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Taxation Notes (based on Pactt Discussions for Certified Tax

Technician Examination)
BS Accountancy (New Era University)

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INDIVIDUAL TAXPAYER

1 Those who are citizens of the Philippines at the time of the adoption
of the Constitution
2 Those whose fathers or mothers are citizens of the Philippines
RESIDENT CITIZEN
3 Those born before January 17, 1973 of Filipino mothers, who elect
Philippine Citizenship upon reaching the age of majority; and
4 Those who are naturalized in accordance with law

1 Who establishes to the satisfaction of the Commissioner the fact of

his physical presence abroad with definite intention to reside
therein
2 Works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of
the time (must be outside PH for not less than 183 days) during
NONRESIDENT
the taxable year.
CITIZEN
3 One who leaves the Philippines to reside abroad as an immigrant,
or for employment on a permanent basis
4 Citizen previously considered as NRC who arrives to reside
permanently in Phil: NRC for the taxable year which he arrives with
respect to income derived from sources abroad UNTIL the date of
his arrival in the country
1 OFW, physically present abroad as a consequence of employment

2 Salaries & wages= paid by employer abroad and is not borne by

anyone in the Phil

3 Duly registered as such with POEA with a valid Overseas

Employment Certificate (OEC)
OVERSEAS
CONTRACT 4 Seaman who receives compensation for services rendered abroad
WORKER as a member of the complement vessel engaged exclusively in
international trade
Requirements:
a. Duly registered as such with POEA with a valid OEC
b. With a valid Seafarer’s Identification Record Book (SIRB) or
Seaman’s Book issued by Maritime Industry Authority
(MARINA)

NOT A CITIZEN; alien with acquired residence in the PH retains status as

resident until he abandons the same and actually departs from PH
1 An alien actually present in the Philippines who is not a mere
RESIDENT ALIEN transient or sojourner
2 Has a definite purpose that requires an extended stay;
PH= temporary home
3 Has no definite intention as to his stay
NONRESIDENT NON-RES & NON-CIT
ALIEN ENGAED IN 1 Alien engaged in trade or business in PH
TRADE OR 2 Alien who come to PH and stay for an aggregate period of more
BUSINESS than 180 days
NONRESIDENT
ALIEN NOT ENGAED
Residual definition
IN TRADE OR
BUSINESS

KINDS OF INCOME

1. Compensation income
- income from services as a result of employer-employee relationship
- If taxable, subject to graduated income tax

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-Include salaries, wages, emoluments, and honoraria, allowances for transportation,

representation, entertainment, and the like, commissions; fees, including director’s fees
paid to a director who is at the same time an employee of the payer; taxable bonuses and
benefits except those subject to fringe benefit tax and the allowable de minimis’ benefits;
taxable pensions and retirement pay; and other income of a similar nature.
2. Self-employment/ Professional income
- Income from sole proprietorship business or practice of profession (not under an employer-
employee relationship)
- Subject either to
a. 8% option if annual gross sales/receipts do not exceed 3M and not VAT registered, or
b. Graduated rates
- Professional - formally certified by a professional body belonging to a specific profession
by virtue of having completed a required examination or study or practice,
whose competence is measures against an established set of criteria
-also refers to a person who engages in some art or sport for money, as a
means of livelihood rather than a hobby.
- Self-employed A sole proprietor or an independent contractor

3. Passive income- income generated without any active conduct; subject to final withholding tax
Hindi na dinedeclare ulit ng taxpayer sa form 1701 kasi the amount remitted is regarded as full and final
payment’ pag dineclare ulit edi dodoble

TAXPAYER
INTEREST INCOME NRC, NRA-
RC, RA
NRAET NETB
a. from any currency bank deposit; yield or other
monetary benefit from:
i. Deposit substitutes
20% 20% 25%
ii. Trust funds
iii. Similar arrangements as above

b. From a depository bank under the expanded foreign

currency deposit system (TRAIN Law beg Jan. 1, 15% Exempt Exempt
2018 *applicable only to resident taxpayer)
c. From long-term bank deposits or bank investment
(at least 5-year maturity) Exempt Exempt 25%
In case of pre-termination of the long-term deposit or
investment, depending on the holding period:
▪ 5 years or more Exempt Exempt 25%
▪ 4 years- less than 5 years 5% 5% 25%
▪ 3 years to less than 4 years 12% 12% 25%
▪ Less than 3 years 20% 20% 25%

TAXPAYER
ROYALTIES RC, RA, NRA-
NRAET
NRC NETB
a. From:
▪ Literary works 10% 10% 25%
▪ Books
▪ Musical compositions

b. Other Royalties 20% 20% 25%

PRIZES
a. Amount > 10,000 20% 20% 25%
b. Amount ≤ 10,000 Basic Tax Basic Tax 25%
OTHER WINNINGS
a. Other winnings (regardless of amount) 20% 20% 25%
b. PCSO winnings
▪ TRAIN LAW
o Not more than 10k Exempt Exempt 25%
o More than 10k 20% Exempt 25%

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▪ CREATE LAW
o Not more than 10k Exempt Exempt 25%
o More than 10k 20% 20% 25%

TAXPAYER
DIVIDENDS RC, RA, NRA-
NRAET
NRC NETB
a. Actually & constructively received from:
i. DC 10% 20% 25%
ii. Joint Stock Company
iii. Insurance or mutual fund company
iv. ROHQ of a multinational company

b. Share in the net distributable NI after tax of a

partnership (except GPP) 10% 20% 25%
*General Partnership- treated as dividend income (10% FWT)
**GPP- not treated as div. income; subject to basic tax
c. Share in the NI after tax of:
i. Association 10% 20% 25%
ii. Joint Account
iii. Taxable Joint Venture or Consortium1

CAPITAL GAINS TAX (CGT)

TRANSACTIONS SUBJECT TO CGT
1 Sale of shares classified as capital asset of a closely held DC NOT through LSE
in which seller should not be a dealer in securities→ 15%; if disposition of
shares resulted to loss, no CGT
If sold by dealer in securities → Basic Income Tax

2 Sale of real property classified as capital asset located in PH → 6% based on

GSP or current FMV, whichever is higher regardless of whether the
transaction resulted to a gain or loss
CGT from Sale of Shares of Stock NOT Traded in the Stock Exchange 15%
Tax base: Net capital gains realized
IMPORTANT: To be subjected to CGT, shares of stock should be classified as capital asset

SHARES TAX BASIS

Not listed & traded in
CGT; 15% Capital Gain
the LSE
Listed & traded in the ▪ Exempt from income tax
DC LSE ▪ Subject to Stock Transaction Tax, a
6 Selling Price
business tax, of 10 of 1% of GSP
prior rate: @ 12 of 1% of gross selling price
Foreign Corp Basic Income Tax Gain

Selling Price xx
Cost (xx)
Net Capital Gain xx
Rate 15%
CGT Pxx

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METHODS ALLOWED IN COMPUTING INCOME TAX

Income earner 8% option Graduated rates
Pure compensation Not allowed Allowed
Self-employed and/or Allowed if income is less than 3M Allowed
professionals
Mixed income earner allowed only on self-employment/ Allowed on both
professional income income

8% INCOME TAX OPTION

1. Only allowed for INDIVIDUAL TAXPAYER
2. THE 8% OPTION IS APPLICABLE ONLY ON THE SELF-EMPLOYMENT INCOME and is
disallowed on compensation and passive income
3. Annual gross sales/ receipts including non-operating income (capital gain on sale of asset)
must not exceed 3M
4. Not VAT registered
5. Nature of business is subject to 1% non-vat (3% prior to CREATE Law) under Sec. 116 and
NOT OPT.
6. Kapag pinili ay 8% ay exempt sa pagbabayad ng 1% (3% prior to create Law) business tax
7. Not entitled to claim deduction but entitled to 250,000 exemption before i-multiply ng 8%
ang GS/GR
8. If mixed income earner, the 250,000 exemption is only allowed to be deducted on the
taxable compensation income

BIR FORM THAT MAY BE USIND IN FILING ITR

1. 1701Q- Quarterly Income Tax Return for Individuals, estates and trusts- self-employment
income
2. 1701- filed by individuals who are engaged in trade/business or the practice of profession
including those with mixed income (i.e., those engaged in the trade/business or profession
who are also earning compensation income)
3. 1701A- Annual Income Tax Return for Individuals earning income purely from Business/
Profession
a. Those under the graduated income tax rates with OSD as a mode of deduction (if
taxpayer chose itemized deduction, 1701), OR
b. Those who opted to avail of the 8% flat income tax rate
4. 1700- filed by individuals who are purely compensation income earner but disqualified to
avail of the substituted filing

WHAT BIR FORM SHOULD BE USED IN FILING THE ITR?

COMPENSATION SELF- PASSIVE DEDUCTION TAX BIR FORM

INCOME EMPLOYMENT INCOME METHOD
INCOME
1 YES YES YES Itemized Graduated 1701
2 NO YES YES None 8% option 1701A
3 YES NO YES None Graduated 1700
4 NO YES YES Itemized Graduated 1701
5 NO YES NO OSD Graduated 1701A

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PROBLEMS:

1. Individual taxpayer is self-employed. Gross sales- 1.8M; Gross Receipts- 500,000; Cost of
Sales/Services- 630,000
Option 1 (8% Option) Option 2 (Graduated Rate)
Gross Sales/Receipts Taxable Income
1,670,000
(1.8M + 500K) 2,300,000 (2.3M- 630K)
Less: Exemption (250,000) On 800,000 130,000
Tax Base 2,050,000 870,000 × 30% 261,000
Rate 8% Tax Due 391,000
Income Tax 164,000 Business Tax (2.3M × 1%) 23,000
Total 414,000

2. Individual taxpayer is self-employed. Gross sales- 2.0M; Gross Receipts- 400,000; Cost of
Sales/Services- 1,300,000
Option 1 (8% Option) Option 2 (Graduated Rate)
Gross Sales/Receipts Taxable Income
1,100,000
(2M + 400K) 2,400,000 (2.4M- 1.3M)
Less: Exemption (250,000) On 800,000 130,000
Tax Base 2,150,000 300,000 × 30% 90,000
Rate 8% Tax Due 220,000
Income Tax 172,000 Business Tax (2.4M × 1%) 24,000
Total 224,000
Business Tax exempt

