those
deductions do not account for these direct cost-Raw
materials, Labor, Factory Overhead
Ciizenship and Domicile- it matters if resident citizen ka

or NRA. Only RA taxed within and without
Source of income-taxed for income sourced with PH- FC
or NRA
FEATURES;
Individual Income Taxation:
--Coffee example---Net income method-discussion (see formula)

In the tax code, there instances when we follow the
gross income method. There are also instances where
we follow net income method
Discussion proper:
1. Schedular
- This is different from the Schedular System of
Taxation. In here it means that the rate is based on a
Schedule which is the 5-32 percent which you can find
in Section 34-A of the tax code. The one where you can
find the income of 5000 pesos or less is subject to
distraint. 5000 or more where you get 125000 plus. That
is what we mean when we say schedular. Because we
are already discussed that in an income tax system, you
can have a schedular tax system but then again you can
also have a global tax system in relation to the returns
to
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be filed annually. Anyway, Schedular means that you

follow a tax schedule for individuals which is not true for
corporation because in corporations you only have gross
income taxation(feel nko di gross but mao man gud sa
recordings, ang naa sa otes kay global concept btaw)
that there is only one rate to be applied and that is 30
percent for corporatons but for individuals, you apply
the 5 to 32%
2. Tax rates are progressive in character
-This means that the tax rate increases as the
income of the taxpayer increases which is not true for
corporate because in such you only follow one tax rate.
But does that mean that it s not based on the ability to
pay? Not necessarily because the higher your income
still, you will still pay a higher tax
-Ability to pay principle
3. Modified gross income taxation as regards pure
compensation earner
-What is necessary for you to have a
compensation income? Ans: That there is an employeremployee relationship. SO if you are purely an
employee, you have no other source of income.
Q: How come it is considered modified?
There are site differences from the global that you know
of. Pure compensation earners really show the what
gross income taxation system is because you are not
allowed any deduction at all. You work for an employee
say 10000 pesos a month, you do not deduct anything
other than statutory benefits no but that is not the point
.10,000 pesos is already net of all statutory benefits.
This 10,000 is the one that is subject to income tax, not
subject to any deductions but this is considered
modified because there are some deductions that are
allowed such as your personal exemptions. Under the

tax law code, the 10,000 from the example can then be
deducted with what we call basic personal exemptions
and additional exemption.
-It is modified because you are still allowed these basic

personal exemptions as deductions
4. Net income taxation as regards those
individual taxpayers that derive business, trade
or professional income. Allowable deductions
under Section 34 may be claimed by individual
tax payers who derive business, trade or
professional income.
-because then individuals who earn business
income can still deduct the allowable deductions
allowed for corporations. For example, me, I practice my
profession, I am still allowed to deduct the cost of
depreciation for my printer, the rent for my office. These
are allowed as deductions because I earn business
income as well. So if I am only a compensation earner
for me teaching here in USC, I will only be allowed basic
personal exemptions.
5. Pay as you file system
-There is this so called self assessment in tax
which means you assess you own self based on honesty.
Like when you pay fare for jeepneys, di na makatimaan
ang drier ug usa ba ka sa mga nakabayad. The same as
income tax, it is actually up to the individuals to assess
themselves on how much they will income they would
want to disclose.
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6.under certain circumstances pay-as-you earn

system
So when you earn income, it will be deducted by
your employer. That is the so called withholding tax
system. Supposedly when do I file my income tax
return? On the 15th of April. But every month I get to pay
part of my taxes already. That is the withholding tax
system because the government needs money for it to
run. The government also has to pay its people. Where
will it get its money?
service that produced the income. With respect to

rendition of labor or personal service, as in the instant
case, it is the place where the labor or service was
performed that determines the source of the income.
There is no merit in the interpretation which equates
source of income in labor or personal service with the
residence of the payor or the place of payment of the
income
For rent- property being leased; Compensation- the
service rendered and employer-employee relationship;
Capital gains-sale of the capital asset
From the BIR. With the monthly taxe you pay, the
government continues to operate monthly as well.
Corporate income taxation
1.Global concept of taxation
-we do not follow a schedule. There is only one tax
rate
2.Corporate taxpayers exception-Resident foreigner
corporations are entitled to deductions. Net income
taxation is applicable to domestic corporations ans
resident foreign corporations
3. pay-as-you file system
4. pay-as-you earn system
SOURCES OF INCOME-property, activity or service
that produced the income
What is a source of income?
CIR VS BAIER NICKEL-The rule is that source of
income relates to the property, activity or
The issue in that case is that if the person is allowed

refund for the tax imposed on his sales commission. The
sale happened n Germany but the person rendered
service here in the PH, although he was German.
Necessary to know source to know if taxable ba sya.
1.
2.
3.
4.
Capital-a fund or property which you invested.

Labor
Both Labor and Capital
Sale of Property or Dealings in Property when
you sell your real estate
Ex. Sari-sari store: inventory purchased by the owner.

Labor-sa naninda
Lawyer: labor niya iyang services
Criteria to determine if Income is Taxable
1. There is gain or profit- you would know because
there is an increase in net worth
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2. The gain or profit is realized or received-for

income tax purposes
Can you have a profit which is realized but not yet
received?
Yes sir when there is constructive receipt
(naglisodlisod lang gud daw ta)
Pwede ra d y daw tu: nangutang sya sir pero wa
pa nya nadawat ang bayad, pero nakaearn na sya
ug profit
Constructive receipt concept (read notes. Di ko
kacopy paste)
Sir: constructive receipt doctrine is actually
applied in the partnership. It could be one form.
You have not received it but it was forced to
someone else Ex. There is a dividend declared
from a tax holder. You are obligated to the
corporation. So
before the corporation will give you money, it
would want to be paid first. So while it declared
dividends, it did not give money to you. Instead, in
lieu of such money to pay your obligation to the
corporation. Wa ka kadawat but you constructively
received it.
Example. Your 3 classmates here. They have 1M
.they did not distribute it. Will they be subject to
tax? Yes. Because it would seem that they
constructively received it.
When will a profit be realized?
Realized when the transaction is completed. Only
when you are able to complete a transaction will it
be considered realized. In this case, there is
realized profit when the sale took effect. It is
different when you talk about taxable income,

whether you will tax it starting 2016 or you will
tax it yearly or in 2026. Yes, there is realized profit
there. Why is there realized profit? Because the
transaction is already completed. If some party
there will not continue on its obligation, then it
could be ground for damages. SO because it is
already completed, there is realized profit but on
how much is realized is different. For taxation
purposes, it will be taxed on 2017 when she
receives payment because you are talking about
real property.
For there to be realized profit, there has to a
completed transaction, If not completed, then
wala. 2nd, there has to be control over the profit.
There is control when the transaction was
completed
(example ni sir sa katung instalment (51: 00)
Drawing:
Property
1M
period of 10 years
Buyer
10M payable to a
10 years
2016(year when the transaction happened)
2017 2018 2019
2020....... 2026
When do we have no realized gain then?
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You have a property bought for 1M in 2010. 6

years has passed. The value already became 5M.
You did not do anything but did you gain
anything? Yes, there is but not yet realized
because there is no transaction. Unrealized pa. Di
ka taxable bsan nay increase.
Example law students ta. Nay dakong potential na
maemploy para ma paralegal. SO there is a
potential na makaearn ka. Masubject ka to tax ana
na credential? No. Nkaearn ka? Yes. Imo d y
credential. Wa marealized, unless maemploy
ka.There has to be a completed transaction and
control.
(MUGAWAS GYUD NI)-Usually daw shares of stick
sold directly to a buyer.In the Philippine stock
exchange, the value of the share is 1000 pesos.
When you bought it kay 1 peso ra. Is there gain?
Yes, there is for 999? Will the person who hold
such a share be subject to tax? No . unrealized but
if such owner sells his share to Mr. X in the
amount of 500 peso per share? Is there gain? Yes.
But is it the gain equivalent to the value of the
PSE or based on the amount you sold before?
Based ud on the amount you sold before because
that is the only thing that is realized. Taxed ra ka
for 499 pesos.mao ra narealize.
-Based sa discussion, what is excluded from

income-return of capital. There are specific
exclusions provided on sec 32B of the tax code
Kinds of Taxable income
Capital Gains- gains or income from the sale or
exchange of capital assets
Ordinary gains- gains or income from the sale or
exchange of ordinary assets
Sec 39: the term 'capital assets' means property
held by the taxpayer (whether or not connected with
his trade or business), but does not include stock in
trade of the taxpayer or other property of a kind
which would properly be included in the inventory of
the taxpayer if on hand at the close of the taxable
year, or property held by the taxpayer primarily for
sale to customers in the ordinary course of his trade
or business, or property used in the trade or
business, of a character which is subject to the
allowance for depreciation provided in Subsection (F)
of Section 34; or real property used in trade or
business of the taxpayer.
Anything other than the assets here are ordinary
assets.
Ordinary assets:
Ayaw pagtuo ha na tanan transaction kay sale ra.

Lease ray ako mahuna hunaan
3. Such gain or profit is not exempt under any law or
treaty
-Under NIRC, there are exclusions specifically
provided there.
1.
stock in trade of the taxpayer or other property

of a kind which would properly be included in
the inventory of the taxpayer if on hand at the
close of the taxable year,
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2.
Section 34(depreciation);property used in trade

or business subject to depreciation
it must remain at the end of the taxable

period. Unsay klaro na tax in trade-sardinars
sa sari sari store. Pag end sa year kay 2
nlang kbuok nabilin. Unsay may ordinary.
Ang 2 na nabilin or ang 100 pag start sa
year. Ans: Ang 2 na nabilin- close of the
taxable year
Depreciation-decrease in amount or property.

Ex. A car you used in coming to school
BMW-gamiton nimo sa school
Jaguar-gibilin ra nimo sa inyo
Property held by the taxpayer primarily for

sale to customers in the ordinary course
of his trade or business.
-in other words, these refer to property you
usually sell.
BMW ang dali na madeprectiate but dpende sa

imo gamiton.-passage of time or usage
Unsa pman madepreciate? Man. Argument ni
sir: Man are not property. HAHAH, Sge. Unsa b:
Building. Kaning buildinga . kami 1st nigamit
ani. Nice na inyo walls but dghan na liki run. It
depreciates in time.
Ex. You have 10 titles of land somewhere in the

PH. This is under your name.naa sa zamboanga
ang title. Gnhan nimo isell. Di ninyo trade or
business ang pagbaligya ug yuta ha. When you
sell it- di na ordinary asset kay di man ordinary
course capital asset
You have a building where your store is

located?
Ordinary-used in business
House- dili kay gold sya. Joke.-mudepreciatecapital asset
House sa taas;pharmacy sa ubos-it depends on
the primary purpose. If dako ang balay capital
sya But for BIR pruposes, ordinary sya kay you
allowed business to take place man in that
building. Because when you sell it, you sell
everything.
So what if si Mr. Cabahug. Naa syay real estate

business buying ang seling condo units. After
using it for one night kay ibaligya dayun niya
(hayahaya.HAHHA) . If ibalgya ni to 3rd persons.
Will that condo unit be ordinary or capital?
Ordinary kay he is engaged man in buying and
selling condo units.
Mind you class: if nakabaligya ka ug 6-engaged
in real estate
3.
property used in the trade or business, of a

character which is subject to the allowance for
depreciation provided in Subsection (F) of
4.
real property used in trade or business of

the taxpayer.
-that lot where your property is located na
guise nimo sa trade and business;land. Unless
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imo building kay mulupad. Pero dba owner of

land. Owner sad ka above sa land
TAKE NOTE: MEMORIZE ANG 4!
Q: Why necessary to know if ordinary or capital? To
know that nature of the income so that we will know
what tax regime will apply.
XIV. Gross Income

1. INCLUSIONS
Section32A
(C--G--I--R--R--D--A--P--P--P)-memorize
Sec.32(A)
Except when otherwise provided in this Title, gross
income means all income derived from whatever source
incuding but not limited to the following items
Ordinary gains usually include your?

