GROSS INCOME

ALL INCOME DERIVED

FROM WHATEVER
SOURCE
 All Income derived from whatever source

Makagwapo operated an e-cockfighting business which

was not registered with the government. Said business had
a whooping 100million earnings annually. Can Makagwapo
argue that since his business was not duly registered, the
earnings should not be included in his gross income?
GROSS INCOME

INCLUSIONS
 INCLUSIONS –
1.COMPENSATION INCOME

Compensation for services in

WHATEVER FORM PAID.
 INCLUSIONS –
COMPENSATION INCOME

IN WHATEVER FORM PAID. (1) salaries; (2) wages

(3) emoluments (4) honoraria (5)allowances (6)
commissions (7) fees (8) taxable bonuses (9) fringe
benefits except those that are subject to fringe benefit
tax.
 INCLUSIONS –
COMPENSATION INCOME
All renumerations for services
performed by an employee for his
employer, under an employee-
employer relationship.
 INCLUSIONS –
COMPENSATION INCOME
EMPLOYER – EMPLOYEE RELATIONSHIP
(A)THE SELECTION AND ENGAGEMENT OF THE EMPLOYEE;
(B) THE PAYMENT OF WAGES;
(C) THE POWER OF DISMISSAL; AND
(D) THE EMPLOYER’S POWER TO CONTROL THE EMPLOYEE WITH RESPECT TO THE MEANS
AND METHODS BY WHICH THE WORK IS TO BE ACCOMPLISHED.

IT IS THE SO-CALLED "CONTROL TEST" THAT IS THE MOST

IMPORTANT ELEMENT.
 INCLUSIONS –
COMPENSATION INCOME
EMPLOYER – EMPLOYEE RELATIONSHIP

IT IS THE SO-CALLED "CONTROL TEST" THAT IS THE

MOST IMPORTANT ELEMENT.

(D) THE EMPLOYER’S POWER TO CONTROL THE EMPLOYEE

WITH RESPECT TO THE MEANS AND METHODS BY WHICH
THE WORK IS TO BE ACCOMPLISHED.
 INCLUSIONS –
COMPENSATION INCOME
EMPLOYER – EMPLOYEE RELATIONSHIP

IT IS THE SO-CALLED "CONTROL TEST" THAT IS THE

MOST IMPORTANT ELEMENT.

(D) THE EMPLOYER’S POWER TO CONTROL THE EMPLOYEE

WITH RESPECT TO THE MEANS AND METHODS BY WHICH
THE WORK IS TO BE ACCOMPLISHED.
 TYPES OF EMPLOYEES AS TO
FUNCTION
Managerial employees – those who are given powers or prerogatives to lay down and
execute managerial policies and/or to hire, transfer, suspend, lay-off, recall, discharge,
assign or discipline employees.

Supervisory employees – those who effectively recommend such managerial actions if

the exercise of such authority is not merely routinary or clerical in nature but requires
the use of independent judgment.

Rank and File Employees – those who hold neither managerial or supervisory
functions.
 TYPES OF EMPLOYEES AS TO
TAXABILITY
Minimum Wage Earners– recipients of not more than
the statutory minimum wage, whether employed in
the private or public sector

THEY ARE EXEMPT FROM INCOME TAX ON

THEIR COMPENSATION
 TYPES OF EMPLOYEES AS TO
TAXABILITY

STATUTORY MINIMUM WAGE – refers to the

rate fixed by the Regional Tripartite Wage and
Productivity Board of the Department of Labor
and Employment OR 5,000/month or
60,000/year, whichever is higher.
 TAX MODEL ON COMPENSATION
INCOME

Gross Compensation Income P xxx

Less – non taxable compensation xxx
= Taxable Compensation Income P xxx
 TAX MODEL ON COMPENSATION
INCOME

Gross Compensation Income – to reiterate,

it includes all renumerations received under
an EMPLOYER-EMPLOYEE
RELATIONSHIP.
 MANDATORY DEDUCTIONS

GSIS – Government Service Insurance System

(government employees)
SSS – Social Security System (private sector)
Philhealth – Philippine Health Insurance
HDMF - Home Development Mutual Fund
Union Dues
MANDATORY DEDUCTIONS
 COMPENSATION INCOME - EXEMPT
BENEFITS
1. Under the NIRC and Special Laws:
a. Retirement benefits under RA 7641
including exempt retirement gratuities to
government officials and employees;
b. Exempt termination benefits;
 COMPENSATION INCOME - EXEMPT
BENEFITS