3. Individual taxpayer is self-employed. Sales- 3,250,000; Cost of Sales/Purchases- 1,200,000,

net of VAT. How much is the total of income and business taxes?
Income Tax Business Tax
Taxable Income 3,250,000 Output Tax (3,250,000 × 12%) 390,000
Less: Cost of Sales/Purchases 1,200,000 Less: Input Tax (1,200,000 × 12%) 144,000
Taxable Income 2,050,000 Business Tax 246,000
On 2M 490,000
50,000 × 32% 16,000 Income Tax 506,000
Income Tax 506,000 Business Tax 246,000
Total Taxes 752,000

4. Ka Wani is a government employee. He is not engaged in business nor has any other source
of income other than his employment. During the year, Ka Wani earned a total taxable
compensation income of P900,000. The income tax due on the 2022 and 2023 income are&

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Note that the graduated tax table on 2023 will be different from the current tax table.
a. 2022 b. 2023
Tax on 800,000 130,000 Tax on 800,000 102,5000
100,000 × 30% 30,000 100,000 × 25% 25,000
Income Tax 160,000 Income Tax 127,5000

5. Marites is a professional who is engaged in the practice of her profession. Her total gross
receipts amounted to P4,250,000 for taxable year 2022. Her record cost of service and
operating expenses were P2,150,000 and P1,000,000, respectively.
a. How much is the income tax due on Marites?
b. What business Tax is due? Subject to Value-added tax because it exceeds the 3M
threshold
Gross Receipts 4,250,000 On 800,000 130,000
Less: Cost of Sales 2,150,000 300,000 × 30% 90,000
Gross Income 2,100,000 Income Tax Due 220,000
Less: Operating Expenses 1,000,000
Taxable Income 1,100,000

6. In 2022, Mama San owns Oishi Videoke Bar with gross receipts of 2,500,000. Her cost of
services and operating expenses are P1,000,000 and 600,000, respectively, and with non-
operating income of P100,000. How much is the income tax due (a) and business tax due (b)
on Mama San?
Gross receipts 2,500,000 Gross Receipts 2,500,000
Less: Cost of service 1,000,000 Rate of Tax 18%
Gross Income 1,500,000 Amusement tax due (b) 450,000
Less: Operating Expense 600,000
Net Income from Operation 900,000
Add: Non-operating Income 100,000
Taxable Income 1,000,000

Tax on 800,000 130,000

200,000 × 30% 60,000
Income Tax Due (a) 190,000

7. In 2021, Dean Medel, professor of accounting in one university, earned an annual

compensation of P900,000, inclusive of 13th month pay and other benefits in the amount of
120,000 but net of mandatory contributions to SSS, PhilHealth and Pag-Ibig of P8,000.
Aside from employment income, he practices his profession as a CPA, with gross
receipts of P2,200,000. His cost of services and other operating expenses amounted to
600,000 and 250,000, respectively, and with non-operating income of 100,000.
Compute for the income tax due if he opted to be taxed at 8%.

Mixed Income earner Professional income- opt for 8%

Total compensation income 900,000 Gross Receipts 2,200,000
Less: 13th MP and other benefits 90,000 Add: Non-operating income 100,000
Allowed exemptions is only up to 90,000
Taxable Compensation Income 810,000 Taxable Business Income 2,300,000
Income Tax Rate 8%
On 800,000 130,000 Tax Due- Prof. Income 184,000
10,000 × 30% 3,000
Tax Due- compensation income 133,000 Total (133,000 + 184,000) 317,000
900K is already net of SSS, PhilHealth and Pag-ibig so it shouldn’t be deducted again.

8. In 2021, Dean Medel, professor of accounting in one university, earned an annual

compensation of P900,000, inclusive of 13th month pay and other benefits in the amount of
120,000 but net of mandatory contributions to SSS, PhilHealth and Pag-Ibig.

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Aside from employment income, he practices his profession as a CPA, with gross
receipts of P2,200,000. His cost of services and other operating expenses amounted to
600,000 and 250,000, respectively, and with non-operating income of 100,000.
Compute for total income tax due (1) if he opted to be taxed at graduated rates &
business tax on profession.

Total Compensation Income 900,000

Less: 13th month pay & other benefits 90,000 Gross Income 2,200,000
Taxable Compensation Income 810,000 Business Tax Rate 1%
(2) Business Tax 220,000
Gross Receipts 2,200,000
Less: Cost of Sales/ Purchases 600,000 1% because gross income did not
Gross Income 1,600,000 exceed the 3M threshold
Less: Operating Expense 250,000
Net Income from operation 1,350,000
Add: Non-operating income 100,000
Taxable Income 1,450,000
Total Taxable Income 2,260,000

Tax on P2,000,000 P490,000

260,000 × 32% 83,200
(1) Total Income Tax due 573,200

9. Val, Filipino residing in Manila had following data

during the year: #1
Gross receipts - profession P950,000 Gross Receipts 950,000
Cost and expenses, profession 180,000 Less: Cost & Expenses 180,000
Winnings in a raffle- FWT 100,000 Gross Income 770,000
Cash dividend received from C Corp. a domestic 6,000 Add: Other income 100,000
company-FWT (87,600 + 12, 400)
Salary as an accounting teacher (net of P12,400 WT)- 87,600 Rent [(38K/ 95%) - 8K] 32,000 132,000
Should be declared as gross of the CWT
Rental income (net of 5% WT)- Should be 38,000 Taxable Income 902,000
declared as gross of the CWT
Depreciation of rental equipment 8,000
Tax on 800,000 130,000
1. COMPUTE income tax payable
102,000 × 30% 30,600
using the graduated rates.
2. Income tax payable if Val availed Income Tax Due 160,600
of the 8% income tax option Less: WT Salary 12,400
WT Rent 2,000 14,400
Income Tax payable 146,200
#2
Salary (100K- 250K Exemptions) -
GR- Professional Income 950,000
Add: Non-operating income (rent) 40,000
Total 990,000
Rate 8%
Total 79,200
Less: Tax Credit- Rent 2,000
Tax Credit- Salary 12,400 14,400
Tax payable 64,800

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PROBLEM 10 #1
The taxpayer is a resident citizen who is Gross Receipts 950,000
married, with gross receipts from profession Less: Cost of services 180,000
of P950,000, cost of services of P180,000, Less: Operating Income 110,000 290,000
and expenses with supporting receipts of Taxable Income 660,000
P110,000.
#2
1. If the taxpayer chose the itemized Gross Receipts 950,000
deductions from gross income, the taxable Less: OSD (950K × 40%) 380,000
income is ______ Taxable Income 570,000

2. If the taxpayer chose the optional

standard deduction, the taxable income is__

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SEASON 4 EP 2: INCOME TAX: CORPORATION

COPORATIONS
- <Artificial being created by operation of law, having the right of succession and
the powers, attributes and properties expressly authorized by law or incidental to
its existence
INCLUDE
1 One Person corporation (OPC)
- corporation w/ a single stockholder provided that only a NATURAL person, trust or
an estate may form OPC
2 Partnerships, no matter how created or organized;
3 Joint stock companies
- Group of individuals, acting jointly, establish and operate business
enterprise under an artificial name, with an invested capital divided into
transferrable shares, an elected BOD and other corporate characteristics ,
but operating without formal government authority
4 Joint accounts (cuentas en participacion)
- Constituted when 1 interests himself in the business of another by
contributing capital and sharing P/L in proportion agreed upon.
- Not subject to any formality; orally or in writing
- All organizations with substantially salient features of a corporation to be
taxable as a corporation
5 Associations; or
6 Insurance companies
EXCLUDE
1 GPP
2 A joint venture or consortium formed for the purpose of undertaking;
a. Construction projects; or
b. Engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service
contract with the government.
TAXABLE AS CORP NOT TAXABLE
Business Partnership Professional Partnership (share of individuals
partners in the income of GPP is taxable as to
individual partners- Form 1701)
Joint stock companies joint venture or consortium formed for
construction projects
Joint accounts joint venture or consortium formed for
Associations Engaging in petroleum, coal, geothermal
and other energy operations pursuant to
an operating or consortium agreement
under a service contract with the
government
Insurance companies
Joint ventures
Consortiums

CLASSIFICATION Income within Income without

DC ✓ ✓
RF- engaging in trade or business in PH ✓ 
NRF- not engaged in trade or business in PH ✓ 

Tax base and tax Rates

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CLASSIFICATION TAX RATE TAX BASE

DC 25% or 20% effective July 1, 2020
30% prior to July 1, 2020

Requisites for 20%:

a. Net taxable income not exceeding 5M; AND
b. Total net assets (less depreciation and
allowance for bad debts) do not exceed
100M (excluding land on which the
particular business entity’s office, plant,
and equipment are situated)
RF 25% effective July 1, 2020
NRF 25% effective Jan. 1, 2021

class Total Dep’n and Cost of Taxable Tax Rate Income Tax
assets ADA Land Income Due
gross of
dep’t, ADA
and Cost of
land
DC 130M 3M 10M 15M 25% 3,750,000
DC 112M 3M 10M 10M 25% 2.5M
DC 105M 3M 10M 4.8 20% 960,000
DC 98M 3M 10M 4.5M 20% 900,000
DC 98M 3M 10M 5.5 25% 1,375,000
RF 98M 3M 10M 4.5M 25% 1,125,000
NRF 98M 3M 10M 4.5M 25% 1.125.000

MCIT

- The lowest amount on income tax that a

DC or RFC may be held liable over a certain
Period
- Compare MCIT and RCIT EVERY QUARTER
Section 27(E)(1) and Section 28(2) [for DCS and RFCS, respectively), as amended, under CREATE Law,
provide:
A Minimum Corporate Income Tax MCIT of two percent (2%) of the gross income as of the end of
the taxable year is imposed upon any domestic corporations and resident foreign corporations beginning
on the 4th taxable year immediately following the taxable year in which such corporation commenced its
business operations, when the MCIT is greater than RCIT, Provided: That effective July 1, 2020 until June
30, 2023, the rate shall be one percent (1%).