Gains or income from the sale or exchange of property
which are not capital assets
Business income- derived from
business;merchandise, manufacturing, exercise
of profession
2. Compensation income- presupposes EE-ER
relationship
3. Passive income-received without any act fro
the taxpayer
4. Other income derived from whatever source
1.
So if you earn income from masyaw? Considerd as gross

income? Yes.bsan illegal sya. If nadakpan ka kay
namaligya ka ug shabo- priso pa ka, pabyrun ka ug tax
This is what you call the james doctrine-when income
even if illegal, considered still as income, Usually
embezzlement
Willcox doctrine-illegal income are not subject to taxes.
It also not income kay di gud na pwede
BUT it makes sense ,if it is illegal,the more na dapat
taxan. Atu ifollow kay James doctrine
Unless these are sourced from a capital asset

How about for your capital gains?
1. Income from dealings in shares of stocks of
domestic corporation whether or not through the
stock exchange
2. Income from dealings in real property located in
PH
The trick there is that if it is related from business, it is
always ordinary. Not related from business-capital
(1) Compensation for services in whatever form

paid, including but not limited to fees,
salaries,wages, commissions ans similar itemsWhy iapil ang whatever form paid? While under
Labor Code- everything has to be paid. Otherwise-no
valid compensation. violation of Labor Code. For
income tax purposes,it does not matter how you pay.
As long as there is compensation, then it is part of
gross income subject to tax.
Even if di cash pagbayad, okay ra. Bsn ood pa kay
whatever form paid man- Tuna case sa labor
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(2) Gross income derived from the conduct of

trade or business or the exercise of a
profession (Sales-COGS)
(11) Partner's distributive share from the net

income of the general professional
partnership- it has to be general professional
partnership kay if di mufall sya sa (2).
(3) gains derived from dealing in property

income-profits earned when you sell your property
(4) Interests;-interest in bank account, loan
transactions na lender ka
(5)
-----------------------Taxation
2016----------------------------------
January
15,
Rents;
Exclusion from Gross Income (Sec. 32b)
(6) Royalties;-could be active (franchise of store like

jolibee-why? or royalty payments every year in
proportion to the earnings of a particular branch ) or
passive(ex. Technical expertise Management of a
hotel- some hotels here, they would enter into a
contract with management na naasa gawas
specializing in management operations-resorts
world( ang management company sa Malaysia kay
sila mumanage sa naa dre sa pinas)
(7)
Sir: what is being excluded here? A: the proceeds of the

life insurance is considered as excluded. After all this is
ought to be the income received.
Sir: If you are the beneficiary and by reason of the debt
of some insured person, you got sum of money. Is that
gain? A: yes. It is gain because it increases your net
worth.
Dividends;-share of the profits of the corporation
(8) Annuities;-equal payments in fixed interval

during a period of time. Personal Pension// Insurancein addition to GSIS or SSS, naa kay makuha lain na
cash
(9)
1. Proceeds of Life insurance
Prizes and winnings
(10) Pensions;-dre na SSS and GSIS
Sir: Is it realize? A: yes. After all you can actually

receive it.
Sir: Is it subject to tax? Or is it exempted/excluded
under the law? A:It is excluded. Based on the criteria for
an income to be subject to tax, it will (did) not comply
with the third requirement. That is why it is not taxable.
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ATTY AMAGO
Illustration: I will buy insurance from ___. When I die, my

beneficiary will receive the proceeds. The money that
they receive will be excluded from gross income.
income, therefore it is subject to tax. The 100k which is

a mere return of capital is not considered income,
therefore it is appropriate that it be excluded.
Sir: let's say your beneficiary is your husband, the

proceeds will be excluded? A: Yes.
Sir: Is there an exception to the rule that a life

insurance proceeds is not subject to tax?
Sir: If we change the beneficiary to the insured estate,

will the proceeds be excluded? A: Yes. The beneficiary
does not matter when youre looking at income tax. For
as long as it is LIFE INSURANCE PROCEEDS received by
the beneficiary it will not matter who the beneficiary is.
Someone has to die so that the life insurance proceed
will not be taxable.
A: a) * if ever there is an agreement as to payment

of interest, that interest will not be considered as
proceeds of life insurance. It would be considered as
interest income. The proceeds is still excluded.
Sir: What will happen if the person insured did not die?
A: Part of the proceeds will be taxable. If it is the return
of premium, it will be deemed excluded from taxes. The
entire amount of proceeds will not be considered
excluded/ taxable. Because, if ever there is an excess of
the amount you paid for, that excess will already be
considered income. There is gain, increase in the net
worth. It is realized under the endownment policy.
Traditional life contract- there is no period to outlive, no
period to consider, For as long as you live and continue
to pay premium.
Endowment policy- you just have to live for a certain
period of year and you are able to live then you will get
the proceeds of the life insurance. That is sort of
considered as investment.
Mere return of capital is not considered income.
Example: you paid 100k for a life insurance, you receive
110k in return. The 10,000 has to be considered as
This contemplates of a situation where the person

insured died and after several periods, only then the
company paid the proceeds. If in the life insurance
policy of that insured person states that there is
payment of interest at the time the life insurance
proceeds is supposed to be given to the beneficiary,
then whatever interest earned by that life insurance
proceeds will be considered subject to tax. But as to life
insurance proceeds itself, it would still be excluded.
b) * transfer to life insurance policy
Mr. X has a life insurance policy of 1 million with
Company A to be paid for a period of 10 years. The
premium pay is 100k every year. On the 5th year, Mr. X
sold the policy to Company B for the amount of 300k.
After 10 years when the insurance has already ripened,
the beneficiary ought to receive the amount of 1 million.
Will the entire amount of 1 million be considered
taxable? No. Exclude all the capital. Capital: 300k +
500k = 800k. Only 200k is considered income.
Formula in order to compute if ever there is transfer of
property: the profit subject to tax should be equal to life
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ATTY AMAGO
insurance proceeds minus capital which is equivalent to

the purchase price plus the premium paid. Profit=
proceeds - (purchase price + premium paid)
Sir: for what type of taxes does the designation of the
beneficiary matter? Will it matter for income tax
purposes if the beneficiary is revocable or irrevocable?
A: It will not matter for income tax purposes. Whether
the beneficiary is revocable or irrevocable, it does not
matter.
Sir: But will it matter for estate tax? A: Yes. If you are
the insured and you get to control who the beneficiary
until you die, the beneficiary is revocable. If you get to
control who is the beneficiary of your life insurance until
you die, who owns it at the time of your death? The
insured continue to own it even if it will go to someone
else because the control continue to exist until the last
breath. Just before you die, the owner of the property is
still the insured. It will form part of his estate because
he can control that asset. This is subject to estate tax.
If irrevocable, it will not matter because you don't have
any control anymore. At the time of your death, will it be
considered that you owned the property? No. Will it form
part of your estate? It will not because you can't control
it. It will not be subject to estate tax.
3. Gifts, bequests, devices
Ex. A donated a parcel of land to B. It will not be
subjected to income tax because it is already subjected
to donor's tax. Sir: In that case, was there a gain? Yes.
Because you got something that increases your net
worth.
Is it realized? Yes. It must have been received because

the donation have already been perfected the moment
you accepted the donation. It will not be subject to
income tax because it is already subject to another tax
(donor's tax). Otherwise, there will be double taxation in
the broad sense because the same property is subject
to tax. You are taxed actually not on the right to earn
income, but on the right to transfer property generously.
Sir: What if it is through a will, in your will you write
there '50k will go to my good friend', why would it not
be subject to tax? A: There is an estate tax imposed
already on such a property because the transfer will
only take effect after the death of the decedent.
These bequests and devises- the reason why they are
not subjected to income tax is because there is already
a tax imposed in it by the government.
4. Compensation for Injuries or Sickness
Ex. Mr. X, an employee of Mr. A broke his leg while he
was working. He was awarded compensation by virtue
of the Workmen's Compensation. Such compensation is
excluded from gross income.
Sir: But what if Mr. X cannot sleep because he cannot
stop thinking of Ms. Y. He sued the company because
why did they hire Ms. Y who is the cause of his sleepless
nights. He asked for moral damages. (For the sake of
example lang, don't take it seriously) He was granted by
the court moral damages. Will it be subject to tax? A:
Yes. There must be a physical injury or sickness before it
can be considered excluded from taxes.
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Sir: You are crossing the streets of San Carlos and there
was this 62c which fly the road recklessly and then you
were bumped. You sued the operator of the jeep net.
You asked for actual damages for your hospital bills,
moral damages because you were traumatized, and
exemplary damages to set an example that jeep net
shouldn't be driven recklessly. Which of these damages
will be subject to tax?
A: It must be a personal physical injury or sickness for it
not to be taxable. It could be paid through Accident or
Health Insurance, or under Workmens Compensation
Act. Plus the amounts of any damages receivedincluded as exclusion. It did not mention of type of
damages. For as long as it is a suit relating to physical
injury or sickness, then that damages are excluded from
taxes.
Damages granted on account of loss of profits- taxable
5. Income exempt under treaty
Sir: Why do you think it is excluded? What principle of
law supports this exemption? A: Pacta Sunt Servanda.
We ought to be in good faith whenever we enter into
agreements with other states. And because these two
states who are superior in their own right entered into
this type of agreement saying that it should be
excluded, then it should bind all of us in this country.
After all, we follow the Doctrine of Incorporation.
Following such doctrine, whenever the Philippines
entered into international agreements with some other
states, we ought to be bound by such an agreement. We
ought to apply good faith in implementing these
agreements. If that agreement says that it is excluded,
then it should be excluded.
Sec. 32b5- talks about an income specifically provided

in the tax treaty that it is exempted or at least excluded.
Under the ____ case (sorry lisod ispell ang case @49:27),
the Supreme Court said that there should be good faith
on the part of the Philippines in entering into
international agreements. When the Philippines enter
into international agreements with other nations, it must
implement such agreement outright without any
conditions, unless such condition is stated in the treaty
itself.
International agreements stands superior than the
regulation placed in the Philippines. While there is a tax
regulation stating that there should be application for
tax treaty relief before you can avail of the tax treaty
incentive, it does not mean that before the tax treaty is
applied as an exemption there has to be compliance
with this regulatory requirement. It is automatic,
whether you apply or not, it is automatic that there is
incentives granted to you. It's just that it would be
difficult to prove if you do not have the application. For
convenience purposes, you can comply with the
regulatory requirement that you applied for a tax treaty
relief application. It is already self-executing, it is
automatic, the benefits under the tax treaty.
6. Retirement Benefits, Pensions, Gratuities, etc.
Sir: What do you mean by the reasonable private benefit
plan? A: It means (refer to sec. 32 b 6 a)
Sir: Based on that definition, what must be
remembered? A: It is in the form of pension, gratuity,
stock bonus or profit sharing.
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ATTY AMAGO
Sir: Must there be a contribution made by the employer?