1. Under the NIRC and Special Laws:

a. Retirement benefits under RA 7641
including exempt retirement gratuities to
government officials and employees;
b. Exempt termination benefits;
 COMPENSATION INCOME - EXEMPT
BENEFITS
1. Under the NIRC and Special Laws:
c. Benefits from the United States Veterans
Administration;
d. Benefits from foreign government
agencies;
 COMPENSATION INCOME - EXEMPT
BENEFITS
1. Under the NIRC and Special Laws:
e. SSS Act of 1954, as amended;

f. GSIS ACT of 1937, as amended;

 COMPENSATION INCOME - EXEMPT
BENEFITS
1. Under the NIRC and Special Laws:
g. COVID- 19 benefits to health workers under RA
11494 (BAYANIHAN 2);
Special Risk Allowance; Actual Hazard Duty Pay;
Compensation paid to those who contracted COVID-
19 while in the line of duty
 COMPENSATION INCOME - EXEMPT
BENEFITS
1. Under the NIRC and Special Laws:
h. De minimis benefits;
i. 13th month pay and other benefits not
exceeding Php90,000;
j. certain benefits of minimum wage earners.
 DE MINIMIS BENEFITS
These are facilities or privileges such as
entertainment, medical services, or courtesy
discounts on purchases that are relatively small
value and are furnished by the Employer merely
as a means of promoting the health, contentment,
or efficiency of employees.
 DE MINIMIS BENEFITS
1. Monetized unused vacation leave credits of
private employees NOT EXCEEDING 10 DAYS
DURING THE YEAR;
2. Monetized unused vacation and sick leave
credits paid to government officials and
employees;
 DE MINIMIS BENEFITS
3. Medical cash allowance to dependents of
employees not exceeding P1500 per employee per
semester, or 250 per month;
4. Rice subsidy not exceeding Php2000 or 1 sack
of 50kg rice per month amounting to not more than
Php2000;
 DE MINIMIS BENEFITS
5. Uniform and clothing allowance not
exceeding Php6000 per annum;

6. Actual medical assistance not exceeding

Php10,000 per annum;
 DE MINIMIS BENEFITS
7. Laundry Allowance – not exceeding Php300 per month;

8. Employee Achievement Award – for length of service or safety

achievement which must be in the form of tangible property other
than cash or gift certificates , with an annual monetary value not
exceeding P10,000 received by the employee under an established
written plan provided it does not discriminate in favor of highly paid
employees;
 DE MINIMIS BENEFITS
9. Gifts given during Christmas and Major Anniversary–
not exceeding P5000 per employee per annum;

10. Daily meal allowance for overtime work and night or

graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis;
 DE MINIMIS BENEFITS
11. Benefits received by an employee by virtue
of a collective bargaining agreement (CBA) and
productivity incentive schemes provided annual
monetary value received from both does not
exceed P10,000 per taxable year;
 DE MINIMIS BENEFITS
IF de minimis benefits (1) exceed the
regulatory limits OR (2) even those
relatively small value but are not included
in the list, the said benefits are
TAXABLE.
 TAXABLE DE MINIMIS
BENEFITS
Rank and File Employees – treated as other
compensation income under the category 13 th month
and other benefits.

Managerial and Supervisory Employees – treated as

fringe benefit subject to final fringe benefit tax.
 TAXABLE DE MINIMIS
BENEFITS
Rank and File Employees – treated as other
compensation income under the category 13 th month
and other benefits.

Managerial and Supervisory Employees – treated as

fringe benefit subject to final fringe benefit tax.
 TAXABLE DE MINIMIS BENEFITS
ILLUSTRATIONS
Rank and File Employees – treated as other
compensation income under the category 13th
month and other benefits.

Managerial and Supervisory Employees – treated

as fringe benefit subject to final fringe benefit tax.
TAXABLE DE MINIMIS BENEFITS
ILLUSTRATIONS
 TAXABLE DE MINIMIS BENEFITS
ILLUSTRATIONS

PRIVATE EMPLOYEE. The actual value of monetized unused VL was computed as P600 x 9 while
the limit was P600 x 10.

The 10 day rule applies on vacation leaves ONLY. Monetization of sick leaves of private employees
is taxable.