MCIT SHALL BE IMPOSED WHENVER

1 Corporation has zero taxable income
2 Corporation has negative taxable income
3 Whenever MCT is greater than RCIT

IMPOSITION
1 Beginning on the 4th taxable year immediately following the taxable year in which such
corporations commenced its business operations

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Example:
Business commenced operations/registered with BIR in 2021
2022 1st
2023 2nd
2024 3rd
2025 4th- start MCIT computation
2 Rate: 1% of gross income
Sales
Less: Cost of Sales
Add: Other non-operating income subject to BIT

CLASS RATE TAX BASE EFFECTIVITY

DC and RC 1% Gross income July 1, 2020- June 30,
2% 2023
July 1, 2023
Proprietary educational N/A N/A
institutions and hospitals
Offshore banking Units 1% From effectivity of
CREATE Act until June 30,
2023
2%
July 1, 2023
Regional operating 1% Jan 1, 2022- June 30,
HQ1% 2023
2%
July 1, 2023
NRFC N/A N/A
Note: Basta hindi subject sa 20% or 25% income tax rate but applies only on DC and RFC

RELEIF FROM MCIT

The Secretary of Finance is hereby authorized to suspends MCIT imposition on any corporation which
suffers losses on account of:
1. Prolonged labor dispute
- losses arising from a strike staged by employees lasting more than 6 months within
the taxable period and has resulted to temporary shutdown of business operations
2. Force majeure
- An irresistible force as by <Act of God= like lightning, earthquake, storm, flood and the
like; includes armed conflicts like war or insurgency
3. Legitimate business reverses
- Substantial losses due to fire, robbery theft, embezzlement, or for other economic
reasons as determined by the Secretary of Finance
GROSS INCOME
Gross Sales
Includes other items of gross income realized or earned
Less: Sales Returns, discounts
by taxpayer during the taxable period which are subjected
& Allowances
to RCIT COGS
Excludes income exempt from income tax and subject to Gross Income
FWT

CARRY FORWARD OF EXCESS OF MCIT

Any excess of MCIT over RCIT shall be carried forward and credited against the RCIT for 3
immediately succeeding taxable years
2021 RCIT 100

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MCIT 150
Excess 50 → can be credited against RCIT due from 2022- 2024 (excess MCIT
cannot be forwarded to another MCIT)

PROBLEM Gross income P6,000,000

Less: Deductions 5,000,000
A domestic corporation with net assets of
P110 million had the following data during the Taxable Income 1,000,000
1st quarter of 2022: Rate of Tax 25%
Normal Income Tax higher 250,000
Gross income P6,000,000 MCIT (6M × 1%) 60,000
Deductions 5,000,000 Income Tax Due 250,000
Excess WT, prior year 10,000 Less: MCIT Carry over PY 40,000
Withholding tax, 1st Quarter 20,000 Balance 210,000
Excess-MCIT prior year 40,000 Less: Tax Credits
Excess WT, PY 10,000
COMPUTE income tax payable. WT, 1ST Q 20,000 30,000
Income Tax Payable 180,000

Note: Compare MCIT and RCIT every quarter

PASSIVE INCOME WITHIN of DC and RFC are subject to FWT:
1 Subject to 20% tax rate
a. Interest on PHP bank deposit
b. Yield for any other monetary benefit from deposit substitutes
c. Yield from trust funds and similar arrangements
d. Royalties
2 Subject to 15% tax rate
a. Interest income from depository bank under expanded foreign currency deposit
system
b. Net Capital Gains realized from sale, barter or exchange or other disposition of
shares of stock of a DC not traded in LSE
3 Subject to 10% tax rate
a. Interest income from foreign currency loans granted by such depository banks under
said expanded FCD system to residents other than offshore banking units in the PH
or other depository banks under the expanded system

GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS

All corporations, agencies or instrumentalities owned or controlled by the Government shall be
taxable like <ordinary corporations=.
However, the following shall be exempt:
1. Government Service and Insurance System (GSIS)
2. Social Security System (SSS)
3. Home Development Mutual Fund (HDMF aka Pag-ibig)
4. Philippine Health Insurance Corporation (PHIC)
5. Local Water Districts (RA 10026)
NOTE:

• PCSO is taxable beginning Jan. 1, 2018 (TRAIN Law)

• HDMF or Pag-ibig is exempt only upon the effectivity of CREATE Law (April 11,
2021)
EXEMPT CORPORATIONS

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1. Labor, agricultural or horticultural organization not organized principally for profit;

2. Mutual savings bank not having a capital stock represented by shares, and cooperative
bank without capital stock organized and operated for mutual purposes and without
profit;
3. A beneficiary society, order or association, operating for the exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or a mutual
aid association or a non-stock corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits exclusively to the members of such
society, order, or association, or nonstock corporation or their dependents;
4. Cemetery company owned and operated exclusively for the benefit of its members;
5. Nonstock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no
part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person;
6. Business league, chamber of commerce, or board of trade, not organized for profit and
no part of the net income of which inures to the benefit of any private stockholder or
individual;
7. Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
8. A nonstock and nonprofit educational institution;
9. Government educational institution;
10. Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely
local character, the income of which consists solely of assessments, dues, and fees
collected from members for the sole purpose of meeting its expenses; and
11. Farmers’, fruit growers’, or like association organized and operated as a sales agent for
the purpose of marketing the products of its members and turning back to them the
proceeds of sales, less the necessary selling expenses on the basis of quantity of
produce finished by them.

PROBLEM 1
A domestic corporation had the following data Net Income, PH (70M- 24M) 46,000,000
in a taxable year: Net Income, abroad (50M-20M) 30,000,000
Gross income, PH 70,000,000 Royalty, abroad 500,000
Expenses, PH 24,000,000 Rent income, PH 360,000
Gross income, abroad 50,000,000 Rent income, abroad 300,000
Expenses, abroad 20,000,000 Taxable Income 77,160,000
Dividend from domestic corp 30,000
Royalty, PH 200,000 1. 2020
Royalty, abroad 500,000 Jan.1- June 30 (77,160,000 x 30%)/2 11,574,000
Rent income, PH 360,000 Jul.1- Dec 31 (77,160,000 x 25%)/2 9,645,000
Rent income, abroad 300,000 Total Tax Due 21,219,000
Interest on bank deposit, BDO 15,000
Capital gain on sale of stocks, not traded 50,000 2. 2021
(77,160,000 x 25%) 19,290,000
COMPUTE for the following:
1. Income tax due if the taxable year is 2020. 3. Final Tax
2. Income tax due if the taxable year is 2021. Royalty, PH (200K × 20%) 40,000
3. Final withholding tax. Interest, BDO (15,000 × 20%) 3,000
Capital gain (50,000 × 15%) 7,500
Final Withholding Tax 50,500

PROBLEM 2
A resident corporation had the following data Gross Income, PH 70,000,000
in a taxable year: Rent Income, PH 360,000
Gross income, PH 70,000,000 Total Income 70,360,000
Expenses, PH 24,000,000 Less: Expenses, PH 24,000,000

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Gross income, abroad 50,000,000 Taxable Income 46,360,000

Expenses, abroad 20,000,000
Dividend from domestic corp 30,000
Royalty, PH 200,000 4. 2020
Royalty, abroad 500,000 Jan.1- June 30 (46,360,000 x 30%)/2 6,954,000
Rent income, PH 360,000 Jul.1- Dec 31 (46,360,000 x 25%)/2 5,795,000
Rent income, abroad 300,000 Total Tax Due 12,749,000
Interest on bank deposit, BDO 15,000
Capital gain on sale of stocks, not traded 50,000 5. 2021
(46,360,000 x 25%) 11,590,000
COMPUTE for the following:
1. Income tax due if the taxable year is 2020. 6. Final Tax
2. Income tax due if the taxable year is 2021. Royalty, PH (200K × 20%) 40,000
3. Final withholding tax. Interest, BDO (15,000 × 20%) 3,000
Capital gain (50,000 × 15%) 7,500
Final Withholding Tax 50,500

PROBLEM 3 1 Nonresident foreign corporation

A resident corporation had the following data Gross Income, PH 70,000,000
in a taxable year: Dividend 30,000
Gross income, PH 70,000,000 Royalty, PH 200,000
Expenses, PH 24,000,000 Rent Income, PH 360,000
Gross income, abroad 50,000,000 Interest on bank deposit 15,000
Expenses, abroad 20,000,000 Total income 70,605,000
Dividend from domestic corp 30,000 Rate 25%
Royalty, PH 200,000 Final Withholding Tax 17,651,250
Royalty, abroad 500,000
Rent income, PH 360,000 2 Final Tax
Rent income, abroad 300,000 Capital Gain (50,000 × 15%) 7,500
Interest on bank deposit, BDO 15,000
Capital gain on sale of stocks, not traded 50,000
COMPUTE for the following:
1. Final withholding tax due if the taxable
year is 2021
2. Final withholding tax on capital gains

SPECIAL CORPORATIONS
SPECIAL CORPORATION TAX RATE Tax Base
proprietary educational institutions and hospitals 1% Taxable Income
(July 1, 2020- June 2023)
Exc. If income from unrelated activity is more than Taxable Income
50% of its total gross income 25%
• International Carriers 2.5% Gross PH Billings
• Non-resident Cinematographic Film owner, 25 Gross income within
lessor or distributor

• Non-resident owner or lessor of vessels 4.5% Gross rentals, lease or charter

chartered by Philippine Nationals fees

• Non-resident owner or lessor of aircraft, 7.5% Gross rentals, lease or charter

machineries and other equipment fees
• Offshore gaming licenses 25% Taxable Income
PH based (w/in & w/o)
Foreign Based (w/in)

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EDUCATIONAL INSTITUTIONS
1. Government- not taxable
2. Non-stock, non-profit- not taxable
3. Proprietary- taxable @ 1% until June 2023

