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05 Activity 1 - Taxation

Glenda's total taxable income from the court-ordered payments amounts to P160,000, which includes exemplary damages and loss of income. The additional P2,000,000 received by a retired employee should be excluded from income as it qualifies as retirement benefits and a gift. Life insurance proceeds received by Bruno's wife and son are not subject to income tax, as death benefits from life insurance are tax-exempt.

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3 views2 pages

05 Activity 1 - Taxation

Glenda's total taxable income from the court-ordered payments amounts to P160,000, which includes exemplary damages and loss of income. The additional P2,000,000 received by a retired employee should be excluded from income as it qualifies as retirement benefits and a gift. Life insurance proceeds received by Bruno's wife and son are not subject to income tax, as death benefits from life insurance are tax-exempt.

Uploaded by

almiraadornado
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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05 ACTIVITY 1

Read and analyze each item. Provide what is asked. STRICTLY limit your answers to three
(3) sentences.

1.​ Glenda filed a libel case against JL for putting shame on him through
unfounded and defamatory remarks. Glenda was hospitalized due to the
incident. As a result, JL was ordered by the court to pay the following:
• Hospital dues of P120,000;
• Actual damages of P50,000;
• Exemplary damages of P60,000;
• Loss of income amounting to P100,000; and
• Moral damages of P115,000
How much should be reported by Glenda as taxable income from the incident?
Explain.

Only the exemplary damages and lost income are added together to find out how
much of the money Glenda needs to pay taxes on;
Exemplary damages: P60,000
Loss of income: P100,000
Total taxable income = P160,000
Therefore, Glenda's total taxable income from the court-ordered payments is
P160,000.

2.​ A taxpayer worked as an audit manager of a hospital for several years. When
he retired at age 60, he received retirement pay equivalent to two (2) months'
salary for every year of service as provided in the hospital's BIR-approved
retirement plan. The hospital's Board of Directors felt that the hospital should
give the retired employee more than what was provided for in the hospital's
retirement plan, given his loyalty and invaluable services for several years.
Hence, it is resolved to pay him a gratuity of P2,000,000 over and above his
retirement pay.
The Commissioner of Internal Revenue taxed the P2,000,000 as part of the
gross compensation income of the retired employee, who protested that it was
excluded from income because it was a retirement pay and a gift.
Should the additional P2,000,000 received by the retired employee be excluded
from income? Yes or No? Why?

Yes, given that Section 32(B) of the Tax Code exempts P2,000,000 from income as
part of his retirement benefits. Given that he is 60 years old and chose to retire, the
P2,000,000 should have been free from taxes since it is a gift and retirement income.

3.​ In 2018, Bruno obtained a life insurance policy on his own life in the amount of
P2,000,000, designating ½ of the policy to his wife, Perla, as an irrevocable
beneficiary. Bruno designated his son, Pedro, as a revocable beneficiary for
the remaining 50% of the policy. On September 2021, Bruno died, and his wife
and son went to the insurance company to collect the policy's proceeds.
Are the proceeds of the insurance subject to income tax on the part of Perla
and Pedro for their respective shares? Yes or No? Why?

No, as life insurance is not subject to tax for a death benefit. Since Bruno passed
away, his wife and son should get life insurance without incurring any taxes.
Additionally, his son, as the beneficiary for the remaining 50%, should also be
tax-exempt, in my opinion, since the beneficiary was selected for valuable
consideration.

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