The rice subsidy and laundry allowance were likewise annualized by multiplying their monthly limit
by 12. The de minimis benefits within the limits are exempt from income tax.
 TAXABLE DE MINIMIS BENEFITS
ILLUSTRATIONS
Rank and File Employees – treated as other
compensation income under the category 13th
month and other benefits.

Managerial and Supervisory Employees – treated

as fringe benefit subject to final fringe benefit tax.
 TAXABLE DE MINIMIS BENEFITS
ILLUSTRATIONS
Rank and File Employees – treated as other
compensation income under the category 13th
month and other benefits.

Managerial and Supervisory Employees – treated

as fringe benefit subject to final fringe benefit tax.
 COMPENSATION INCOME

TAX TREATMENT OF 13 MONTH PAY TH

AND OTHER BENEFITS

Exempt from withholding on compensation provided
they DO NOT EXCEED Php90,0000. As such, the
excess of Php90,000 is subject to the withholding
tax on compensation.
COMPENSATION INCOME:TAX TREATMENT OF 13th MONTH
PAY AND OTHER BENEFITS

ILLUSTRATION:
Layla, a government rank and file employee received the ff. benefits aside from her basic pay:
Christmas bonus – P70,000
Cash gift – P5000
Additional compensation allowance – P36,000
Personal Economic Relief Allowance (P2000/month) P24,000
Monetized value of vacation leave and sick leave (18 days) P9,000
Uniform and clothing allowance P7000
 ILLUSTRATION
Layla, a government rank and file employee received the ff. benefits aside from her basic pay:
SOLUTION
Christmas bonus(13th month pay of govt. employees) P70,000
Cash gift – P5000
Additional compensation allowance – P36,000
Excess of uniform and clothing allowance (7k-6k) P1000
Personal Economic Relief Allowance (P2000/month) P24,000
Monetized value of vacation leave and sick leave (18 days) P9,000
TOTAL 13th month pay and other benefits P112, 000
Less P 90,000
Taxable 13th month pay and benefits P22,000
 INCLUSION - COMPENSATION INCOME - TAX
TREATMENT OF 13th MONTH PAY AND OTHER
BENEFITS
Personal Economic Relief Allowance is NOT subject to income tax
and withholding tax under RR8-2000 as affirmed by RR10-2008;
The P5,000 Christmas gift of GOVERNMENT employees is
designated by the NIRC to be part of the 13th month pay and other
benefits, hence it is NOT a de minimis benefit;
Under RR5- 2011, the monetization of vacation leave and sick
leave credits, in government employees, is an EXEMPT de
minimis benefit without regard to the number of days;
 INCLUSION - COMPENSATION INCOME - TAX
TREATMENT OF 13th MONTH PAY AND OTHER
BENEFITS
Miya, a private rank and file employee working in a remote tower
station of Snail Internet Company received the following benefit
during 2021:
13th month pay P 72,000 Note: The housing privilege pertains to
Performance bonus 15,000 the annual value of the employees’
Christmas gift 30,000 living quarters furnished by the
Danger exposure allowance 6,000 employer to employees FOR STAYING
Housing privilege 38,000 ON SITE.
Uniform and clothing allowance 8,000
Laundry allowance 6,000 COMPUTE THE EXCESS 13th
MONTH PAY AND OTHER
BENEFITS.
 ITEM DE MINIMIS LIMIT OTHER
BENEFITS

CHRISTMAS GIFT P 30,000 P 5,000 P25, 000

UNIFORM AND CLOTHING 8, 000 6,000 2,000
ALLOWANCE

LAUNDRY ALLOWANCE 6, 000 3,600 2,400

EXCESS DE MINIMIS BENEFIT P29,400

13th month pay P72,000

TOTAL 13th month pay and other P101,400

benefits

Less: Exclusion threshold P90,000

TAXABLE 13th month pay and other

benefits P11,400
INCLUSION - COMPENSATION INCOME - TAX
TREATMENT OF 13th MONTH PAY AND OTHER
BENEFITS
Performance bonus is a supplemental or additional
compensation;

The laundry allowance limit is computed as P300 x

12 = P3,600

Christmas gift is a de minimis benefit for private

employees

The housing privilege is exempt under the

CONVENIENCE OF THE EMPLOYER RULE

The 13th month pay and other benefits of rank and

file employees includes other fringe benefits.
INCLUSION - COMPENSATION INCOME - TAX TREATMENT OF 13th
MONTH PAY AND OTHER BENEFITS