PROBLEM
AA COLLEGE is a non-stock, non-profit educational institution and has proven actual operation that its
primary purpose is one of those enumerated under Sec 30 (H) of the NIRC. What are the tax
consequences on AA College?
ANSWER:
I. INCOME TAX
A. It is exempt from INCOME TAX on the following revenues or receipts:
1. Tuition fees and other school fees;
2. Donations and grants; and
3. Income derived from the operation of cafeterias/canteens, dormitories and
bookstores located within its premises, owned and operated by the school.
Provided that it must continue to meet the following requisites as set forth
under RMO 44-2016, to wit:
a) It is a non-stock, non-profit educational institution; and
b) Its revenues are actually, directly and exclusively used for educational
purposes.
B. Interest income from currency bank deposits and yield from deposit substitute instruments
used actually, directly and exclusively in pursuance of its purpose as an educational
institution, are exempt from the 20% final tax and 15% tax on interest income under the
expanded foreign currency deposit system imposed under Sec 27(D)(1) of the NIRC.
Provided, it shall submit annually to the Revenue District Office concerned the
following:
1. Annual information return and duly audited financial statement;
2. Certification from the depository banks as to the amount of interest income earned
from passive investment not subject to the final taxes;
3. Certification of actual utilization of the said income; and
4. Board Resolution by the school administration on proposed projects (i.e.,
construction and/or improvement of school buildings and facilities, acquisition of
equipment, books and the like) to be funded out of the money deposited in banks or
placed in money markets, on or before the 15th day of the 4th month following the
end of its taxable year.
II. VALUE-ADDED TAX
a) Gross receipts from operations as a non-stock, non-profit educational institution is exempt
from VAT. Revenues derived from assets used in the operation of cafeterias/canteens,
dormitories and bookstores located within its premises are exempt from taxation provided
they are owned and operated by it as ancillary activities.
b) (b) If it is engaged in the sale of goods or services in the course of a business pursuit,
including transactions incidental thereto, its revenues derived therefrom shall be subject to
12% VAT if the annual gross receipts exceed P3,000,000 or to the 3% percentage tax if the
gross receipts do not exceed P3,000,000
c) Its purchase of goods or properties or services and importation of goods shall be subject to
the 12% VAT, pursuant to Sec. 106 and 107 of NIRC

III. WITHHOLDING TAX

It shall be constituted as withholding agent for the government if it acts as an employer and its
employees receive compensation income subject to withholding tax under Section 79 (A), or if it
makes income payments to individuals or corporations subject to withholding tax pursuant to Section
57 of the NIRC.

PROPRIETARY EDUCATIONAL INSTITUTIONS (PEI)

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(Rev Regu 14-2021)

Proprietary educational institutions refer to any private schools, maintained and administered by
private individuals or groups, with an issued permit to operate from DepEd, CHED, or TESDA, as the case
maybe, under existing laws and regulations.

Non-profit means no net income or asset accrues to or benefits any member or specific person, with all
the net income or assets devoted to the institutions' purposes and all activities conducted not for profit.

PROBLEM 4
A proprietary educational institution had the Tuition fees P18,300,000
following data of income and expenses during Miscellaneous fees 3,800,000
the taxable year: Hospital 2,000,000
Tuition fees P18,300,000 Trust fund 50,000
Miscellaneous fees 3,800,000 Interest (800/80%) 1,000
Income from school hospital 2,000,000 Rent income (456K/95%) 480,000
income (training ground of
Totals 24,100,000 531,000
medical course students
Trust fund 50,000 Tuition fees P18,300,000
Interest -bank deposit (net of tax) 800 Miscellaneous fees 3,800,000
Rent income (net of tax) 456,000 Income of hospital 2,000,000
Operational expenses 14,000,000 Rent Income (456,000/95%) 480,000
Gross Income 24,580,000
During the year, the school spent P6 million
for the construction of a school building. The
1 Cost of improvement is capitalized
construction was completed June 30 with a
Gross Income 24,580,000
useful life of 50 years.
Less: Deductions
Expenses 14,000,000
COMPUTE for the following:
Dep’n (6M/50) × 1/2 60,000 14,060,000
(1) Income tax due in 2021 if the cost of
the improvement is capitalized. Taxable Income 10,520,000
(2) Income tax payable in 2021 if the cost Rate of Tax 1%
of improvement is expensed Income Tax Due 105,200
outright.
(3) Accomplish the appropriate BIR Form 2 Cost of improvement is expensed outright
Gross Income 24,580,000
Less: Deductions
Expenses 14,000,000
Building 6,000,000 20,000,000
Taxable Income 4,580,000
Rate of Tax 1%
Income tax due 45,800
Less: Tax Credit (480,000- 456,000) 24,000
Income Tax payable 21,800

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SEASON 4 EP 3: INCOME TAX: GROSS INCOME\

Gross income- all income derived from whatever source(even if income is from illegal activity)
TAX INFORMER’S REWARD
• 10% of the fine imposed & collected VS 1M, whichever is lower
• Subject to 10% FWT under Sec 282 of NIRC
SITUS OF TAXABLE INCOME
NATIONALITY/RESIDENCE INCOME WITHIN INCOME WITHOUT
Resident citizen ✓ ✓
Resident Alien ✓ 
NRC ✓ 
NRA ✓ 

5 Those who are citizens of the Philippines at the time of the adoption
of the Constitution
6 Those whose fathers or mothers are citizens of the Philippines
RESIDENT CITIZEN
7 Those born before January 17, 1973 of Filipino mothers, who elect
Philippine Citizenship upon reaching the age of majority; and
8 Those who are naturalized in accordance with law

5 Citizen of PH who establishes to the satisfaction of the

Commissioner the fact of his physical presence abroad with
definite intention to reside therein
6 One who leaves the Philippines to reside abroad as an immigrant,
or for employment on a permanent basis
7 Works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of
NONRESIDENT the time (must be outside PH for not less than 183 days) during
CITIZEN the taxable year.
8 Citizen previously considered as NRC who arrives to reside
permanently in PH: NRC for the taxable year which he arrives with
respect to income derived from sources abroad UNTIL the date of
his arrival in the country

Note: Taxpayer shall submit proof to the Commissioner to show his

intention of leaving PH to reside permanently abroad or to return yo
and reside in PH as the case may be.
5 OFW, physically present abroad as a consequence of employment

6 Salaries & wages= paid by employer abroad and is not borne by

anyone in the Phil

7 Duly registered as such with POEA with a valid Overseas

Employment Certificate (OEC)
OVERSEAS
CONTRACT 8 Seaman who receives compensation for services rendered abroad
WORKER as a member of the complement vessel engaged exclusively in
international trade

Requirements:
c. Duly registered as such with POEA with a valid OEC
d. With a valid Seafarer’s Identification Record Book (SIRB) or
Seaman’s Book issued by Maritime Industry Authority
(MARINA)

RESIDENT ALIEN NOT A CITIZEN; alien with acquired residence in the PH retains status as
resident until he abandons the same and actually departs from PH

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3 An alien actually present in the Philippines who is not a mere

transient or sojourner
4 Has a definite purpose that requires an extended stay;
PH= temporary home
3 Has no definite intention as to his stay
NONRESIDENT NON-RES & NON-CIT
ALIEN ENGAED IN 3 Alien engaged in trade or business in PH
TRADE OR 4 Alien who come to PH for an aggregate period of more than 180
BUSINESS days
NONRESIDENT
ALIEN NOT ENGAED
Residual definition
IN TRADE OR
BUSINESS

TAXABILITY OF DIVIDENDS
DIVIDENDS DECLARED BY RECEIVED BY
DOMESTIC CORP DC Not taxable
RFC No taxable
NRFC 25%; tax sparing credit
Resident or Citizen 10% FWT
NRA ETB 20% FWT
NRA NETB 25% FWT
DIVIDENDS DECLARED BY DC Ordinary income tax
FOREIGN CORP Foreign Corporation Not taxable
Resident Citizen Ordinary income tax
NRC, NRA, RA Not taxable

STOCK DIVIDENDS
GR: Not taxable, unless:
1. The recipient is other than a stockholder

2. A change in stockholder’s equity results by virtue of the stock dividends issuance

Shareholder # of stocks % of shares Dividend Received New # of shares New % of shares
Arci 2,000 20% 200 shares 2,200 20.754%
Bianca 2,000 20% 200 shares 2,200 20.754%
Catriona 2,000 20% Cash 2,000 18.868%
Diana 2,000 20% Cash 2,000 18.868%
Ellen 2,000 20% 200 shares 2,200 20.754%
Total 10,000 100% 600 shares 10,600 100%
The additional dividends received by Arci, Bianca and Ellen are taxable. The cash dividends received by
Catriona and Diana remains taxable (no issue on cash dividends)

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EXCLUSIONS FROM GROSS INCOME

1 Life insurance- proceeds paid to beneficiary upon DEATH OF THE INSURED except when
a. The policy is sold or assigned in which case the proceeds, less capital invested by the
assignee/ claimant shall be taxable
b. The proceeds upon the death are by the insurer under an agreement to pay thereon, the
interest payments shall be included in gross income
e.g., Lump sum- 300,000 or with interest- 330,000 (300,000 is not taxable but the
interest of 30,000 is taxable)
IF THE POLICY MATURES WITHOUT THE INSURED DYING, TAXABLE. If the insurer dies
before the policy matures, it is not taxable, except when (1) policy is sold or assigned or there is
(2) interest on proceeds

PROBLEM
Ana took a life insurance from SC Insurance 1 None, indemnity, not gain or profit
Company, with her husband Abe as the
beneficiary. Under the policy, SC will pay Sonia the 2 Proceeds 500,000
amount of P500,000 when the policy matures, or Premiums paid (10,000 × 20%) (200,000)
to her beneficiary husband in case she dies before Taxable 300,000
the maturity. Sonia will pay P10,000 annually for
20 years. How much is taxable if: 3 Proceeds 500,000
1) Ana died and the beneficiary received Less: Investment of assignee
P500,000? Purchase Price 150,000
Premiums paid 40,000 190,000
2) the policy matured when Ana reached 60 Taxable 310,000
years old and she received the entire
P500,000?
3) (3) Ana assigned the policy to Deo for
P150,000 and the latter continued paying the
premiums for 4 years. Upon the death of Ana,
Deo received the face value of P500,000

2 Amount received by insured as return of premium- paid by him under life insurance endowment or
annuity contracts, either during the term or at the maturity of the term mentioned in the contract or
upon surrender of the contract

(The insured will receive 500,000 however, the taxable portion will be the face value less premiums paid
because it is only a return of capital. Therefore, the taxable amount is 300,000).

3 Gifts (Donor’s Tax), bequests and devises (Estate Tax)

- The value of property acquired by gift, bequest, devise, or descent: Provided, however, that
income from such property, as well as gift, bequest, devise or descent income from any
property, in cases of transfers of divided interest, shall be included in gross income.