A: Yes. It is a requirement that there should be a
contribution by the employer.
Sir: For whose benefit it is? A: For officials and
employees
Sir: Can you use the principal or income of such a fund?
A: No. For personal or other purposes other than that for
the benefit of employees or officials.
Take note: if it complies with the requirement of
reasonable private benefit plan, you already complied
with the first condition for it to be excluded.
What other conditions must be complied with for the
exclusion to apply? Second, period of service must be at
least 10 years and at least 50 years of age. Third,
should be availed only once in his lifetime. Fourth, it has
to be approved by the BIR if all these conditions are
complied with, it is already excluded from taxes.
Sir: If Mr. A, at the age of 30 joined X Co. and worked
there for 5 years. Got a separation pay for 300K. And
then, at the age of 35 years, he transferred to Y Co.
where he worked for 10 years where he got a retirement
benefit worth 1 million. Pagsugod niya ug lain pa jud na
trabaho, 45 years old, went back to X Co. and worked
there for 6 years got a retirement benefit of 2 million.
Q1: for the separation pay, subject to tax or not? A:
subject to tax. There are only two causes before
separation pay may be deemed excluded from taxes.
First, the reason could be death, sickness or other
physical disability. The sickness should be serious
enough, something that cannot probably be cured
within 6 months. Sickness as certified by a medical

practitioner or doctor.
Sir: So if those are the reasons for your separation, say
for example you are suffering from cancer and you want
to leave the company then that can be considered as
separation with due cause. But lets say for example you
had a fever yesterday and then you want to be
separated from the company already, do you think that
is a separation covered under the tax code to be
included in taxes? No, it must be a sickness that is
serious enough, somehing which cannot be cured within
6 months probably. It is not particularly mentioned but
since this is an inclusion, it has to be strictly construed
against the taxpayer. It could not just be any sickness.
Sir: Another set is that which is beyond your control. So
what are examples of this? A: Retrenchment, by that we
mean that because of possible losses, the employer
might want to save on costs such as introducing labor
saving device.
Sir: If you are late or you keep on coming to work and
then sleep and you are terminated because of chronic
sleeping, are you excluded from paying taxes? A: No,
because the reason is not beyond your control.
Sir: For as long as it is a cause beyond your control,
being late or sleeping is within your control.
Redundancy is one thing which you cannot control, it is
out of the companys hiring policy which caused this
redundancy. If those are reasons falling under instances
which are beyond your control, it is also excluded. Now
in this case, it was not mentioned but because this is an
exclusion, it should be construed strictly against the
taxpayer. Say granting he worked anyway after retiring
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ATTY AMAGO
from or leaving Company X, he worked with Company Y,

so it must be for some reason personal to him, lets just
assume that it is not beyond his control. Therefor this
300,000 is should be taxable. Or if it is beyond his
control then it is excluded.
Sir: How about the second situation? A: It is included or
subject to tax because he is not yet 50 years old when
he retired.
Sir: How do you convert it in order to be excluded? A: If
he was 50 years old then this could have been excluded
granting that there is a reasonable private benefit plan.
Sir: What if there is no reasonable private benefit plan
offered by the company, is there a way that this could
be excluded? A: Under the new retirement law, there is
an optional retirement age of 60 years old and
compulsory og 65 years old. For it to be exempted from
tax, you just have to comply with the retirement age of
60 or 65 and then work for that company for the same
company for a period of 5 years. If thats the case, then
the retirement benefit that you will get will still be
excluded from taxes. That is if there is no reasonable
private benefit plan set up by your company. Or even if
you do not fall under the retirement law, if your CBA
provides for retirement terms, it should be burdensome
than what the retirement law provides. So you cannot
say in your CBA nga 70 years old and retirement age
and kinahanglan 10 years of service kay burdensome na
hinuon sya. At all, what the law say it is not required
the requirement of age and years of service. So at all
you can say 60 years or 20 years for as long as these
are not a twin requirement. Basta dili lang sya
mahimong mas burdensome kaysa sa law.
Sir: Now, under the 3rd requirement, still subject to tax

because it has not complied with the years of service.
How about the age? Yes, complied. How about the
service requirement, it has complied with the
requirement because take not that he has already
worked for 5 years with X Co. before he went back to X
Co. after 15 years. He has previously worked with X Co.,
naa na syay 5 years duha plus naa pa syay another 6
years Pagbalik niya, so all in all, 11 years. Is it required
to be continuous? No, it is not provided under the law.
So it is 10 years whether continuous or not for as long
as it relates to the same employer.
Sir: What if the CBA applies under the 2 nd requirement?
Under the 2nd situation, there is a CBA. So that means
the 1 million is? CBA says 10 years. It is excluded. Will
the second one be excluded from taxes? Not anymore
because you can only avail of it once in your lifetime.
Sir: What if I change this.. So at age 45 he worked for
the government for a period of 10 years and then you
got your retirement benefit from the government worth
1 million pesos. After that, he worked with X Co., 55
years then at the time he started, worked for 10 years
and received a retirement benefit of 2 million. First
situation, exempted from taxes or subject to tax?
Exempted from tax because your retirement benefit is
under GSIS therefor it should be excluded from taxes.
The second situation, still excluded because you do not
count for purposes of complying with the requirement
under letter A the retirement of the government. After
all, it says private, government is public and the
exclusion does not fall under letter A, it falls under letter
F the GSIS retirement plan. In this case, you can still
avail of the retirement benefits. That should be the plan.
If you work for the government and after working for the
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ATTY AMAGO
government, you work privately so that you can have

exclusions for your retirement plan. But then again,
once you work with the government ______.
Sir: How about if the retirement benefit is received from
a foreign entity? Say for example, there is foreign
retirement company in the US and you used to work for
the US. After retiring, you went back to the Philippines
and you received a pension form the private retirement
company. Is it excluded or not? A: It is excluded under
Sec. 32b-6c which provides that retirement benefits
received from foreign entity, private or public, it is
excluded. Nindot kaayo mo-trabaho sa gawas, whatever
you receive from abroad, it is excluded. Maypa magpapension sa gawas noh kay excluded man from taxes, sa
Pilipinas kay subject man to tax kung dili mo-fall sa
requirements.
Sir: If you are a Veteran? A: Exempt also, that if the
benefit is received from the US Veterans Association.
Sir: Benefit from SSS, retirement plan? A: Exempted also
because they are provided clearly in the tax code. There
is no need to discuss that, very obvious noh? Clearly jud
gi-provide sa tax code.
Sir: How about miscellaneous items? How would you
illustrate letter A in the miscellaneous items? A: China
will deposit money here in Land Bank of the Philippines,
the interest income derived from it will be considered
exempt from taxes.
Sir: This is the situation, Atlas is supplying a product to
Mitsubishi Co. For it to be able to supply that product, it
requires an equipment but it cannot afford the
equipment. So what it did was to loan money from
Mitsubishi Co., it loaned 2 million to buy the equipment

and make the product which it will still sell to Mitsubishi
Co. Mitsubishi in return borrowed money from the Bank
of Tokyo which is owned by the government of Japan.
There is payment of interest on the loan made by Atlas
from Mitsubishi in the amount of 100,000 per year, so
that is the interest payment on the loan. Will the
100,000 interest payment be excluded from taxes? A: It
must be something connected to a foreign government
ha, it is not enough nga financial institution. Who must
earn the income? It has to be the foreign government. In
this case, where will Atlas pay the 100,000? To
Mitsubishi Co. Did the foreign government earn income?
No, because there is no mention that Mitsubishi is
paying interest to Japan. Had it been the case that we
will allow this situation to happen and it will be excluded
then all companies which is related to a foreign nation
will just loan from their governments and then enter into
transaction with the Philippine corporation here so that
whatever loan they will enter into will not be subject to
taxes. Dili na sya ang contemplation sa law, the
contemplation is that it must be the foreign government
who must earn the income. Had it been mentioned that
Mistsubushi is also paying interest to the Bank of Tokyo,
lets just say 50,000 pesos then the 50,000 is excluded
because this is a loan to the Philippines granting that
Mitsubishi Co. is in the Philippines. But because we are
talking about the 100,000 interest paid for by Atlas to
Mitsubishi, so whos earning the income? Mitsubishi Co.,
you dont just connect just because there is a loan
coming from the Bank of Tokyo. It has to be an income
earned by the foreign government. Otherwise, it will be
subjected to taxes. The interest is still taxable (CIR vs.
Mitsubishi).
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ATTY AMAGO
Sir: Are government owned and controlled corporations

subject to taxes? A: General rule, GOCCs are subject to
tax unless their charter provides that they are
exempted. And then second requirement is that they
must be doing governmental fuction alone. Because if
they are doing propriety function then that propriety
function will subject them to tax.
Sir: Is the provision under 32b-7b applicable to GOCCs?
A: They are covered by this provision if they are
performing public functions because it says there
income derived from any public utility. What could be a
public utility? Water districts are public utitlity, NGCP.
They may be covered under this provision if they are
performing public utility. But if they are not performing
that, if it is only relating to their essential governmental
function, that must be a political subdivision. But then
again, it mentions accruing to the governmenr of the
Philippines, who is considered government of the
Philippines? If the office is related to the national
government, then it would still form part of the
government of the Philippines. So it will never include
GOCCs because these are different. Diba it must be an
office not separate from the national government. So
where can GOCCs then get an exemption? Their
charters would be one but theres another provision,
Section 27c which provides that the provisions of
existing special or general laws to the country
notwithstanding,
all
corporations,
agencies,
or
instrumentalities
owned
or
controlled
by
the
government, except GSIS, SSS, Phil Health, PCSO and
PAGCOR, shall pay such rate of tax upon their taxable
income as are imposed by this section upon
corporations or associations engaged in a similar
business, industry or activity. Pag-ibig is likewise
exempted from income tax. Is PAGCOR included here?
No, but is PAGCOR exempted? Yes but only in relation to

income derived from gaming operations because their
charter says so. So general rule then. GOCCs under Sec.
27c are taxable unless they fall under these exemptions
here.
Sir: But what does it mean when it says shall pay such
rate of tax upon their taxable income as are imposed by
this section upon corporations or associations engaged
in a similar business, industry or activity? A: You must
find an industry to which this particular GOCC is related
to. Say for example BSP, it is related to banks. So
whatever is the tax applicable to banks, should be made
applicable to BSP. That was the position of the BIR.
While I was with ACCRA, while I was assigned in Manila
then, the BIR sued BSP for defeciency taxes because its
position is that BSP is a bank and all taxes applicable to
bank should be subject to tax as provided under Sec
27c. We represented BSP and our position was that, yes
it may relate to a bank but is it doing an activity similar
to bank? Actually no. Yes, it engages in loan but is the
loan for profit purposes? No, it is to stabilize the
financial sector of the country. So there is a
governmental function. Essentially its a governmental
function if youre looking at BSP. Should the Central
Bank be subjected to tax? Because under the charter of
the Central Bank, it is only exempted for a particular
period and that period has already lapsed. Therefor, it
should be subjected to tax under its charter. But there
are several provisions in the tax code which could
actually support that it should be exempted from taxes.
Sir: As a general rule then, GOCCs are subject to tax
unless exempted under the law or under their charter.
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-------------------------------------------------------------------------------------------January 18, 2016

Exclusions from gross income these are items of
income which the law deems not subject to tax or at all
excluded from the term gross income
Section 32b has 7 items although we understand that
the miscellaneous item has several components. We
were able to discuss up to income derived by the
government or its political subdivision. We said that this
particular provision 32b-7b would only refer to
government owned and controlled corporations if it
relates to public utility. But other than that, it will not be
applicable. If there is any exemption relating to any
GOCC, you should refer to Sec. 27c of the tax code.
Political subdivisions though are different because it is
clearly provided in this provision that political
subdivisions are exempted from taxes when they
perform governmental functions. So if ever, political
subdivisions are engaged in non-governmental functions
which is actually possible, will they be subject to tax?
The answer is yes because it should be related to the
exercise of any governmental function.
Prizes and Awards
As a rule, prizes and awards are subject to tax. There
are just certain conditions that have to be complied with
before they ay become excluded from taxes. So again,
as a rule, prizes and winnings are subject to tax. How do
you differentiate prizes from winnings? Are they one and
the same? If its a prize, does that require an action on
your part? No. Whereas winnings, you have to perform
certain actions.
For example, you are engaged in a boxing tournament.