A government rank and file employee had the ff. summary of his
compensation and benefits in 2021:
A government rank and file employee had the ff. summary of his compensation and
benefits in 2021:
A government rank and file employee had the ff. summary of his compensation and
benefits in 2021:
1. The taxable regular compensation
income is computed as (P1,044,00 –
P80,000)

2. The excess of the P90,000 threshold

over the actual 13th month pay and
other benefits is non-deductible to
the other items of gross income
(RR3-2015)
A government rank and file employee had the ff. summary of his compensation and
benefits in 2021:
PRESENTATION IN THE INCOME TAX RETURN OF THE EMPLOYEE

GROSS COMPENSATION (i.e. P1,061,000+ P144,000) P1,205,000

LESS: NON-TAXABLE COMPENSATION INCOME
MANDATORY DEDUCTIONS P 80,000
EXEMPT BENEFITS P 138,000 218,000
TAXABLE COMPENSATION INCOME P 987,000
 INCLUSIONS –
2.GROSS INCOME FROM THE CONDUCT OF
TRADE, BUSINESS, EXERCISE OF
PROFESSION

Includes income from any

trade or business, legal, illegal,
registered, unregistered.
 INCLUSIONS –
2.GROSS INCOME FROM THE CONDUCT OF
TRADE, BUSINESS, EXERCISE OF
PROFESSION
Sales/ Revenues/ Receipts/ Fees P XXXX
Less:
Cost of sales or services P XXXX
Gross Income from operations P xxxxx
 INCLUSIONS –
2.GROSS INCOME FROM THE CONDUCT OF TRADE, BUSINESS, EXERCISE OF
PROFESSION

THE ff. business income shall NOT be included in gross income

subject to regular income tax:
Business income exempt from income tax:
a. Gross income from Barangay Micro-Business Enterprise
(BMBE) under RA 9178;
b. Gross income from enterprises enjoying tax holiday incentives
under the CREATE LAW which have not yet graduated to their
income tax holiday incentives
 Gross income from Barangay Micro-Business Enterprise
(BMBE) under RA 9178
Engaged in the production, processing or manufacturing of products or
commodities including agro-processing, trading and services.
(computer shops; laundry shops; printing shops; canteens; sari-sari
stores)
Total assets including those arising from loans but EXCLUSIVE OF
THE LAND on which the business entity is situated do not exceed P3M.
An applicant must secure a Certificate of Authority to operate as a
BMBE from the Office of the Treasurer of the city or municipality that
has jurisdiction.
 Gross income from Barangay Micro-Business Enterprise
(BMBE) under RA 9178
IT EXCLUDES SERVICE RENDERED BY
LICENSED PROFESSIONAL AND PARTNERSHIP
AND CORPORATONS ENGAGED IN
CONSULTANCY, ADVISORY AND SIMILAR
SEVICES WHICH ARE ESSENTIALLY CARRIED
OUT BY LICENSED PROFESSIONALS.
 Gross income from Barangay Micro-Business Enterprise
(BMBE) under RA 9178
ADVANTAGE:
The income of BMBE from their operation is exempt,
hence, excluded from the gross income subject to regular
income tax.
BMBE file an Annual Information Return in lieu of the
income tax return. However their non-operating passive
and capital gains are subject to the appropriate type of
income tax.
 THE ff. business income shall not be included in gross income
subject to regular income tax:
Business income subject to special tax:
a. Philippine Economic Zone Authority (PEZA) registered enterprise subject to
5% gross income tax;
b. Tourism Infrastructure and Enterprise Zone Authority (TIEZA) registered
enterprise subject to 5% gross income tax.
c. Income of self-employed and or individuals (SE/P) who opted to be taxed
under the 8% income tax.
 THE ff. business income shall not be included in gross income
subject to regular income tax:
Business income subject to special tax:
Philippine Economic Zone Authority (PEZA) registered enterprise
subject to 5% gross income tax;
PROMOTES THE ESTABLISHMENT OF ECONOMIC ZONES IN THE
PHILIPPINES FOR FOREIGN INVESTMENTS.