4 Compensation for injuries or sickness

- amounts received, through Accident or Health Insurance or under Workmen's Compensation
Acts, as compensation for personal injuries or sickness, plus the amounts of any damages
received, whether by suit or agreement, on account of such injuries or sickness.

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5 Retirement benefits, pensions, gratuities, etc.

- received under RA 7641 and those received by officials and employees of private firms,
whether individual or corporate, in accordance with a reasonable private benefit plan
maintained by the employer, if:
a. The retiring official or employee has been in the service of the same employer for at
least ten (10) years
b. Not less than fifty (50) years of age at the time of his retirement.
c. The benefits shall be availed of by an official or employee only once

6 Separation pay
- Any amount received by an official or employee or by heirs from the employer as a
consequence of separation of such official or employee from the service of the employer
because of death, sickness or other physical disability or for any cause beyond the control
of the said official or employee
BEYOND THE CONTROL TEST- if the cause of separation from employment is beyond the
control of the employee, then the separation pay is not subject to income tax.

WITHIN THE CONTROL OF THE EMPLOYEE BEYOND THE CONTROL

Dishonesty, inefficiency, serious Retrenchment, installation of labor-saving device,
misconduct, moral depravity closure or cessation of business, redundancy

7 Benefits received from SSS and GSIS

8 Income derived by the government or its political subdivision
- Income derived from any public utility or from the exercise of any essential governmental
function accruing to the Government of the Philippines or to any political subdivision
thereof.
9 Prizes and awards
Prizes and awards made primarily in recognition of religious, charitable, scientific, educational,
artistic, literary or civic achievement, but only if:
i. The recipient was selected without any action on his part to enter the contest or
proceeding; and
ii. The recipient is not required to render substantial future services as a condition to
receiving the prize or award.
10 Prizes and awards in sports competition
- All prizes and awards granted to athletes in local and international sports competitions and
tournaments whether held in the Philippines or abroad and sanctioned by their national
sports associations.

11 13th month pay & other benefits

- Gross benefits received by officials and employees of public and private entities not
exceeding P90,000.

12 GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of individuals.

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PROBLEM

Annual salary, at gross P288,000 Pag-ibig fund contributions 5,760

Taxes withheld 8,000 Union dues 2,400
Pag-ibig fund contributions 5,760 PhilHealth contributions 10,080
Union dues 2,400 SSS premiums 12,960
PhilHealth contributions 10,080 Other benefits
SSS premiums 12,960 13th month pay 24,000
13th month pay 24,000 Mid-year bonus 12,000
Mid-year bonus 12,000 Loyalty award 5,000 41,000
Loyalty award 5,000 Non-taxable compensation income 72,200
COMPUTE for non-taxable compensation income.

DE MINIMIS BENEFITS

De minimis benefits in general are limited to facilities or privileges furnish or offered by an employer
to his employees that are of relatively small val and are offered or furnished by the employer merely as
a means of promoting the health, goodwill, contentment, or efficiency of his employees, such as the
following:

1. Monetized unused vacation leave credits of private employees not exceeding 10 days during the
year,
2. Monetized value of leave credits paid to government officials and employees;
3. Medical cash allowance to dependents of employees not exceeding P1,500 per semester or
P250 per month;
4. Rice subsidy of P2,000 or one sack of 50 kg. rice per month amounting to not more than P2,000,
5. Uniforms and clothing allowance not exceeding P6,000 per annum;
6. Actual yearly medical benefits not exceeding P10,000 per annum;
7. Laundry allowance of P300 per month;
8. Employees achievement awards, e.g. for length of service or safety achievements which must be
in the form of a tangible property other than cash or gift certificate with an annual monetary
value not exceeding P10,000 received by an employee under an established written plan which
does not discriminate in favor of highly paid employees;
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum,
10. Flowers, fruits, books or similar items given to employees under special circumstances, e.g. on
account of illness, marriage, birth of a baby, etc.;
11. Daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.
12. Benefits received by an employee by virtue of a Collective Bargaining Agreement (CBA) and
productivity incentives schemes provided that the total annual monetary value received from
both CBA and productivity incentives schemes combined, do not exceed P10,000 per employee
per taxable year

All other benefits given by employers which are not included in the above enumeration shall not
be considered as "de minimis benefits”, and hence, shall be subject to income tax as well as withholding
tax on compensation.

Employer gives benefit beyond the ceiling- The amount of de minim benefits conforming to the ceilings
herein prescribed shall not be considered in determining the P90,000 of other benefits. However, if the
employer pays more than the ceiling, the excess shall be taxable to the employee if such excess is beyond
P90,000.

PROBLEM
Rufo retired from employment on Salary P250,000
December 31 as a rank-and-file employee. Less: Contributions 25,000

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He received the following from his employer Net 225,000

during the year: 13th month pay & other benefits:
Annual basic salary P 250,000 13th month pay P 25,000
13th month pay 25,000 Uniform (8,000 - 6,000) 2,000
Uniform allowance 8,000 Laundry (400-300) x 12 1,200
Laundry allowance/month for 12 months 400 Loyalty award 10,000
Anniversary bonus 2,500 Productivity (15,000-10,000) 5,000 Ceiling of 10K
Loyalty award 10,000 Total 43,200 -
Productivity pay 15,000 Taxable income  225,000
Retirement pay 750,000 0, because 43,200
did not reach the
COMPUTE for the taxable income if the
ceiling of 90,000
contributions to SSS, HDMF and PhilHealth
amounted to P25,000.

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SEASON 4 EP 4: INCOME TAX: DEALINGS IN PROPERTY

Capital assets- properties not used in business operation
OA 1. Office equipment
CA 2. House appliance
CA 3. Air conditioner in a bedroom of a house
OA 4. Aircon in a motel
CA 5. Accounts receivable

SUMMARY OF RULES ON SALES/EXCHANGE OF CAPITAL ASSETS

INDIVIDUAL CORPORATION
Real property 6% CGT 6% capital gain tax on LAND
& BUILDINGS
Personal property 1. CL are deductible only from the 1. CL are deductible only
CG from the CG
2. There is holding period; there is 2. There is no holding period
carry-over and no carry-over
Stocks not traded 15% of capital gain 15% of capital gain

RULES ON CAPITAL ASSET (PERSONAL PROPERTY)

a. INDIVIDUAL TAXPAYER
a. Capital loses are deductible only from the capital gains
b. There is holding period; there is carry-over
• More than 12 months- long term
• Not more than 12 months - short term
c. Carry over is good only for one year
d. The amount of carry-over should not exceed the net income in the year in which capital
loss was sustained

Capital asset bought Jan.2018 More than 12

Holding period- date
Sold 2022 months- long term
of acquisition to the → →
Holding Period: Jan. 2018- 12 months or less-
date of disposal
March 2022 short term

b. CORPORATION
a. Capital loses are deductible only from the capital gains
b. No holding period and no carry-over

PROBLEM 2021 2022 1. Individual- 2021

GI from operation 130,000
Gross inc from operation P130,000 P200,000 Less: Deductions 110,000
Deductions 110,000 70,000 Net Income 20.000
Sale of assets: Add: Non-operating inc
Delivery truck Del Truck (350K-300K) 50,000
(Book value-P300,000) 350,000 CA 1 (700-900) × 50% (100,000)
Residential land (FMV, P2M) 2,300,000 CA 2 (100-120) × 100% (20,000)
Capital assets (personal property): CA 3 (240-150) × 50% 45,000
Selling Cost Acquired Sold Net capital loss (75,000)
Price Taxable Income 70,000
Asset 1 P700,000 P900,000 2018 2021
Asset 2 100,000 120,000 2021 2021 2022
Asset 3 240,000 150,000 2019 2021 GI from operation 200,000
Asset 4 400,000 330,000 2022 2022 Less: Deductions 70,000

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COMPUTE taxable income in 2021 & 2022 if taxpayer Net Income 130,000
is Individual Sale of CA 4:
SP 400,000
COMPUTE taxable income in 2021 & 2022 if taxpayer Less: Cost 330,000
is corporation Cap. Gain, short-term 70,000
CORPORATION- 2021 Less: NCLCO, limit 20,000 50,000
GI from operation 130,000 Taxable Income 180,000
Less: Deductions 110,000 NOLCO out of 75K in 2021, 20K only is carried-over
in 2022
Net Income 20,000 2022
Add: Non-operating income GI from operation 200,000
Del Truck (350K-300K) 50,000 Less: Deductions 70,000
CA 1 (700-900) (200,000) Net Income 130,000
CA 2 (100-120) (20,000) Sale of CA 4:
CA 3 (240-150) 90,000 SP 400,000
Net capital loss (130,000) Less: Cost 330,000 70,000
Taxable Income 70,000 Taxable Income 200,000

SALE OF SHARES OF STOCK

1. Listed and traded-
• Subject to: Stock Transaction Tax (business tax)
• Tax base: Gross Selling price
6
• Tax Rate: 10 of 1% of GSP or (.006)
2. Not listed and traded (over the counter/ directly to buyer)
• Subject to: CGT (Income Tax)
• Tax base: Net Capital Gain (SP- Cost and other expenses connected to the sale)
• Tax Rate: 15% whether seller is individual or corporation
Selling Price xx
Cost (xx)
Net Capital Gain xx
Rate 15%
CGT Pxx

PROBLEM Solutions:
ABC Corporation sold the following not-traded
1. August 20
shares of stocks:
Selling price P180,000
(1) August 20, 2021 (2,000 shares) Less: Cost (110,000)
Selling price P 180,000 Capital gain 70,000
Cost 110,000 Rate 15%
Final tax 10,500
(2) October 5, 2021 (3,000 shares)
Selling price P 15,000 (2) October 5
Cost 24,000 Selling price 15,000
COMPUTE final tax/es on the sales and the final Less: Cost (24,000)
consolidated return in 2021. Capital loss (9,000)

August 20 P 70,000
October 5 (9,000)
Net capital gain 61,000
Rate 15%
Tax due 9,150
- Tax paid 10,500

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Can claim for refund Overpayment 1,350

- 1st
transaction

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COVERED TRANSACTIONS

Sale, exchange or other disposition of real property located in t Philippines, including pacto de retro
sales and other forms or conditional sales

IDENTIFY whether capital asset or ordinary asset.