How would you call the award? Will it be a prizes or
winnings? It will be winning because it requires you to
do something. So when there is a required service
before something is given to you, that would be
winnings.
Why do you have to differentiate prizes from winnings?
Because there is different taxation for these when we go
discuss passive income later on. But for exclusion
purposes, prizes and awards made primarily in
recognition
of
religious,
charitable,
scientific,
educational, artistic, literary or civic achievement may
be excluded from taxes if the recipient was selected
without any action on his part to enter the contest or
proceeding and when the recipient is not required to
render substantial future services as a condition to
receiving the prize or award.
So take note, there is a dual requirement. This is not
mutually exclusive. Both have to concur before the
exclusion applies.
If for example, you joined an investigatory project
contest sponsored by some pharmaceutical company.
You are not required to render service to the
pharmaceutical company but what you did to join was to
submit personally or thru mail your entry for the
contest. And then later on you will be called for the
panel interview. Would that fall under the exclusion? The
answer is no. Why? Because there is an action required.
But if you refer to the example given by your classmate
last meeting where there is this cellphone company and
out of an electronic raffle, your number was picked and
your won P20,000, will that exclude you from paying
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ATTY AMAGO
taxes? The answer is yes for as long as there is no

action required, you never intended to join, it was
electronically raffled without you knowing and then
theres no service required of you later. So take note of
these 2 requirements.
And then not just any award. It must have a purpose
religious, charitable, scientific, educational, artistic,
literary or civic achievement. It not entirely correct to
just simply say that the cellphone company rendered a
raffle, there must be a purpose for that raffle. So lets
assume that it is intended to support a foundation which
is for charitable purposes.
How about if in the middle of the street you
encountered an old woman whom you guided crossing
in that wide street. And then after you reached the
sidewalk, she gave you 1 million pesos. Out of the
kindness you rendered in helping her cross the street.
Will you be exempted from paying taxes? As a prize and
award? Well, you can always take that position that this
is indeed a civic achievement. So there is some
gallantry that you did and as a prize for the civic service
you rendered, you were given 1 million. So you can take
that position.
If at all, the BIR will simply say that there is donors tax
due on that amount that you just received. Was he
compelled to join? No, he did not even know that there
was a contest. Was he required to render substantial
future services? The answer is none. Take note that the
service has to be substantial. This is a question of fact.
Most of the provisions when they say substantial or
most of the provisions of the tax code actually are
almost always questions of fact unless there is a
particular percentage set. As far as I know, there hasnt
been any standard set as to what is considered

substantial. It is always a question of fact, after all it
depends also on the service rendered.
How about in sports competitions, can you be
exempted? It would only apply to athletes in local and
international sports competitions and tournaments, it
must be held either in the Philippines or abroad so in
other words it doesnt matter diay and it must be
sanctioned by their national sports associations. But it is
not just the national sports association, it has to be
sanctioned by the Philippine Olympic Committee.
So if that is the case, there is always this common
question involving Manny Pacquiao. Whether the award
of Manny Pacquiao should be considered excluded from
taxes under this provision. The answer is no because his
boxing tournament is not sanctioned by the Philippines
Olympic Committee. It may be sanctioned by the boxing
association here in the Philippines but it is a common
knowledge that the international tournaments on boxing
are not sanctioned by the Philippine Olympic
Committee. So that would actually tell us that this
provision most likely refer to the non-professional
athletes because what are sanctioned by the Philippine
Olympic Committee are amateur tournaments although
the Olympics is not only for amateurs. But that is how
this is discussed, that this would be more applicable to
amateur athletes.
Like Onyok Velasco when he won the silver medal in the
1993 Olympics, should he be subject to tax? The answer
is no because it was sanctioned by the Philippine
Olympic Committee being the Olympics na gani diba
and it must have been sanctioned also by the Philippine
boxing organization whatever you call it. Take note of
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ATTY AMAGO
the requirement that yes it may involve international or

local tournament, it may be held here in the Philippines
or abroad but there is a requirement of accreditation
before it can be excluded from taxes.
of the exemption. You can call it instead as Christmas

bonus so that it would fall under item no. 4.
Pia Wurtzbach, should she be exempted from taxes? No,

in fact there is already a news article saying that she is
not exempted from taxes. But could it not be considered
civic achievement? Yes, but there is a requirement that
there must be without any action on her part to join the
competition. She has to join diba? You can never
actually hide under the mantle of Sec. 32b-7c of the tax
code. Theres no other way, so she is most likely subject
to tax.
The 4th one, this other benefits, take note you have to
memorize this. It would only refer to productivity
incentives and Christmas bonus. But under the De
Minimis Law, there is this additional de minimis now
involving productivity incentives. Which may be given
voluntarily by the company or thru a CBA and the
amount then is 10,000. So in addition to your 82,000,
there is now 10,000 for productivity incentives. Thats
92,000 all in all.
So how can she possibly get away with it? Try to

research how she can get away with taxes. Theres a
way.
Now we will discuss later on the de minimis benefits like

say for example rice subsidy amounting to 1,500 per
month. In addition to you basic salary, you can be given
this rice subsidy and if it is in excess of 1,500 per
month, that excess will be included in the computation
of the threshold for this 82,000. So in addition to your
13th month, you also include any excesses in the de
minimis benefits. There is a particular revenue
regulation for de minimis benefits. In fact, some of
which you are most familiar with, clothing allowance is
included to the extent of 5,000 per year, naa pay
laundry allowance. Why do you have to know these?
Because these would help you plan out a tax shield for
certain employees. Knowing these can help you save on
taxes for some of your employees later on.
Q: Kanang lotto Sir ba, excluded na? A: Yes, it is

excluded. Q: But I did something man Sir, nipalit man ko
og ticket? A: It is excluded not under this provision but
under the PCSO charter, there is a specific provision for
that exempting it from taxes.
13th Month Pay and Other Benefits
You already know that 13th month pay and other
benefits have already been amended from 30,000 it is
now 82,000. Some companies give employees to the
extent of 14th month. Will the 14th month be covered
under this exclusion? Clearly no. First and foremost, the
law clearly provides that it is only referring to 13 th
month. But of course if you are the employer, you dont
term it as 14th month so that your employees can avail
14:23 14:41
Take note of that. For now we leave it at the 13 th month

of 82,000 plus the productivity incentive of 10,000.
GSIS, SSS, Medicare and Other Contributions
24
ATTY AMAGO
Take note, it is the contribution but then you already

understood that benefit granted by GSIS, SSS and Phil
Health are also exempted as well as your contributions.
Thats why every month, when you compute for the
withholding tax on the compensation, you always
deduct first all these contributions. For example, you
have a monthly wage of 20,000. You deduct there the
contributions for lets say 1,000 for SSS, 100 for Pagibig, and say 500 for Phil Health. You dont subject the
entire 20,000 to income tax or to the withholding tax
system. So ang imong i-subject sa withholding tax
system in 18,400 lang kay i-deduct man nimo daan ang
imoang contributions ayha ka magcompute sa imoang
tax. We know under Sec. 32b-7f, it is exempted.
Statutory contributions are exempted or excluded from
taxes.
Gains from the Sale of Bonds, Debentures or
Other Certificate of Indebtedness
What are debentures? Unsecured bonds. This should
have been considered as part of bonds but they just
want to include it there. But debentures would refer to
long term liabilities which are unsecured. That letter g
there all relates to obligations. Whenever there is a gain
on the sale of your obligation, it is not subject to tax but
take note it should have a maturity of more than 5
years. So if 5 years lang, excluded or not? Not.
You said that there must be a certificate of
indebtedness, can you securitize an obligation? Yes you
can and this actually the reason why there is this term
sub-prime crisis which brought about the crisis in the US
way back in 2008 kay diba its because of their subprime mortgages being securitized which are actually
unsecured. Meaning ang tanan nga mga obligations,
you make a security out of it. How come you can make a
security out of it? Diba there is supposedly an
expectation of payment from certain persons. Say for
example kani (index card), this represents an utang and
then that utang has a worth of 1 million pesos and there
is payment of 1,000 every month. So if you make a
security representing the expectation of payment from
that obligation, ako ang gi-utangan, I have expectation
of 1,000, I can assign my right to the 1,000. What I do is
I make a security out of it saying that the 1,000 can be
invested in this because there is expectation of payment
from a particular liability. Thats what they did, they
pulled all the mortgages kay diba this is very uso in the
US. Mga mortgages of most American citizens and then
they make a security out of it after all there are
expectations of payments from these individual for as
long as they are working. It turned out that most of the
people defaulted on their obligations and this caused
the crisis. Thats why it is considered another source of
income. People owe you and then you sell or assign you
right to that obligation to someone else. When you do
that, you can be excluded from taxes but it is required
though that your liability which you securitized has to
be more than 5 years. So certificate of indebtedness is a
form of a security.
Security could be equity, it could be debt. Your shares of
stocks is called a security but that is an equity security.
These bonds are still a security called debt security.
Gains from Redemption of Shares in Mutual Fund
Take note it must be from a mutual fund. Unsa manang
mutual fund? Again, this is just a form of security but
this is equity security. Not all of us can invest in shares
of stocks, we dont have much money to buy certain
24
ATTY AMAGO
holds of shares or at all if you can even buy it you must