PEZA IS ALSO THE PHILIPPINE GOVERNMENT AGENCY TASKED TO

EXTEND ASSISTANCE, REGISTER, GRANT INCENTIVES TO AND
FACILITATE THE BUSINESS OPERATIONS OF INVESTORS IN EXPORT-
ORIENTED MANUFACTURING AND SERVICE FACILITIES INSIDE
SELECTED AREAS THROUGHOUT THE COUNTRY PROCLAIMED BY
THE PRESIDENT OF THE PHILIPPINES AS PEZA SPECIAL ECONOMIC
ZONES.
 BUSINESS INCOME SUBJECT TO SPECIAL TAX
Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
registered enterprise subject to 5% gross income tax.
 THE ff. business income shall not be included in gross income
subject to regular income tax:
Business income subject to special tax:

Income of self-employed and or individuals (SE/P)

who opted to be taxed under the 8% income tax.
REQUIREMENTS:
1. SELF-EMPLOYED (SINGLE PROPRIETORSHIP, PROFESSIONAL OR MIXED-
INCOME EARNERS);

2. NON-VAT REGISTERED FILERS;

3. GROSS SALES OR GROSS RECEIPTS DO NOT EXCEED THREE MILLION PESOS.

 THE ff. business income shall not be included in gross
income subject to regular income tax:
Business income subject to FINAL TAX when not subjected to
final tax by the payor:
a. Subcontractors of petroleum service contractors subject to
8% final tax;
b. Business income of foreign currency deposit units (FCDUs)
and expanded FCDUs from Philippine residents subject to
10% final tax.
 INCLUSIONS –
3.Gains from dealings in property

The gains or losses in dealings in ORDINARY assets

are subject to regular income tax.
Dealings in capital assets other than domestic stocks
and real properties are subject to regular income tax
 INCLUSIONS –
4. Interest Income
This particularly refers to interest income OTHER THAN
passive interest income subject to final tax
Examples:
1. Interests from lending companies
2. Interests from corporate bonds/ promissory notes
3. Interest from bank deposits abroad
 INCLUSIONS –
5. RENTS
Income derived from LEASING of
properties of any kind.
Although passive income, it is not
subject to final tax under the NIRC, but
subject to regular income tax.
 INCLUSIONS –
5. RENTS
1. Obligations of the lessor that are assumed by the lessee
are additional rental income to the lessor.

Sample Obligation of the Lessor:

“TO MAKE ON THE SAME DURING THE LEASE ALL THE NECESSARY
REPAIRS IN ORDER TO KEEP IT SUITABLE FOR THE USE TO WHICH IT HAS
BEEN DEVOTED, UNLESS THERE IS A STIPULATION TO THE CONTRARY;
 INCLUSIONS –
5. RENTS
2. Advance rentals are:
a. Items of gross income upon receipt IF:
Unrestricted OR
Restricted to be applied for future use or
upon the termination of the lease.
 INCLUSIONS –
5. RENTS
2. Advance rentals are:
B. NOT Items of gross income upon receipt IF:
LOAN OR Security Deposit to guarantee
payment or rent subject to contingency which
may or may not happen.
 INCLUSIONS –
5. RENTS
Illustration:
Lease Contract – 25k for 12 months; lessee shall pay 3 months as
advance; The rent for the last two months shall be taken from the
advance; plus one month security deposit to be return if there is no
damage in the property.

Thus: The entire 75k is an item of income subject to regular

tax, while the 25k security deposit is not income
 INCLUSIONS –
6. ROYALTIES
Payment for the use of someone’s property such as copyrights,
patents, trademarks.

Sources from outside the Philippines are subject to regular income

tax.

FROM SOURCES WITHIN the PHILIPPINES subject to final

income tax.
 INCLUSIONS –
6. ROYALTIES
Illustration:
Mang Mario, Filipino citizen, had the following royalties:
Mining gold business P 550,000
Books published in the Philippines 200,000
Books published abroad 300,000
Royalties from franchise exercise abroad 400,000
 INCLUSIONS –
6. ROYALTIES
Illustration: FINAL TAX
Mang Mario had the following royalties:
Mining gold business P 550,000
Books published in the Philippines 200,000
Books published abroad 300,000
Royalties from franchise exercise abroad 400,000
ITEMS OF GROSS INCOME –subject to regular income tax
 INCLUSIONS –
7. DIVIDENDS
Pertains ONLY to dividends (cash, property, scrip)
declared by FOREIGN CORPORATION.