O 1. A property purchased for future use in the business, this purpose is later thwarted by
circumstances beyond the taxpayer's control.
O 2. A building used in business and becomes fully depreciated.
C 3. A townhouse owned by an individual engaged in business.
O 4. Real property primarily for sale owned by a taxpayer who changed its real estate
business to a non-real estate business.
O 5. Real properties owned by taxpayers originally registered to be engaged in real estate
business but failed to subsequently operate.
C 6. Real properties formerly being used in the business of a taxpayer not engaged in real
estate business but subsequently abandoned and became idle.
C 7. Real property transferred through succession or donation to the heir or donee who does
not subsequently use it in trade or business.
C 8. Real property received as dividend from a real estate corporation by stockholders who
are not engaged in real estate business and who do not subsequently use such real
property in trade or business.
O 9. Real properties forming part of the inventory of a real estate dealer which are
foreclosed.

CAPITAL ASSET is a property which is not being used in busine operation. (e.g. residential house)

RULES. A sale or exchange of real property-capital asset is subject to –

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1. Capital gains tax of 6% (payable within 30 days from date of notarization. Use BIR Form No.
1706), and
2. Documentary stamp tax of P15 for every P1,000 (payable not later than the 5th day of the
succeeding month when the transaction was perfected. Use BIR Form No. 2000-OT)

TAX BASE:

FMV of BIR Zonal Value

Whichever
Tax Declaration Assessor’s Value
Deed of Sale Selling Price
} is highest

PRINCIPAL RESIDENCE - dwelling house, including the land on which it situated, where the husband and
wife, or an unmarried individual, whether or not qualified as head of family, and members of his family
reside.

Sale of principal residence is exempt from capital gain tax if the proceeds of sale shall be utilized in
acquiring a new residence within 18 calendar months from the date of sale. However, although tax
exempt, the 6% shall be deposited in interest bearing account under an Escrow Agreement.

ESCROW - a third party temporarily holds money or property until a condition has been met

Indicate whether subject to CGT or not:

Yes 1. Boba sold her residential house and lot to Diana.

No 2. Luis sold his commercial building to Piolo.
No 3. Pia sold her principal residence to Zen and used the proceeds in buying a new residence.
No/Yes 4. Ken sold his principal residence to Kent and used % of the proceeds. in buying a new
residence.

PROBLEM
Date of sale August 15, 2021 Area Sold 50 sq. m
Seller's Name Juan Dilla Cruz Tax Declaration No 2015-896-90871
TIN of Seller 238-076-413 Market value per Tax Dec P 2,500,000
Address Unit 7-B La Cantada Condo Selling Price P 3,000,000
Little Baguio, San Juan City Zonal valuation P 70,000/sq m
RDO 042
Buyer's Name Henry Ang Tan QUESTIONS:
TIN of Buyer 751-096-572 1. How much is the capital gains tax?
Address 2 Fuschia St., Xavierville 2. When is the deadline for filing the return and
Village, Tanauan City payment of capital gain tax?
RDO 059 3. How much is the documentary stamp tax
CCT No. 2017-9752568 due?
Area sold 50 sq. m 4. When is the deadline for the payment of
Tax Declaration 2015-896-90871 documentary stamp tax?
No. 5. The amount to be deposited in escrow if the
Market value per P 2,500,000 entire proceeds of sale of principal residence
Selling Price 3,000,000 shall be utilized in acquiring residence?
Zonal Valuation P 70,000/sq m 6. The capital gains tax payable assuming that
Mr. Cruz will utilize only P1,500,000 of the
ANSWERS: proceeds in acquiring a new residence?
7. PREPARE a duly accomplished BIR Form Nos.
Selling price P3,000,00
1706 and 2000-OT if the seller will utilize P1.5
FMV per assessor 2,500,000
million only of the selling price.
Zonal value (50 sq m x 70,000) 3,500,000
Tax rate 6%
(1) Capital gain tax 210,000 (4) September 5

(2) (5) P210,000

Period for filing/payment 30 days

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- August (31-15) 16 (6) Zonal value P3,500,000

Deadline- SEPTEMBER 14 Unutilized portion (1.5 M/3M) 1⁄
2
Tax base 1,750,000
(3) Tax Base P3,500,000 Rate 6%
Rate 15/1000 Capital gain tax 105,000
DST 52,500

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REAL PROPERTY ORDINARY ASSET

RULE: A creditable withholding tax based on the gross selling price/to amount of consideration or the fair
market value, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real
property shall be imposed upon the withholding agent/buyer, in accordance with the following schedule:

6.0% Where the seller/transferor is NOT habitually engaged in the real estate business

Where the seller/transferor is habitually engaged in real estate business, upon the following values
of real property:
1.5% With a selling price of P500,000 or less

3.0% With a selling price of more than P500,000 but not more than P2,000,000

5.0% With a selling price of more than P2,000,000

Withholding agent/buyer shall remit the amount withheld (use BIR Form No. 1606) on or before the
10th day following the end of the month in which the transaction occurred.

The seller/transferor shall be considered as habitually engaged in re estate business if:

1. He/it is registered with the Department of Human Settlements and Urban Development
(DHSUD); or
2. He/it consummated at least six taxable real estate transactions during the preceding year,
regardless of amount.

Notwithstanding the foregoing, banks shall not be considered as habitually engaged in the real
estate business.

PROBLEM
Janet sold her commercial lot for P5,000,000 Answer:
when its zonal value was P6,000,000 and assessor's Zonal Value (highest) P6,000,000

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value of P3,800,000. The lot was purchased five (5) Rate of tax (more than P2M) 5%
years ago for P3,000,000. Out of the proceeds of Creditable withholding tax 300,000
P5,000,000, Janet utilized the P4,000,000 for the
purchase of a new lot. Zonal Value P6,000,000
The creditable withholding tax and the Rate 15/1,000
documentary stamp tax on the sale if she is Documentary stamp tax 90,000
habitually engaged in real estate business?

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DEDUCTIONS FROM GROSS INCOME

ITEMIZED DEDUCTIONS- consider all items of deduction

1. Expenses in General
2. Interest expense
3. Taxes expense
4. Losses
5. Bad debts
6. Depreciation
7. Depletion
8. Research & development
9. Contribution to pension trust
10. Charitable and other contributions

OPTIONAL STANDARD DEDUCTION- can be claimed at the option of the taxpayer

1. Corporation- 40% of gross income

Gross Sales/ Receipts
Less: Sales returns, discounts, allowances
Cost of goods sold/ services
Gross income

2. Individual- 40% of gross sales/receipts → no more deduction of COGS/services

a. Taxpayer shall be considered as having availed itself of the itemized deduction unless it
signified in his return the intention to elect OSD
b. Such election when made in the return shall be irrevocable for the taxable year for
which the return is made.
c. An individual who is entitled to and claimed for the OSD shall not be required to submit
with his tax return such financial statements
d. The General Professional Partnership and the partners comprising such partnership
may avail of optional standard deduction only once, either by the general professional
partnership or the partners comprising the partnership.

ITEMIZED DEDUCTION

1. EXPENSES IN GENERAL
Requisites for Deductibility
a. Ordinary and necessary (ordinary- common or usual, necessary- helpful or appropriate)
b. Paid or incurred during the taxable hear
c. Supported by proof (Substantiation Rule)
d. Connected with trade, profession or business (except charitable contribution)
e. Not against law or public policy

The following are deductible:

a. A reasonable allowance for salaries, wages and other forms of compensation for personal
services actually rendered, including the grossed-up monetary value of fringe benefit
furnished or granted by the employer to the employees: Provided, that the fringe benefit tax
imposed has been paid;
b. A reasonable allowance for travel expense, here and abroad, while away from home;
1. Not taxable income on employee if he did not personally benefit from it
2. Deductible expense on the part of the employer if the requisites for deductibility are
complied with
c. A reasonable allowance for rentals and/or other payments which are required as a condition
for the continued use or possession, for purpose of the trade, business or profession, of
property to which the taxpayer has not taken or is not taking title or in which he has
no equity other than that of a lessee, user or possessor;
d. A reasonable allowance for entertainment, amusement and recreation expenses during the
taxable year, that are directly connected to or in furtherance of the development,
management and operation of the trade, business or profession of the taxpayer, not to
exceed the ceiling of ½% of net sales or 1% revenue.

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PROBLEM (ITEMIZED DEDUCTION- EAR EXPENSE)

RS Electronics is engaged in the sale of goods and services with net sales of P300,000 and net
revenue of 100,000 during the quarter, respectively. The accrual entertainment, amusement and
recreation expense for the taxable quarter totaled P3,000. How much is the deductible expense?
Deductible
NS/NR Limit 1 Allocation
(lower amount)
Net sales P300,000 ½% 1,500 vs 3/5 1,800 1,500
Net revenue 200,000 1% 2,000 vs 2/5 1,200 1,200
Total 500,000 3,000 2,700

2. INTEREST EXPENSE
Requisites for Deductibility
a. There must be an indebtedness
b. The indebtedness must be that of the taxpayer
c. Indebtedness is connected with the taxpayer’s trade, business or profession
d. There is legal liability to pay interest
e. Interest must be paid or incurred during the taxable year,
f. Debtor and Creditor are not related taxpayers (not members of a family)
 FAMILY: brothers, sisters (whether whole or half), spouse, ancestors and lineal
descendants

PROBLEM
Interest on loan from BDO used to finance residential house- not deductible 40,000- personal
Interest on loan from Pag-ibig to buy residence- not deductible 50,000- personal
Interest on loan obtained from a nephew and used in business 20,000 ✓
Interest on loan from BPI used to buy power generator in the business 30,000 ✓
Interest on purchase price of commercial lot bought on installments 22,000 ✓
Interest payment on a debt which has prescribed- natural obligation only, not legal 12,000 ND
How much is the deductible interest expense
Interest on loan from a nephew 20,000
Interest on loan from BPI 30,000
Interest on purchase of commercial lot 22,000
Deductible 72,000

At the option of the taxpayer, interest incurred to acquire property used in trade business or exercise
of a profession may be allowed as:
a. Deduction, or
b. Treaded as a capital expenditure

Taxpayer’s interest expense shall be reduced by an amount equal to 20% of interest income
subjected to final tax.