be _____ (24:26). So what companies do to make this
opportunity available to a lot of people, they allow
people to pull their resources in a fund known as mutual
fund. This is called mutual because there are a lot of
people contributing to it and this fund will be invested
by certain company on shares of stocks, it could even
be bonds as well for as long as these are traded or there
is an available market for it.
Say for example shares of stocks, diba as stated in the
Philippines Stocks Exchange. If I am the one managing
the mutual fund, I can invest in certain shares of stocks.
Now, do I own the shares of stocks? No. Who owns it?
Its the mutual fund and as a representation that you
have an interest on this mutual fund, you will be given a
certain certificate. That is the certificate of shares in
mutual fund. That shares of yours, you can sell. And
when you sell it, it can be excluded from taxes. So gains
from redemption of shares in mutual fund. But again it
has to be in a mutual fund company for there to be an
exclusion.
Now this came out in the 2010 Bar Exam but true or
false. But take note that it has to be redemption of
shares. Meaning gipalit balik sa mutual fund or you sell
it to the mutual fund itself. Can the mutual fund buy you
shares? Yes so that other can invest in it also, sila na
dayon ang mobaligya balik.
Example PhilAm Life, it can buy your shares. Meaning
when you cash out na ba, thats redemption. Pag nicash out naka sa imong investment sa mutual fund, you
sell it back to the one managing the fund. Whenever
there is gain there on your part, you are not subject to
tax. Whats the reason for this? To encourage people to

invest in mutual fund.
Ayaw nalang sabta kung unsa ang concept sa mutual
fund. Huna-hunaa lang this is mutual fund. Naay mutual
fund nya ang mag-manage ana is called a mutual fund
company. You can buy shares at the mutual fund
company so that you will have shares in the mutual
fund. When you want to cash in on your investment,
diba sometimes or most likely, you will have to earn.
The amount invested lets say is 1,000 and they make
representations that based on the value of shares that
you will be buying, you can increase your money. So if
ever you did earn on your shares of the mutual fund,
supposedly thats income right? It is subject to tax but
the law deems it that it can be excluded from taxes.
Q: Sir, nakakita man gud ko sa TV sauna ba nga naay
winnings dayon ang prize is 1 million and then theres a
line nga tax-free. Is it really tax-free or someone is
paying? A: Someone is paying for it because it is
supposedly subject to tax. In fact, kanang mga giparaffle diha nga mga sakyanan, pangitaan jud na og taxfree kay kung wala gani tax-free, ikaw mobayad sa tax.
If ever you will win, you cannot get the car just yet until
you pay the taxes. So you are right, when you say taxfree that someone is paying for it. Most likely its the
one sponsoring the raffle.
Take note: It has to be a redemption- sale back to the
mutual fund company, not to the third party.
SITUS OF INCOME
Compensation for services where the services is
rendered.
Where
the
employer-employee
24
ATTY AMAGO
relationship actually exists. It usually exists on

where the service is supposed to be rendered.
favorable to you. The price at which you can

exercise the option is lower than the market price.
Compensation only happens whenever there is

ER-EE relationship. Determined through 4-fold test
and 2-tiered test.
Gross income derived from conduct of trade or

business or exercise of a profession
- The basis should be the place of business or
where the operation is conducted.
- If you have a business abroad (US), can
Philippines subject your income abroad?
Technically, it can because when you are a
citizen of the Philippines you are taxable for
income within and without the Philippines. But
if the basis alone is situs for business income,
Philippines cannot have situs of that income
because the operation is in the US.
- Does it matter if you sell on credit or cash? No,
for as long as income can be realized.
Stock option- Can it be a compensation? To encourage

people to stay with the company, they give this
stock option. The idea is when you buy the shares
of the company, diba you would want to work for
your own company. You would want it to grow. You
get to have a say. This is one way by which
employer encourage people to stay with the
company?
Can that be considered income? Yes, it can,
grating that you are able to benefit out of that
stock option.
How could you be benefitted? If you are able to
buy it on an amount less than it is sold in the
market. For you to say that there is gain on your
part, there must be a price that is special for
employees. Ex. The market price of the shares is
1,000 and the employees were able to buy it at
100 pesos only.
So how much is considered as income on your
part? The 900 pesos which is the difference
between the market price and the exercise (?)
price of the stock option.
Take note: stock option can only be considered as
additional compensation if it gives benefits to the
employee. How can it be a benefit? If the price is
Gains derived from dealings in property

- If it is personal property? Where the sale
happened.
- Real property? Where the real property is
located.
Q. if you sell real property in the US, can you
be taxed here in the Philippines?- Technically
yes. But if you are just looking at the situs of
the property itself, then NO because the
property is located in the US.
Interest
- Situs is the residence of the debtor.
- Ex1. X is a Filipino citizen. The loan transaction
was perfected in Japan (Japan National Bank).
You pay interest on the loan. P1Million plus
payment of 100k every year. Who has
24
ATTY AMAGO
jurisdiction over the 100k? Can the Philippines

taxed the interest income of that loan? Yes.
How can the Philippines subject it to tax?
Before the resident debtor pays interest to
Japan national bank, it will withhold the portion
on the tax on interest. So, ang Philippines
naka-collect na.
Q. Can you be compelled to withhold? No. But
you can be penalized if you dont withhold.
Ex2. PNB extended the loan to a Japanese

Company, X Co. a resident of Japan. There is
interest payment of 100K. Who has jurisdiction to
impose tax in the interest income? Under our law,
it would be Japan because the debtor is in Japan.
Q. Would the Philippines be not able to tax this?- it
can because PNB is here in the Philippines. It may
not subject the tax on interest income but it can
subject this to tax on its operation. At the end of
the year, it will have an income statement which
will reflect the income of PNB which will be subject
to income tax at the rate of 30%. (The Philippines
may be able to tax the income under corporate
taxation, not on the interest income)
Rents
-
Where the leased property is located.

If it is a rent of a car? Where the business of
renting the car is operated (office of the car
rental company).
Real property? Where the property is located,
even if the residence of the owner of that
property is somewhere else.
If the property is in the US? And there is rent
there, can the Philippines not subject you to
tax on the rent income in the US? It depends
on what type of taxpayer you are. If you are a

resident citizen, then you can be taxed for
income within and without the Philippines and
still subject you to tax there. But supposedly,
looking at the situs of rent income alone, the
Philippines cannot subject you to tax because
the property is located in the US.
Royalties- income generated by intangible personal
property
- To be exact, this is the intellectual properties.
- Situs is where the royalty is being used.
- Ex. Author of a book. Publisher pays the author
royalty fee. If the books are sold in the
Philippines, your royalty income will be taxed
here in the Philippines.
- What if the books are sold in the US, will it be
subject to tax? Looking at the situs of the
royalty alone, not subject to tax. But then
again, you can still be taxed here in the
Philippines because you are a citizen and a
resident of the Philippines.
Dividends- income derived from investing in the shares
of a corporation.
- How is this taxed? What is the situs?- it is
where the corporation is located. Where the
corporation is registered.
- Ex. The corporation is registered in the
Philippines as a domestic corporation. Can the
Philippines subject you on your dividend
income out of the shares of that corporation?
Yes as it is registered in the Philippines.
- When a corp is created in the Philippines under
PH law (Domestic corporation), only the
Philippines gets to protect it. So any income
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ATTY AMAGO
distributed by that corporation is ALWAYS

considered
as
income
sourced
within
Philippines.
If it is a Foreign Corporation? It depends on how
you
categorize
the foreign
corporation
(resident or non-resident foreign corporation).
o How would you know if it is resident or
non-resident?- you will have to look on
how the income is derived (for purposes
of situs ra)
o If its more than 85 percent then it is
within the Philippines Q: What is more
than 85%?
A: You have to look at the dividends of that corporation

for the last three years from the time the dividends are
actually declared. Example: For Example you declared it
for the Year 2016. What are the periods you have to look
at then? 2015..2014..2013 whatever is the income of
that foreign corporation.
TAKE NOTE: The law did not distinguish whether it is
resident or non-resident. For as long as it is a foreign
corporation. You look at the three year period prior to
the declaration of that dividend. Lets say for example:
It is consistent for 1M while at abroad it is 2M this
means for the three years you have a total of Insert
graph pls refer to micas picture.
Assuming these are the figures that you are provided
with. You are to determine whether the income is
derived from the Philippines or outside because we are
talking about Situs. If it is derived in the PH, regardless
who is the taxpayer it will be deemed taxable here in
the PH. If its outside though, only the domestic
corporations maybe subject to tax or resident citizen of

the Philippines.
So, What is the total? The total of the three year period
is 13Million. Now, if you get the percentage of 6Million
which is from the PH over the global income of 13Million
that would be 46.10 percent.
Q: How would you classify this in term of situs? This
doesnt reach 50 yet so it is outside the Philippines.
SECTION 42 of the TAX CODE: 50 percent or less
OUTSIDE OF PH More than 50 percent then it is
considered within the PH but then regulation will tell us
that if its more than 50 percent but not more than 85
percent then it is partly within PH and partly without PH
In excess of 85% it is within the PH.
What do we mean by within?

A: It should be the Philippine income for the last three
years divided by global income(total of PH income and
abroad Income) Whatever is the percentage here that
would tell us what is the situs of that particular income
whether within or without the PH.
ANNUITIES
- Fixed payment in equal intervals.
-It is a type of investment from which you can get
expectations of payment on a fixed interval and then
most likely than not of equal amounts. When does that
happen?
24
ATTY AMAGO
Example: There are insurance products now which

allows you to get fixed income after you work
supposedly thats termed pension but pension requires
that there be employer-employee relationship and so
this is granted in consideration of the work that you
have that is why you pay for it while you are working
but this is something that is a available to everyone, a
product offered by some insurance companies. When
there is an investment which gives you the the right to
receive or expectation to receive income of equal
amounts in fixed interval for example monthly thats
fixed interval right? Every month you receive an amount
of probably an amount of 2k ,if you dont want it
monthly you can have it yearly probably 1 million pesos
per year until you die or for a period of time probably. As
long as it is fixed amount of equal intervals you can
term it as annuities, it is more or less the same as
pension in pension lang it requires employee-employer
relationship.
SITUS OF ANNUITIES: where the contract is perfected.
Where it is actually executed.
PENSION:
It is in consideration of work. It must relate to the
service you rendered while you were an employee. This
is in consideration of the work you have done. You
continue to add up to the funds of your pension while
you are working.
SITUS OF THE PENSION: is where the service is rendered
meaning where is the employer-employee relationship.
PROFFESSIONAL
PARTNERS:
INCOME
OF
PROFESSIONAL
-where the exercise of profession is undertaken.