*Recall that dividends declared by domestic corporations

are subject to 10% final tax if the recipient is an individual
taxpayer and exempt if the recipient is a domestic or a
resident foreign corporation.
 INCLUSIONS –
7. DIVIDENDS
STOCK dividends – exempted from income tax, except when it amounts to
the payment of cash dividend such as :

1. Confers to the recipient a different interest or right after the stock

dividend declaration OR
2. Stocks dividends are subsequently redeemed

THUS, the fair market value of the stock dividend received is TAXABLE.
 INCLUSIONS –
7. DIVIDENDS

LIQUIDATING dividends – IS NOT

INCOME, as they are considered
an amount in exchange for the
investment of the investor.
 INCLUSIONS –
7. DIVIDENDS
Illustration – Royal Inc, a domestic corporation,
received cash dividends from the ff:

Domestic Corporation P 500,000

Resident foreign corporation 300,00 0
Non-resident foreign corporation 200,000
 INCLUSIONS –
7. DIVIDENDS
Illustration – Royal Inc, a domestic corporation, received cash
dividends from the ff:
Domestic Corporation P 500,000

INTER-CORPORATE DIVIDENDS. Why?, because it is declared

by a domestic corporation and is exempted from final tax, hence,
it is not an item of gross income subject to regular income tax.
 INCLUSIONS –
6. DIVIDENDS
Illustration – Royal Inc, a domestic corporation, received cash dividends from
the ff:

Resident foreign corporation 300,000

Non-resident foreign corporation 200,000

The P500,000 total dividends from the resident and non-resident foreign
corporation are items of regular income subject to regular income tax. WHY?,
because domestic corporations are taxable on WORLDWIDE INCOME.
 INCLUSIONS –
7. DIVIDENDS
Illustration – Royal Inc, a resident foreign corporation, received cash dividends from
the ff:

Resident foreign corporation 300,000

Non-resident foreign corporation 200,000

ONLY the portion of the P 300,000 dividends from the resident foreign corporation
determined as earned within by the Pre-dominance test shall be included in the gross
income. The situs of dividends from the non-resident foreign corporation is abroad.
 INCLUSIONS – DIVIDENDS
CONDITIONAL EXEMPTION ON INTERCORPORATE
DIVIDENDS FROM Non-Resident Foreign Corporation
GEN. RULE – dividends received BY DOMESTIC
CORPORATIONS FROM NON-RESIDENT
FOREIGN CORPORATIONS is generally subject to
regular tax.

NON-RESIDENT DIVIDENDS DOMESTIC

FOREIGN CORPORATI
CORORATION
 EXEMPTION IF THE FF.
CONDITIONS WHERE MET, TO
WIT:
1st. The domestic corporation recipient DIRECTLY owns at least 20% in
value of the outstanding shares of the NRFC;

2nd. The shareholdings of the NRFC must have been held interruptedly
for a minimum of 2 years at the time of the dividend distribution OR
throughout the entire existence of the NRFC if it is operational for less
than 2 years;
 EXEMPTION IF THE FF.
CONDITIONS WHERE MET, TO
WIT:
3rd. The foreign-source dividend received or remitted must
be reinvested within the next taxable year in business
operations of the domestic corporation such as in (a)
working capital requirements; (b) capital expenditures; (c)
dividend payments; (d) investment in domestic
subsidiaries; (e) infrastructure projects.
 EXEMPTION IF THE FF.
CONDITIONS WHERE MET, TO
WIT:
3rd. The foreign-source dividend received or remitted must
be reinvested within the next taxable year in business
operations of the domestic corporation such as in (a)
working capital requirements; (b) capital expenditures; (c)
dividend payments; (d) investment in domestic
subsidiaries; (e) infrastructure projects.
Q: What if the foreign-source dividend was NOT utilized in
accordance with the 3rd condition?

A: Considered as taxable income in the year received

subject to surcharges, interest, penalties, as applicable.
 INCLUSIONS – 7. DIVIDENDS
Team Payaman, Inc, a domestic corporation received dividends from
the ff. investments in foreign associates which it held at least 20%
interest for more than 2 years.
FOREIGN
INVESTMENT
DIVIDEND
S REMARKS
S
X 2M Received June 30, 2021 but remained unused until January 1, 2023

Y 3m Received in May 1, 2021.2.5M was used to pay dividend in September I, 2022.

The 500k remaining was used for working capital in 2023.