PROBLEM (ITEMIZED DEDUCTION-

INTEREST EXPENSE) Interest expense on loan (10/12 × 12%) 10,000
Less: Interest Income subject to tax (2K × 20%) 400
On March 2, 2022 Aloanto contracted a 1-year Deductible 9,600
P300,000 loan from RCBC for the purchase of a
machine to be used in business. The machine Cost of equipment 300,000
which had a depreciable life of ten (10) years Add: Interest expense on loan 12,000
was acquired on March 31, 2022. The interest Total Cost 312,000
expense for one (1) year amounted P12,000.
Depereciation (312,000/ × 9/12) 23,400
In the same year, his bank deposit with PNB
earned an interest income of P2,000.

1. The deductible interest expense in 2022?

2. The deductible amount of Aloanto in 2022
on the machine if the interest on loan is
capitalized?

3. TAXES EXPENSE
Requisites for Deductibility
a. Interest must be paid or incurred during the taxable year

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b. Must be paid or incurred in connection with taxpayer’s trade, profession or

business

Taxed as deduction means <tax proper= only. It does not include surcharges, penalties, or fines
incident to delinquency.

Non-deductible taxes
a. PH income tax
b. Foreign income tax if claimed as tax credit
c. Estate and donor’s taxes
d. Special assessments
e. VAT
PROBLEM (TAX EXPENSE)
The following taxes were paid by an individual income taxpayer in 2021:

Real property tax on residential house P 6,500

Real property tax on apartment houses 18,000
Annual registration fee of business with BIR 1,500
Income tax paid for being engaged in business 190,000
Interest and surcharges for late payment of tax 20,000
VAT paid for a restaurant business 105,000
Special assessment on real property used in business 10,200
Travel tax paid in going abroad on a pleasure trip 2,000
Professional tax as CPA practitioner 300
City business taxes and mayor's permit fees 65,000
1. The deductible taxes expense from the taxpayer's gross income in 2021?
2. The taxable amount if the following taxes were refunded to the taxpayer: (a)
12,000 of property tax on apartment house; (b) P40,000 of income tax; and (c)
P15,000 of local business taxes.
1 RPT- apartment 18,000 2 RPT- apartment 12,000
Registration fee with BIR 1,500 Local Taxes and fees 15,000
Professional tax 300 Taxable 27,000
Local Taxes and fees 65,000
Deductible 84,800 TAX BENEFIT RULE

PROBLEM (TAX EXPENSE)

In 2021, Victor Co had a gross income 1 GI, PH 2,000,000
from within the Philippines, P2,000,000 and GI, US 3,000,000
from the USA, P3,000,000, while the Total 5,000,000
expenses amounted to P400,000 and Less: Deductions
P600,000, respectively. Expenses, PH 400,000
Expenses, US 600,000
Income tax paid on income from USA is Taxes paid in US 350,000 1,350,000
P350,000. Taxable Income 3,650,000

COMPUTE: Tax on 2M P490,000

1,650,000 × 32% 528,000
1. Income tax due on Victor Co if the Tax due 1,018,000
tax paid abroad shall be claimed as
deduction.
2. Income tax payable by Victor CO if 2 GI, PH 2,000,000
the tax paid abroad shall be claimed Less: Expense, PH 400,000 1,600,000
as tax credit. GI, US 3,000,000
Less: Expense, US 600,000 2,400,000
Taxable Income 4,000,000

Tax on 2M P490,000
2,000,000 × 32% 640,000
Tax due 1,130,000
Less: Tax credit
Tax paid 350,000
Limit (24/40 × 1,130,000) 678,000
Credit allowed 350,000
Tax Payable 780,000

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4. LOSSES

Requisites for Deductibility

a. Must be actually sustained during the taxable year

b. Must not be compensated by insurance or other forms of indemnity
c. Must be incurred in trade, profession or business
d. Must arise from fire, storms, shipwreck, or other casualties, or from robbery, theft or
embezzlement
e. It must not have been claimed as a deduction for estate tax purposes in the estate tax return.
f. In case of casualty loss, it must be filed within 45 days after the occurrence of such event

If a taxpayer purchased the land and building without intending to use the building, the value of old
building razed plus other costs are added to the cost of the land.

PROBLEM (LOSSES)
Building:
Destroy and Build Company purchased a Acquisition cost 1,000,000
piece of land with a building thereon for Demolition cost 50,000
P2,500,000 allocated under a contract of sale Scrap (15,000) P1,035,000
at P1,500,000 for the land and P1,000,000 for Acquisition cost of land 1,500,000
the building. It had no use for the building at Total cost of land 2,535,000
the time of purchase and it was its intention to
remove the building in order to build its factory
house.

It incurred demolition cost of P50,000. It sold

its scrap for P15,000. The construction of the
new building cost the company P5,000,000.

How much is the value of the land?

If an old building is demolished to construct a new one, the book value of the building demolished plus
demolition costs are deductible as losses.

PROBLEM (LOSSES)
Joe Company owns an old building which had a cost Book value 150,000
of P5,200,000. The company demolished the building Add: Demolition cost 55,000
when it had a book value of P150,000 in order to Less: Sale of scrap (20,000)
construct a bigger and more modern building. The Deductible Loss 185,000
demolition cost amounted to P55,000 while the scrap
was sold for P20,000.
A new building was constructed at a cost of P10
million.

How much is the deductible loss on Joe Company?

The excess of allowable deduction over gross income of the business on the taxable year (net
operating loss) can be carried over as deduction from gross income of the 3 succeeding years.

Operating losses incurred in 2020 & 2021 shall be allowed as carry-over and deducted from gross
income in the next 5 consecutive taxable years.

PROBLEM (CARRY-OVER)
The following information reveals the records Net Income (2023) (8.65M-6.3M) 2,350,000
of income and expenses in a certain period of Less: NOLCO
an individual taxpayer 2020 (1.6M- 3M) (1,400,000)
Gross Allowable 2021 (2.9M- 3.22M) (320,000)
Taxable Year
Income Deductions 2022 (6.5M-6,2M) 300,000 (1,420,000)
2019 10,000,000 7,350,000 Taxable Income 930,000
2020 1,600,000 3,000,000
2021 2,900,000 3,220,000
2022 6,500,000 6,200,000
2023 8.650,000 6,300,000
2024 7,640,000 6,960,000
How much is the taxable income 2023?

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5. BAD DEBTS

Requisites for Deductibility

a. There must be a valid and subsisting debt

b. Must be ascertained to be worthless and uncollectible during the taxable year
c. It must be charged off during the taxable year
d. The debt must be connected with the trade, profession or business of the taxpayer
e. It must not be sustained in a transaction entered into between members of the same family or
related taxpayers
Recovery of bad debts previously allowed as deduction in the preceding years shall be included as
part of the gross income in the year of recovery to the extent of the income tax benefit of said
deduction.

PROBLEM (BAD DEBTS) Gross profit P 800,000

The following data are taken from the Income Statement of ABC Expenses (440,000)
Corporation for the taxable year 2018: Written off (50,000)
Gross profit on sales P800,000 Recovery 30,000
Less: Deductible expenses P440,000 Taxable 340,000
Provision for bad debts 80,000 520,000
Provision for bad debts 280,000
Additional information:
a) Accounts written-off during the year and charged to
allowance for bad debts - P50,000.
b) Recoveries on accounts receivable previously written-
off in 2017 and credited to allowance for bad debts:
Allowed as deduction by the BIR- P30,000
Disallowed by the BIR as deduction - P20,000
How much is the taxable income?

6. DEPRECIATION
The requisites for deductibility of depreciation are the following:
1. The allowance for depreciation must be reasonable for the exhaustion wear and tear (including
reasonable allowance for obsolescence);
2. The asset must be used in the trade or business;
3. \ statement on the allowance must be attached to the return.

The following are the methods of depreciation allowed:

1. Straight-line method,
2. Declining balance method;
3. Sum-of-years-digit method; and
4. Any other method which may be prescribed by the Secretary of Finance upon the
recommendation of the Commissioner of Internal Revenue

7. DEPLETION
The general conditions and rules on its deductibility are the following:
1. The method allowed under the rules and regulations prescribed by the Secretary of Finance
is cost depletion method;
2. This method can be availed of by oil and gas wells and mines;
3. The basis of cost depletion is the capital invested in the mine which is the accumulated
exploration and development expenses;
4. When the allowance shall equal the capital invested, no further allowance shall be granted.
5. In the case of resident foreign corporations, allowance for depletion shall be authorized only
in respect to oil and gas wells and mines located in the Philippines.

8. RESEARCH AND DEVELOPMENT

A taxpayer may treat research or development expenditures which are paid or incurred by him
during the taxable year in connection with his trade, business or profession as ordinary and
necessary expenses which are not chargeable to capital account. The expenditures so treated shall
be allowed as deduction during the taxable year when paid or incurred.

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Amortization of Certain Research and Development Expenditures

At the election of the taxpayer and in accordance with the rules and regulations to be prescribed
by the Secretary of Finance, upon recommendation of the Commissioner, the following research and
development expenditures may be treated as deferred expenses:
a. Paid or incurred by the taxpayer in connection with his trade, business or profession;
b. Not treated as expenses under paragraph (1) hereof, and
c. Chargeable to capital account but not chargeable to property of a character which is subject
to depreciation or depletion.

In computing taxable income, such deferred expenses shall be allowed as deduction ratably
distributed over a period of not less than sixty (60) months as may be elected by the taxpayer
(beginning with the month in which the taxpayer first realizes benefits from such expenditures).

The deductibility of research and development expenditures shall not apply to:
1. Expenditures for the acquisition or improvement of land, or for the improvement of property
to be used in connection with research and development of a character which is subject to
depreciation and depletion, and
2. Expenditures paid or incurred for the purpose of ascertaining the existence, location,
extent, or quality of any deposit of ore or other mineral, including oil or gas.

9. PENSION TRUSTS
Requisites for deductibility are the following:
1. The employer must have established a pension or retirement plan.
2. The pension plan must be reasonable.
3. It must be funded by the employer.
4. The amount contributed by the employer must no longer be subject to his control.