Example: Lawyer Firms; Accounting Fims, Group of
Doctors you term it as a general partnership.
*** Sec 42 of the Tax code (sir wants us to read it

daw)
Sec 42 tell us when a particular income source within
the Philippines
SECTION 42A no. 1 INTEREST:
-taxable where the debtor is a resident of the
Philippines.
-take note it says here Resident refer to your NIRC
Codals
TRICK IN THE EXAM: What if you are a foreign
corporation doing business in the Philippines and you
have a loan obligation. Where is the situs of interest
income? Where is the situs? Within the Philippines?
Answer: Within the PH. Because take note it doesnt
matter whether you are an alien or a citizen or a foreign
corporation for as long as you are a resident.
DIVIDENDS:
-whether it is domestic or foreign
-If its from a domestic corporation we look at the three
year period and determine the percentage:
a.) More than 50% to 85% - partly within and
partly without the philippines
b.) More than 85% - within the Philippines
c.) Less than 50% - Outside the Philippines
24
ATTY AMAGO
RENTALS:
-where the property is located
if any, shall be treated in full as taxable income from

sources within the Philippines
ROYALTIES:
-where the royalty is being used.
EXPLANATION:
This is where you assign a particular expenses in
relation to income: In Accounting there is what we call
Matching Principle for every revenue that you generate
there ought to be an expenses incurred in order to
generate that revenue. Example: If there is a sales
revenue? What are your expenses? Marketing alone is
already an expense for you to generate that income.
The same with taxation it recognizes with the matching
principle. If there is this income derive from the PH and
from abroad. You can only deduct expenses in relation
to that income generated in the Philippines lang.
SALE OF REAL PROPERTY:

-where the real property is located.
SALE OF PERSONAL PROPERTY:
-place where the sale happened. Unless if its intangible
it will depend if that intangible has already a situs
somewhere else.
Example: you assigned a particular bank account and it
is located in the PH but the transaction happened in the
US? Where is the situs?
EXAMPLE:
Answer: It is derived in the PH. Because All law involving
bank deposits are covered by PH law so in intangible
property guiding criterion is when there is a certain law
in the country that governs the intangible property then
it is where its situs.
WHAT DOES THIS PROVISION MEAN?
(1) General Rule. - From the items of gross income
specified in Subsection (A) of this Section, there shall be
deducted the expenses, losses and other deductions
properly allocated thereto and a ratable part of
expenses, interests, losses and other deductions
effectively connected with the business or trade
conducted exclusively within the Philippines which
cannot definitely be allocated to some items or class of
gross income: Provided, That such items of deductions
shall be allowed only if fully substantiated by all the
information necessary for its calculation. The remainder,
Expenses is 100k if you cannot pin point specifically if

it derives mainly from abroad or from the PH you have
to pro rate. You divide the 100k in the PH and US.
Example the cost of innovating that product. Ikaw ang
naka discover og IPHONE. Your research expense that
means expenses. You sold some of these items in the PH
and abroad will the cost of research and development
will only be attributable to PH alone? No you will pro
rate section B 1 of the tax code.
Gross
income
Philippines
from
sources
without
the
- you can either memorize these or those not within the

Philippines. It's up to you basta those not within are
without These provisions are complimentary:
24
ATTY AMAGO
There are also those sourced partly within and partly

without.
Sec42 Paragraph E.
Income From Sources Partly Within and Partly Without
the Philippines. Items of gross income, expenses,
losses and deductions, other than those specified in
Subsections (A) and (C) of this Section, shall be
allocated or apportioned to sources within or without
the Philippines, under the rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner. Where items of
gross income are separately allocated to sources within
the Philippines, there shall be deducted (for the purpose
of computing the taxable income therefrom) the
expenses, losses and other deductions properly
apportioned or allocated thereto and a ratable part of
other expenses, losses or other deductions which
cannot definitely be allocated to some items or classes
of gross income.The remainder, if any, shall be included
in full as taxable income from sources within the
Philippines. In the case of gross income derived from
sources partly within and partly without the Philippines,
the taxable income may first be computed by deducting
the expenses, losses or other deductions apportioned or
allocated thereto and a ratable part of any expense, loss
or other deduction which cannot definitely be allocated
to some items or classes of gross income; and the
portion of such taxable income attributable to sources
within the Philippines may be determined by processes
or formulas of general apportionment prescribed by the
Secretary of Finance.
Gains, profits and income from the sale of personal
property produced (in whole or in part) by the taxpayer
within and sold without the Philippines, or produced (in
whole or in part) by the taxpayer without and sold

within the Philippines, shall be treated as derived partly
from sources within and partly from sources without the
Philippines. "Gains, profits and income derived from the
purchase of personal property within and its sale
without the Philippines, or from the purchase of personal
property without and its sale within the Philippines shall
be treated as derived entirely from sources within the
country in which sold: Provided, however, That gain
from the sale of shares of stock in a domestic
corporation shall be treated as derived entirely from
sources within the Philippines regardless of where the
said shares are sold. The transfer by a nonresident alien
or a foreign corporation to anyone of any share of stock
issued by a domestic corporation shall not be effected
or made in its book unless: (1) the transferor has filed
with the Commissioner a bond conditioned upon the
future payment by him of any income tax that may be
due on the gains derived from such transfer, or (2) the
Commissioner has certified that the taxes, if any,
imposed in this Title and due on the gain realized from
such sale or transfer have been paid. It shall be the duty
of the transferor and the corporation the shares of which
are sold or transferred, to advise the transferee of this
requirement. Gains, profits and income from the sale of
personal property produced (in whole or in part) by the
taxpayer within and sold without the Philippines, or
produced (in whole or in part) by the taxpayer without
and sold within the Philippines If it's the sale of personal
prop you still have further consideration.
Remember there was "intangible"- it depends on
whether that intangible has derived situs in the Phils or
somewhere else. In addition to that if that particular
personal property is said to be produced in the Phils
24
ATTY AMAGO
But it is sold outside the Phils example dried mangoes. If

part of your production is sold abroad, you exported it,
will the Phils be able to tax you? Yes, no question if you
are a domestic corporation because you are always
taxable, for income within and income without doesnt
matter diba. But what if you are a resident foreign
corporation doing business of producing mangoes in the
Phils and part of your production you sold abroad so the
sale happens abroad so that is partly within and partly
without. Because part of the income is generated
because of producing your products in the Phils.
But it is really difficult how to apportion like for the
expenses if all of the sale happened abroad. The
production expenses are incurred in the Phils but I only
earned income when I actually sold the products abroad.
While I have the products in the Phils, it does not mean
that I earn income from it until I sell the products
abroad. The most you can do is just divide it by 50%. So
there are 3 countries you sold the products to plus the
Phils then divided by 4 since there is no other way you
can apportion it given the fact that sales happened
abroad meaning you did not earn anything in the Phils.
If you sold part of it in the Phils then only the sales in
the Phils are subject to taxes here.
Or it could be the other way around. The entire
production is outside the Phils. Lets say Malaysia they
are producing rubber and part of the rubber is sold here
but the entire thing is produced in Malaysia. We do not
tax the entire thing in the Phils, instead the law deems it
partly within an partly without.
So for as long as the Phils has a participation, it can
always partly tax.
Allowable deductions
Difference between deduction and exemption
Deductions are outflows of income, meaning you
dont consider it as part of your income thats why you
have to deduct it. Lets say you purchased a candy for 1
pesos and sold it for 2 pesos. Your income is only 1
pesos since the 1 peso purchase price is your deduction.
The entire 2pesos is not considered income because
part if it was you capital. When you pay for something
that is an outflow which is a potential deduction. But
when you receive something that is a potential income.
So deductions are things you let go kai imo man gi
bayad to someone else; wala na nimo.
Exemptions are actually income its just that the law
does not tax them. Example retirement pay is income
but since the law exempts it this is not subject to tax
even if considered inflows or things that you receive.
Exemptions are inflows.
Minimum wages are exempted from taxes though under
the amendment of tax code exclusion jud sya, but cge
nalng. It may be confusin because sometimes
exemptions come in the form of exclusions. So minimum
wage on the part of the wage earner is income but it is
not subject to tax
Exclusions ought to be income.
Example rent of residence not exceeding 12,800 is not
subject to VAT but is that subject raba sya
Compared to proceeds of life insurance which the law
appropriately terms as exclusions. So while you receive
it, the law deems that this is not subject to tax because
it is an exclusion. But exclusions and exemptions are
24
ATTY AMAGO
more or less the same. So both exclusions and

exemptions are inflows since these are income but
the law deems them not subject to tax.
The basic principles governing deductions
1) There must be a specific provision authorizing
deduction. And there is a provision in the Tax Code
which talks about deduction and that is section
34. Deductions from gross income. So those items
are
REMEMBER THIS: Ex In Ta Lo Ba Cha Re Pen
Pre Dep Dep
Expenses
Interest
Taxes
Losses
Bad debts
Charitable and other contributions
Research and development
Pensions
Premiums paid on hospitalization insurance
Depreciation
Depletion
2) Then you must be able to satisfy all the conditions
provided under the law for the deduction to apply
since these are construed strictly against the
taxpayer. Each item has conditions: there are
general and there are specific.
Example of general conditions:
-you must have a document substantiating your
claim for deduction else you cannot deduct.
-all deductions must relate to your business or
trade or profession. One which is ordinary and
necessary.
3) It is strictly construed against the taxpayer since

these are exemptions from taxes though we
already know that there is a technical difference.
4) If there is a withholding tax requirement for that
item you cannot allow it to be deducted unless
you withhold.
Example if there is rent, whoever is paying the
rent has to withhold the amount of 5% before
paying to the lessor. So if the rent is 10k per
month, the lessor cannot receive the entire 10k
because 500 is withheld. The lessor only receives
9500 each month so at the end of a 10-month
contract, the lessor receives only 95k instead of
100k which he was supposed to receive under the
contract. The 5k is withheld. But when the lessor
computes for his taxes he must consider the
entire 100k. SO if the lessor is a corporation the
tax rate is 30% so it should pay taxes of 30k but
because there is already a withholding tax (this is
not another type of tax but just a system of
collecting) then you can subtract the collected
amount of 5k. Only 25k has to be paid since 5k
was already withheld.
Under the law if you are engaged in business and
you are just renting, you deduct your rent
expenses but you cannot deduct unless you
withhold.
The first items in sec34 are termed itemized
deductions. Itemized in the sense that there is a
specific name for each of those items.
Sec35 of the Tax Code is another form of a deduction
but is termed as personal exemption for individual
taxpayer. This could be basic or additional.
24
ATTY AMAGO
a) Basic personal exemption amounting to 50k

for each individual taxpayer. In case of married
spouses where only one is deriving income,
only such spouse shall be allowed the personal
exemption. This is granted because of the mere
fact of being a person. So if you are an individual
earning income, you can deduct the amount of 50k.
(this is a misnomer because this is another type of
deduction termed as exemptions. In reality they
account for your personal expenses like food but
because these are presumed the law deems it as an
exemption rather than a deduction because these
are items of income - you actually receive this
amount.
Example you are earning business income after all the
allowable deductions you receive 100k but then you can
further deduct the 50k but you did not actually lose the
50k out of the 100k that you earned from the business;
so since you did not spend for that amount it is deemed
as an exemption.
This is still called deduction though because you have
to minus it from your gross income.
In case of married spouses where only one is
deriving income, inly such spouse shall be
allowed the personal exemption. this applies if
only one is earning income but if both are earning then
both can deduct 50k.
Example: A and B are married. A is earning 100k while
B, 0. If you are married the income becomes a part of
the conjugal or communal property. The total income of
the spouse is 100k but you deduct only one 50k not two
50k because only one is earning income. And diba were
supposed to match revenue with expense. So if only

one earns revenue then only one incurs the expense.
Now if both are earning then you can deduct a total of
100k. So it is better to let your spouse earn income
even if it is minimal for a higher deduction.
b) Additional exemption for dependents which
accounts for your children. They do not earn but you
still have to spend for them.
Before it matters if youre married, now it doesnt
matter anymore. Its uniform for both. Whether youre
married or not, you actually spend for something.
Additional exemptions only apply to dependents, but the
dependent has to be a child. That child could be
legitimate, illegitimate or legally adopted. How much is
the rate? P 25,000 per child maximum of 4 children
every year. If Muslim: the dependent must be
dependent and living with the taxpayer. Take note of the
requirement that it must not be more than 21 years of
age, not married and not gainfully employed or if such is
dependent, regardless of age is incapable because of
mental or physical defects.
Example: Your child is already 28 years old, but
that child is mentally retarded, but while its mentally
retarded he was invited to be an actor. Does that mean
you cant claim anymore 25k? Because he is gainfully
employed, he will be taken out from the term
dependent.
Im 18 years old, Im teaching this year, next year
I stopped teaching. Can I still claim deductions? Yes. As
long as I still didnt reach 21.
Sec. 35 (C) Change of Status. - If the taxpayer
marries or should have additional dependent(s) as
24
ATTY AMAGO
defined above during the taxable year, the taxpayer