Z 4M Received in July 1, 2022. P3M was used to purchase equipment in 2023. The
balance remained unused on January 1, 2024.
 FOREIGN
INVESTMENT
DIVIDEND
S INCLUSIONS – 6. REMARKS
DIVIDENDS
S

X 2M Received June 30, 2021 but

remained unused until January
1, 2023.

The entire 2M unused dividends from X Corp. shall be declared as

taxable income for 2021 (taxable year said dividend was received)
subject to surcharges, interest and penalty since it was NOT utilized in
2022 (next taxable year).
 FOREIGN
INVESTMENT
DIVIDEND
S INCLUSIONS – 6. REMARKS
DIVIDENDS
S

Y 3m Received in May 1, 2021.2.5M was used to pay

dividend in September I, 2022. The 500k remaining
was used for working capital in 2023.

The P2.5M of the dividends from Y Corp is

exempt, while the remaining 500k is taxable
income in 2021 since it was not used in 2022.
 FOREIGN
INVESTMENT
DIVIDEND
S INCLUSIONS – 6. REMARKS
DIVIDENDS
S

Z 4M Received in July 1, 2022. P3M was used to

purchase equipment in 2023. The balance remained
unused on January 1, 2024.

The P3M of the dividends from Z Corp is exempt,

while the remaining 1M is taxable income in 2022
since it was not used in 2023(next taxable year).
 INCLUSIONS –
8. ANNUITIES

ONLY the excess of annuity

payments received by the recipient
over premium paid is taxable
income in the year it was received.
 INCLUSIONS –
8. ANNUITIES

ONLY the excess of annuity

payments received by the recipient
over premium paid is taxable
income in the year it was received.
 INCLUSIONS –
8. ANNUITIES
Illustration:
Cong purchased an annuity contract for P200k which shall pay
him P20k annually until he dies.

= The receipt of the first annual payments (total of P200k) is a

mere return of capital. Any further receipt from year 11 onwards
is an item of gross income subject to regular income tax.
 INCLUSIONS –
9. PRIZES AND WINNINGS
NOTE that prizes and winnings that are EXEMPTED to
FINAL TAX are also NOT items of gross income subject to
regular income tax, such as:
1. Prizes received without effort to join a contest;
2. Prizes in athletic competitions sanctioned by their
respective national sports association;
3. Winnings from PCSO games, not exceeding P10k
 INCLUSIONS –
10. PENSIONS
This pertains to pensions and
retirements benefits that failed to
meet the exclusion criteria.
 INCLUSIONS –
11. PARTNER’S DISTRIBUTIVE SHARE FROM THE
NET INCOME OF THE GENERAL PROFESSIONAL
PARTNERSHIP (GPP)
*GPP are not subject to income tax because
they are merely viewed as PASS
THROUGH ENTITIES. The partners are the
ones subject to regular tax on their share in
the net income of the GPP.
 GENERAL PROFESSIONAL PARTNERSHIP (GPP)

*GPP are not subject to income tax because

they are merely viewed as PASS
THROUGH ENTITIES. The partners are the
ones subject to regular tax on their share in
the net income of the GPP.
 INCLUSIONS –
11. PARTNER’S DISTRIBUTIVE SHARE FROM THE
NET INCOME OF THE GENERAL PROFESSIONAL
PARTNERSHIP (GPP)
Illustration: Donna and Bart practice their profession
in a GPP and share profits 60-40. Their firm reported
the following:
Gross Receipts P2,000,000
Less: Professional Expenses 1,200,000
Net Income from operations 800,000
Interest from bank deposits 20,000
Distributive net income 820,000
 INCLUSIONS –
11. PARTNER’S DISTRIBUTIVE SHARE FROM THE NET INCOME OF
THE GENERAL PROFESSIONAL PARTNERSHIP (GPP)
Gross Receipts P2,000,000
Less: Professional Expenses 1,200,000
Net Income from operations 800,000
Interest from bank deposits 20,000
Distributive net income 820,000

Total distribution to Donna (60% x 820,000) P 492,000

Total distribution to Bart (40% x P820,00) 328,000

DISTIRBUTIVE NET INCOME P 820, 000

 INCLUSIONS –
GENERAL CRITERIA FOR ITEMS of GROSS
INCOME

*Recall that items of gross income are NOT LIMITED

in the aforementioned NIRC list.

INCOME DERIVED FROM WHATEVER

SOURCES.