may claim the corresponding additional exemption, as
the case may be, in full for such year.
c) Change of Status is always in favor of the
taxpayer.
Example: Dec 31, 11:30 pm. You gave birth to twins.
So pagrecord kay December 31, 2015. For your income
tax return on April 15, 2016, your allowable additional
exemption is P50k even if nahitabo ang pag panganak
end of the year na.
Birthday is January 1, 2016. For April 15, 2016
income, can you still claim that child as an additional
exemption? Yes. Even if at the start of the year, nag
birthday na siya. Its always in favor of the taxpayer.
(D) Personal Exemption Allowable to Nonresident
Alien Individual. - A nonresident alien individual
engaged in trade, business or in the exercise of a
profession in the Philippines shall be entitled to a
personal exemption in the amount equal to the
exemptions allowed in the income tax law in the country
of which he is a subject - or citizen, to citizens of the
Philippines not residing in such country, not to exceed
the amount fixed in this Section as exemption for
citizens or resident of the Philippines: Provided, That
said nonresident alien should file a true and accurate
return of the total income received by him from all
sources in the Philippines, as required by this Title.
d) Basic
Personal
Exemption
Allowable
to
Nonresident alien but subject to reciprocity. But
additional exemption, nonresident alien can never
deduct.
(L) Optional Standard Deduction. - In lieu of the

deductions allowed under the preceding Subsections, an
individual subject to tax under Section 24, other than a
nonresident alien, may elect a standard deduction in an
amount not exceeding ten percent (10%) of his gross
income. Unless the taxpayer signifies in his return his
intention to elect the optional standard deduction, he
shall be considered as having availed himself of the
deductions allowed in the preceding Subsections. Such
election when made in the return shall be irrevocable for
the taxable year for which the return is made: Provided,
That an individual who is entitled to and claimed for the
optional standard deduction shall not be required to
submit with his tax return such financial statements
otherwise required under this Code: Provided, further,
That except when the Commissioner otherwise permits,
the said individual shall keep such records pertaining to
his gross income during the taxable year, as may be
required by the rules and regulations promulgated by
the Secretary of Finance, upon recommendation of the
Commissioner.
Optional Standard deductions thats provided for 34
(L), in lieu of deductions allowed under the preceding
subsections, an individual subject to tax under Section
24, other than a nonresident alien, may elect a standard
deduction in an amount not exceeding 40% of its gross
sales or gross receipt as the case may be. Take note,
individual. Where do you base the 40% if its
individual? In gross sales. If its a corporation, it
may elect a standard deduction in an amount not
exceeding 40% of its gross income. Youll base it from
the gross income. Take note, nonresident aliens can
NEVER claim optional standard deductions.
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ATTY AMAGO
There are these items knows as not deductible under

Sec 36.
(1) Personal, living or family expenses;
Why are they not allowed to be deducted?
Because they ought to be accounted by the basic
personal exemption. Besides, the general rule if youre
talking about itemized deduction - It must be related to
your trade, business or exercise of your profession. So
this personal, living and expenses cant be deducted
since theyre not related to your business.
(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 Subsection shall not apply to intangible
drilling and development costs incurred in
petroleum operations which are deductible under
Subsection (G) (1) of Section 34 of this Code.
Can the newly built SM Seaside deduct the
entire cost of construction for the year? No. Alkansi
sad ka, negative imo income. Instead, you can prorate it
over the year for which you can have benefit out of it,
only in the form of depreciation. Example for
improvements: Ayala now has new wing, that is an
addition. Can Ayala claim as deductions the cost of
these improvements in the year it was
completed? No. You can just include it for purposes of
computing depreciation. But theres an exemption to
that, in case of a non-stock, nonprofit educational
institution, because if they want the entire cost of the
building can be deducted in that particular year when it
was incurred. Example this law building when it was
constructed in 2007, can USC deduct the full cost? It
can. But that doesnt have any bearing because in the
first place its not subject to tax.
(3) Any amount expended in restoring property or

in making good the exhaustion thereof for which
an allowance is or has been made; or
If you set aside a particular fund for the
restoration, lets say, repainting of the entire building.
Can it be allowed as a deduction? No because it is
an improvement which could add value to this property
and which you can prorate for purposes of expenses
under depreciation. While theyre not allowed as a
deduction per se, they could form part as your
depreciation expense.
(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 taxpayer, individual or
corporate, when the taxpayer is directly or
indirectly a beneficiary under such policy.
If it is paid for by the employer, the ER can
deduct. If the beneficiary of that life insurance is the
heir or the estate of the EE himself. But if the
beneficiary is the EE itself, can they deduct it? No
and the basis is this provision. Any premiums you make
on the life insurance of your employee but youre
considered as the beneficiary, you cant deduct. Murag
imo ra gibalik ang kwarta nga imo gibayad.
(B) Losses from Sales or Exchanges of Property. In computing net income, no deductions shall in
any case be allowed in respect of losses from
sales or exchanges of property directly or
indirectly (1) Between members of a family. For purposes of
this paragraph, the family of an individual shall
24
ATTY AMAGO
include only his brothers and sisters (whether by

Sec. 36 B(2) Except in the case of distributions in
the whole or half-blood), spouse, ancestors, and
liquidation,
between
an
individual
and
lineal descendants; or
corporation more than fifty percent (50%) in
Between members of a family - because it will
value of the outstanding stock of which is owned,
not be arms length. Magsabot-sabot lang mo. Ayaw
directly or indirectly, by or for such individual; or
gyud mog pamaligya lugi adto sa inyo igsuon because it
will never be allowed.
Take note this refers to exchanges or sale. Example, Co X already exhausted everything and yet its still losing
and so it has to dispose its assets to its stockholders because it would now close business. A,B,C,D,E are the owners of
Co X, more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for
such individual. An asset worth 100,000, a car. In return of the investment of A, which is supposedly worth 1M and for
which A owns 51%, B = 10 %, C = 10%, D= 10% and E=19%. If 51% is from A and this P100,000 car is exchanged to A
in return for investment. Can X claim a deduction of 900,000 as loses for the investment made to A? No
because of Sec 36 B(2) - he owes more than 50% of said corporation. The contemplation of the law is that; this is not
arms length. You just made it up.
Co. A 1M
50% (900k)
B
10%
C
10%
D
10%
%=60%
E
10%
Co. Y - 99.9% (10% by A)
Co. A = 50% + 10
Equity interest of A here is 60%. He has 50% and Co. Y is owned by A by 99.9%, so in return A owns 10% of this same
corporation. If ever the same transaction happens between Y Company and A in relation to this asset. Can I deduct
the 900K? No because it says directly or indirectly. Its indirect, because while corporate Y and A are separate in
terms of juridical personality. A continues to indirectly own it. It will be considered for purposes of whether 50% is
achieved here. Grand Father Rule under corporation law where you look into the ownership of each of the corporate
stockholders.
24
ATTY AMAGO
How much is the total ownership of A on Co. X? Company Y and Company Z are stockholders of Company Co X.
In addition of 20% of A, since he has already directly owned 20%. How about indirectly? 50% of 40% = 20% from Co
Y is still owned by A. 40 % of 40 % = 16% from Co Z is still owned by A. Total indirect is 56%. If ever Co X
transferred an asset to A, and it incurred a loss, can that loss be deducted? No because A directly and
indirectly owned more than 50% of the same corporation. Thats B2.
Sec. 36 B(3) Except in the case of distributions in liquidation, between two corporations more than fifty
percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for the
same individual if either one of such corporations, with respect to the taxable year of the corporation
preceding the date of the sale of exchange was under the law applicable to such taxable year, a personal
holding company or a foreign personal holding company;
Co. X transferred a property to Co. Y worth P 100,000 in exchange of the shares of Co. Y which is worth P1,000,000. Co.
Y invested unta kay Co. X but because of the liquidation it will now transfer P100,000 nalang worth of assets back to
Co. Y as a liquidating dividends. Co. X is owned 60% by A and 40% by B, while Co. Y is owned 60% by A and 40% by C.
24
ATTY AMAGO
Could Co. Y here claim a reduction of the negative 900,000 out of its investment? No because this is still
considered a related party transaction because Co. X is owned 60 % by the same individual who owned 60% of Co. Y
as well, so mura ra siyag nakigdeal sa iyang kaugalingon. In fact, A kay already be tied, O sige, mag exchange
nalang ta ug property. Anyway, ako ra man tagiya sa duha, I can decide and give my yes to both companies. Pareha ta
2 yes, pwede na ta makatransact, so buot-buot. Becase its still a related party transaction, then dili gihapon siya
pwede maka deduct. Thats number 3. So, both corporations are owned more than 50% directly or indirectly by the
same individual. In here, 60% was owned by A, so more than 50%.
Sec. 36 B (4) Between the grantor and a fiduciary of any trust; or
X is a grantor of a trust. Kanang trust class 3 parties gyud na siya. X, the trustor or the grantor. Y, the trustee or the
fiduciary and then Z, the beneficiary. If there is a transaction between, X and Y, any transaction that they have which
will result to a loss. Can X claim the loss? No. Or even if its Y. Can Y claim the loss? No, under Sec 36. B4,
between grantor or fiduciary of any trust. Any loss involving their transaction dili pwede maclaim ang deduction, for
purposes of computing the income of the trust. For example the trust already earned 1M during the year, mao na iya
income, and then X has an asset which it transferred to the fiduciary for purposes of the trust. Supposedly the asset is
worth 1M and only transferred for 500K, so theres a loss of 500K. Can X claim a deduction for 500k? No because it
is a transaction between the fiduciary and the trustor or the grantor. Imong tanawon lang ani actually from 4-6, kinsa
lang ang parties of the transaction. If these parties are present there, then it cant claim a loss. Now this loss, loss jud
na siya, dili na pwede gain. Kay kung gain na, unsa man imo i-deduct. Di ka kadeduct kay subject man ka to tax. Will
they be subject to tax? Of course, theres no exemption nor exclusion. Ang issue is if it results to a loss, can they
deduct the loss? Kay diba naa man giingon sa law nga losses meaning pwede sila makadeduct sa loss. And it
became as a loss for purposes of taxation. The law deems it that no, you cannot deduct that losses if it falls any of
these partys transaction.
Sec. 36 B (5) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the same person
is a grantor with respect to each trust; or
X is a grantor, fiduciary is Y. X is a grantor, fiduciary is A. Y and A transacted a business resulting to a loss, exchanged
24
ATTY AMAGO
of property. Can any of them claim a loss? No because the have the same trustors.
Sec. 36 B (6) Between a fiduciary of a trust and beneficiary of such trust.
If D and Y engaged in a transaction which results to a loss, can any of them claim the loss? No because again
between the same beneficiary and fiduciary of the same trust. Timan.i lang kinsa ang mga parties to the trust and who
cannot claim the deductions, Letter Bs contemplation is that these are related parties. For which they can just
influence each other in order to make it appear that theres a loss when in fact there is none. The problem is what if
its true that there is a loss? You cant do anything about it! You cant claim the loss because thats the law. You have to
be strict about it.
Personal holding company. Holding companies these are companies that engage in investment alone. Like mupalit lang
sila ug stocks or mupalit sila ug properties and they would just sell it right away. Kanang for purposes of speculation ra
tanan just so they can earn income. So the only business done by these holding companies is to get investment and
then sell it off to earn income. This is under number 3 because it says a foreign personal holding company. Clearly,
kani siya. Say for example company X is a personal of A, kay 99.9% iyaha and the rest are nominees, its allowed
under the law to have nominees, meaning 100,000 shares ang total authorized nga gi subscribe. Ang total 99,996
owned by A, the rest kay nominees na and thats allowed para mahimo rajud ug 5, kay it has to have 5 directors man.
You really have to give 1 share to each because they cant become directors kay requirement man na under the law
that there are atleast 5 shareholders, nominees na the rest. And then this company is a holding company, meaning
you just engage in these investments, withholding shares of stocks, bonds, meaning the business is really just to trade
investments. Personal in the sense nga iyaha ra. He owns mostly all of it.
Go back to the general principles of taxation, if you remember for individual, if you remember we have general
principles where we said that income earned by resident citizens of the Philippines within and without the Philippines
are deemed taxable in the Philippines. Thats the reason why it matters that we have to know who are these individual
taxpayers and under the law it is classified into resident citizens, nonresident citizens, citizens alien, nonresident aliens
engaged in trade or business and nonresident aliens not engaged in trade or business. In fact, there is additional which
is special employees and then you also have estate and trust, because this estate and trust are taxable the same way
as individuals. So all in all you have seven types of individual taxpayers.
Resident citizen you just refer to your constitutional law. And you can only have 3 ways to gain ownership. First you
have to be born with it, second you have to be naturalized and third you have a law. You should ask congress to pass a
law and making you a citizen of the Philippines. It has been done before - the owner of Bigfoot. For as long as you
comply with the provisions of the constitution to be a Filipino citizen, then you are deemed a citizen. How do you make
use of the residency then? Just establish your residence here, this becomes your domicile. If you dont leave the
24
ATTY AMAGO
country at all, or if you leave for vacation or recreation then you are said to be considered as a resident citizen. The
problem actually, who are considered nonresident citizens? There is an enumeration for those who are deemed
nonresidents, you refer to the definition of terms under section 22.
(E) The term "nonresident citizen" means:
(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical
presence abroad with a definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires
him to be physically present abroad most of the time during the taxable year.
(4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any
time during the taxable year to reside permanently 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.
(5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside
permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section.
Resident Aliens are not citizens of the Philippines but establishes residence here. Is there a hard and fast rule as to
the period of requirement? There is none actually class, some believe 1 year to make you a resident citizen but for as
long as your intention is not definite, you can actually be considered as a resident. There is no period requirement. You
may have to do something here and doing something here requires you to extend, you can be considered a resident
alien. How about in nonresident alien engaged in trade or business or not engaged in trade or business? Whats the
requirements? All you have to do is remember the 180 days. You have to engage 180 days for you to become engaged
in trade or business. How did we arrive with that 180 days? The basis is 360 days divided by 2 = 180 days. If 180 ra
are you considered engaged in trade or business? Dili pa, dapat malapas ka sa 50%, so 180 days + 1 = 181 days.
That should be more than 180 days. Nonresident alien engaged in trade or business the rule is 181 days.
Now, do you really have to be engaged in business to be considered engaged in trade or business? No
class, bisag pamag suroy2 ka sa Boracay ambot nalang ka ug more than 6 months, wa jud kay gi negosyo jud. Kung
nag sale r aka didto kay dato man kaayo ka unya daghan man ka kwarta, you already considered engaged in trade or
business. Why does it matter that youre considered engaged in trade or business? In Situs purposes, youre
taxable for income within, there is a difference in the rate. Nonresident aliens not engaged in trade or business are
taxable based on their gross income. Whereas, those who are engaged on trade or business are based on net income.
Not engaged in trade or business (NETB) there is a fixed rate of 25% wheres engaged in trade or business (ETB) is at
the rate of 5-32% depending of the amount of income, so we follow the tax table if you are ETB but in NETB automatic,
its always 25%, gross pa gyud and lisod. Sometimes, it matters. Whether its favorable to the ETB or NETB.
24
ATTY AMAGO
Now the issue is Nonresident citizen. You can be a nonresident citizen if you are citizens of the Philippines and you
establish, to the satisfaction of the BIR, the fact of your physical presence abroad with the definite intention to reside
therein. In other words, adto ka sa gawas unya didto nagyud ka mupuyo. No question. Does it matter if tunga2 naka sa
tuig ni larga and then muadto ka didto but your intention is to live there forever? Does that mean during the entire
year you are considered as a nonresident citizen? Yes, because theres no period requirement for as long as your
intention is definite that you will be residing there abroad. That definite intention is a question of fact; you just have to
establish to the BIR. Thats the nonresident citizen. Leave the Philippines during the taxable year to reside abroad
either as an immigrant or for employment on a permanent basis. Immigrant because youre granted an immigrant visa
there. *Whats the difference between emigrant and immigrant? If it increases the population, you are considered as
an immigrant. You are an emigrant if you look at it on the country where you depart from, in the Philippines, when you
have some emigrants, these are immigrants of the foreign country. You must have that immigrant pass before youre
considered an immigrant.* Does it matter if you leave in the middle of the year or the last quarter of the
year or the beginning of the year? No for as long as you are living the country as an immigrant. Or employment for
a permanent basis theres no limit as to the time. You are already considered for a permanent basis, nahimo ka nurse
there but its not contractual, clearly youre on a permanent basis. So regardless when you leave it doesnt matter. Ang
lisod kaning number 3, when youre a citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time during the taxable year. Unsay
pasabot sa most of the time during the taxable year? It means 183 days. Dapat naa ka sa gawas for atleast 183 days.
How? 365 divided by 2 is 182.5 days = 183 days. Why 365 if nonresident, if alien 360? It should be favorable to
the Philippines. If you stay outside for atleast 183 days, you are deemed to be a nonresident.
NR
Example: Your company here assigns you to Singapore for at least 2 years, during the entire period while you are there
you may be considered a nonresident citizen. That is if you leave the country for that first period lang, walay labot ang
2nd year cause for the entire year naa ka sa gawas, ang lisod if in the middle of the year wa ka kaabot ug 183 days
because youll still be considered as a nonresident. And why would you want to be nonresident? Youll be taxable with
24
ATTY AMAGO
income earned outside during that year. The period from January 1 to June 31= 180 days, so you have to leave not
greater than 183 days, so you have to leave July 1, because you have to live atleast 183 days outside. You cant say
that youre nonresident first half and resident in another half - thats only allowed under number 4.
2 years from July 1, 2015 up to July 1, 2017. From July 1, 2015 to December 31, 2015 = 183 days. If you left July 2,
2015 youll be a resident citizen, but if July 1, nonresident. Dec 31, 2015-Dec 31, 2016 = nonresident citizen.
December 31,2016-July 1,2017= under (4) A citizen who has been previously considered as nonresident citizen and
who arrives in the Philippines at any time during the taxable year to reside permanently 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. The time that hes outside until
he arrives hes a nonresident. What happens after? You are considered resident citizen - hybrid. Hybrid only happens if
previously you are classified as a nonresident citizen.
Ms. Pia Wurtzbach can stay abroad for atleast 183 days, so that shell become a nonresident citizen so that whatever
income shell earn there within the year will not be taxable. The problem is, Ms. Universe happened in December so
she has to count the days that she was outside because this need not be continued, it can be staggered but she
received her income during 2015 so shell be taxable here in the Philippines.
Does it matter to know December 31, 2016 to July 1, 2017. Because nibalik na siya sa Pilipinas kay ni end na iya
contract, the intention must be to reside here, it doesnt matter if pila pa na ka days, youll be considered nonresident
citizen. But from July 2017 to December, you are a resident citizen. So hybrid ka - number 4. When do you become a
hybrid? 1)You must have been previously classified as a nonresident citizen. 2)You arrived in the Philippines at any
time of the year 3)The intention to come back is to reside permanently. To be considered a nonresident when you leave
Philippines - the intention for employment purposes if permanent, doesnt matter. It will only matter if it is temporary
employment. You should stay there atleast 183 days. Why does it matter if youre a hybrid? Your income outside
will not be taxable here in the Philippines.
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ATTY AMAGO

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24

TAXATION MIDTERM TRANSCRIPT

-Only that which is in excess of the capital that you

Strict sense: It is an amount of money coming to the

TAXATION MIDTERM TRANSCRIPT

Primary: For the government to raise revenue

Regulation, promotion of gen welfare, reduction of social

TAXATION MIDTERM TRANSCRIPT

citizen of the Philippines and who receives

System of income taxation

without any distinction as to their type or nature, and

TAXATION MIDTERM TRANSCRIPT

Labor: one who will stir it

So, Income could be the fruit, capital could the tree. So

TAXATION MIDTERM TRANSCRIPT

any deduction. It is not entirely true. Tan awa ag

Q: Upon applying it to our recent tax system. What

A: It is comprehensive it terms as to the tax situs. The

(COGS) Cost of Goods Sold- manufacturing concern)

Factors to determine tax situs in PH

Ans: This refers capital. And if we have to account for

Ciizenship and Domicile- it matters if resident citizen ka

--Coffee example---Net income method-discussion (see formula)

TAXATION MIDTERM TRANSCRIPT

be filed annually. Anyway, Schedular means that you

allowed such as your personal exemptions. Under the

-It is modified because you are still allowed these basic

TAXATION MIDTERM TRANSCRIPT

6.under certain circumstances pay-as-you earn

service that produced the income. With respect to

The issue in that case is that if the person is allowed

Capital-a fund or property which you invested.

Ex. Sari-sari store: inventory purchased by the owner.

TAXATION MIDTERM TRANSCRIPT

2. The gain or profit is realized or received-for

different when you talk about taxable income,

TAXATION MIDTERM TRANSCRIPT

You have a property bought for 1M in 2010. 6

-Based sa discussion, what is excluded from

Ayaw pagtuo ha na tanan transaction kay sale ra.

stock in trade of the taxpayer or other property

TAXATION MIDTERM TRANSCRIPT

Section 34(depreciation);property used in trade

it must remain at the end of the taxable

Depreciation-decrease in amount or property.

Property held by the taxpayer primarily for

BMW ang dali na madeprectiate but dpende sa

Ex. You have 10 titles of land somewhere in the

You have a building where your store is

So what if si Mr. Cabahug. Naa syay real estate

property used in the trade or business, of a

real property used in trade or business of

TAXATION MIDTERM TRANSCRIPT

imo building kay mulupad. Pero dba owner of

XIV. Gross Income

Ordinary gains usually include your?

So if you earn income from masyaw? Considerd as gross

Unless these are sourced from a capital asset