10. CHARITABLE AND OTHER CONTRIBUTIONS

The requisites for deductibility:
1. The contribution or gift must be actually paid;
2. It must be given to the organization specified by law;
3. It must be within the taxable year;
4. The net income of the institution must not inure to the benefit of private individual or
stockholder. any
5. The taxpayer claiming the deduction must be engaged in trade, profession or business

The following donations are deductible:

a) Donations to the government
b) Donations to certain foreign institutions or international organizations.
c) Donations to accredited nongovernment organizations

1. Individual
PROBLEM (CHARITABLE & OTHER Gross income P5,000,000
CONTRIBUTIONS) Less: Deductions (except contributions) 2,000,000
Gross income, P5,000,000 Taxable income before contribution 3,000,000
Less: Contribution
Deductions (except contributions),
In full
Donation to a priority activity in
Priority activity 80,000
education, 80,000
Limit – NGO 50,000
Donation to NGO, 50.000 (3M × 10%) 300,000 50,000 130,000
Donations to victims of typhoon Taxable Income 2,870,000
Odette,100,000
2. Corporation
COMPUTE: Taxable income before contribution 3,000,000
1. Taxable income if taxpayer is Less: Contribution
individual In full
2. Taxable income if taxpayer is Priority activity P 80,000
corporation. Limit – NGO 50,000
(3M × 5%) 150,000 50,000 130,000
Taxable Income 2,870,000

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ESTATE TAXATION

First Question: Is the decedent married? If yes, what is their property relations?
COMPUTATION OF ESTATE TAX

• If decedent died married

Exclusive properties of decedent P XX

ENTIRE Conjugal properties of spouses XX Both the shares of the spouses in the common properties
Gross Estate XX
Less: Ordinary Deductions (XX)
Net estate after ordinary deduction XX
Less: Special deductions (XX)
Net Taxable Estate XX
Multiply: Tax Rate 6% If death is on January 1, 2018 onwards
Estate Tax xx

COMPUTATION OF GROSS ESTATE

• Valuation of Property: @ FAIR MARKET VALUE

GR: If real property, whichever is HIGHER between Zonal Value (BIR) vs. Assessor's Value
(FMV identified in the Tax Declaration)
EXC. If Building (whether commercial or residential, EXCEPT condominium unit and
condominium parking space)- no zonal value so only basis is the assessor's value in the Tax
Declaration. Zonal Value refers to land and condominium units.
If real property is situated in a :
a. Municipality - Provincial Assessor
b. City - City Assessor

• Valuation of Stocks LISTED & TRADED in the stock exchange: @ Market Value
Market Value is based on the mean, which is equal to the average.
Use the highest and lowest price of the day when the decedent died, if no record on the
exact date of death, use the nearest date

Highest 101
Lowest 98.5
Total 200
Divided by 2
Mean or Average 99.9
Multiply: # of Stocks owned by decedent 100
Fair Market Value 9,990

• Valuation of Stocks NOT LISTED & TRADED in the stock exchange

FMV
Common Shares - Book value
Preferred Share - Par value

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PROPERTIES INCLUDED IN THE ESTATE

1 Properties that are still owned by the decedent at the time of his death, to the extent of
his equity or interest in such property, whether as exclusive or a joint owner
COMPUTATION OF
− Gross Estate include even the share of the surviving spouse; therefore,
exclusive property of decedent + entire conjugal property
− Net Taxable Estate deduct the share of surviving spouse in the common
property

2 Assets owned by the decedent during his lifetime but were no longer owned by him at
the time of his death, because these properties have been transferred during his lifetime
by way of taxable transfer as follows:
a. Transfer in contemplation of death
b. Revocable Transfers
c. Property passing under the general power of appointment
d. Transfer for insufficient consideration under any of the following:
d.1. in contemplation of death market value @ time of death
d.2. revocable transfer
d.3. General power of appointment
}
Less: Selling price
Part of Gross Estate

Market Value @ time of death 2.8M

Less: Selling price 1M
Part of Gross Estate 1.8M

PROCEEDS OF LIFE INSURANCE

A person takes out a life insurance policy on his own life and appoints somebody as a
beneficiary. Proceeds shall be part of gross estate if:
1. Beneficiary is either the estate (ang appointed beneficiary ay siya rin), executor,
or administrator; or
Executor person appointed by the testator in the will to carry out the
provisions in the will
Administrator person appointed by the court

2. Appointment if beneficiary is revocable (pwedeng palitan)

If policy is silent as to whether appointment is revocable or irrevocable,
presumed to be REVOCABLE
a. If the premiums (binabayaran sa insurance) were paid out of exclusive
property of decedent, the proceeds shall be classified as exclusive property
b. If the premiums were paid out of common property of spouses, the proceeds
shall be classified as common property
c. if paid partly exclusive and partly common, proceeds shall be in like
proportion exclusive in part and common property in part

Appointment of D Fund Used Beneficiary Taxable? Class in GE

Accessory
Irrevocable Exclusive of D Daughter No N/A
follows
Irrevocable Exclusive of S. Spouse Estate No N/A
the
Revocable Exclusive of D Executor Yes Exclusive principal
Revocable Common Administrator Yes Common

Insurance: 2 conditions must be complied for the exception

1. beneficiary is irrevocable
2. beneficiary appointed must not be the estate, executor, or administrator

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WHEN ARE SPOUSES GOVERNED BY THE CONJUGAL PARTNERSHIP OF GAINS?

1. When the parties agreed on conjugal partnership in the prenuptial agreement (should be
executed in writing and duly notarized)
2. When the spouses were married before August 3, 1988 and there was no pre-nuptial
settlement
Prior to 08/03/88 Civil Code of PH- in the absence of PNA, partners shall be governed by the
conjugal partnership of gains (CPG)
August 3, 1988 effectivity of Family Code, if no PNA, governed by absolute community of
property (ACoP)
What if the decedent is separated but there is no legal separation (separated in fact but not in
law)? Still with property relations

RULES ON PROPERTY OWNERSHIP

1. Unmarried No property relations

2. With live-in partner or void marriage
(e.g., same sex marriage) Co-ownership
3. Validly married a. Absolute Community of Property
b. Conjugal Partnership of Gains (CPG)
c. Other regimes

PROPERY REGIME OF UNIONS WITHOUT MARRIAGE

• Wages and Salaries- owned by them in equal shares and properties acquired by the both of
them through their work or industry shall be governed by the rules on co-ownership
 In the absence of proof to the contrary ³ common share; equal
 If the other partner did not participate in the acquisition of property, he/she shall be
presumed to have jointly contributed if the former's efforts consisted in the care
and maintenance of the family and household

PROBLEM Cash (200K/2) 100,000

Pedro and Petra are living together as husband Business 800,000
and wife without the benefit of marriage. Business income (150K/2) 75,000
Pedro died leaving the following properties of Vacant Lot (exclusive of Petra) -
the couple:
Car 700,000
Cash earned from salary of Pedro, 200,000
Bank account (300K/2) 150,000
Business exclusively owned by Pedro, 800,000
Gross Estate 1,825,000
Income from business managed by Petra, 150,000
Vacant lot inherited by Petra, 1.5M
Car acquired by Pedro before cohabitation, 700,000
Joint bank saving accounts, 300,000 Note: If earned during the cohabitation,
50:50 unless may ibang agreement.
Compute for the gross estate of Pedro

CONJUGAL PROPERTIES
1. Those acquired by onerous title during the marriage at the expense of the common
fund, whether the acquisition be for the partnership, or for only one of the spouses (e.g.,
acquired through purchase)
2. Those obtained from the labor, industry, work or profession of either or both the
spouses (income earned during the marriage ³ conjugal)
3. The fruits, natural, industrial or civil, due or received during the marriage from the
common property, as well as the net fruits from the exclusive property of each spouse
4. The share of either spouses in the hidden treasure which the law awards to the finder or
owner of the property where the treasure is found.
5. Those acquired through occupation such as fishing or hunting

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6. Livestock existing upon the dissolution of the partnership in excess of the number of each
kind brought to the marriage by either spouse

Before marriage boy 20 cows ³ remain as exclusive property of husband

After marriage 30 cows
10 cows ³ common property of spouses

7. Those which are acquired by chance, such as winnings from gambling or betting.
However, losses therefrom shall be borne exclusively by loser-spouse.

Won ³ conjugal
Lost ³ exclusive loss of loser-spouse

OWNERSHIP OF IMPROVEMENTS

• Ownership of improvements, whether for utility or adornment, made on the separate

property of spouses at the expense of the partnership or though the acts or efforts of either
or both spouses shall pertain to the conjugal partnership, or to the original owner-spouse,
subject to the following rules:
IF cost of improvement made by the conjugal value of property at time of
partnership, and any resulting increase in value > improvement

RESULT Entire property of one of the spouses shall belong to the conjugal
partnership, subject to the reimbursement of the value of the property of
the owner-spouse at the time of the improvement; otherwise, said
property shall be retained in ownership by the owner-spouse, likewise
subject to reimbursement of the costs of the improvement.

Land
1M < Improvement
5M
Lands becomes conjugal subject to reimbursement of
value of property of owner-spouse of 1M; if not rem

Land Improvement Improvement shall be considered as part of the property

1M > 200K of the husband however, husband will pay the 200K
improvement.
In either case, ownership of the entire property shall be vested upon the reimbursement, which
shall be made at the time of the liquidation of the conjugal partnership.

Value of Separate Value of

Ownership Reimbursement
Property Improvement
5,000,000 3,000,000 owner-spouse shall reimburse 3M to conjugal partnership
5,000,000 6,000,000 conjugal partnership shall reimburse 5M to owner-spouse

CONJUGAL PARTNERSHIP OF GAINS

GR All property acquired during the marriage, whether the acquisition appears to have been
made, contracted or registered in the name of one or both spouses, is presumed to be
conjugal.
EXC contrary is proved

The following are NOT CONJUGAL because they shall be the EXCLUSIVE PROPERTY of
each spouse:
1. That which is brought to the marriage as his or her own

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2. That which each acquires during the marriage by gratuitous title

3. That which is acquired by right of redemption, by barter or by exchange with property
belonging to only one of the spouses;
4. That which is purchased with exclusive money of the wife or husband
RULE: Properties acquired by gratuitous title, whether before or during the marriage, shall be
exclusive property of the grantor or heir, however, the income earned during the marriage by
such will be conjugal property.
Acquisition by gratuitous title before the
marriage ³ exclusive

After marriage ³ remains exclusive

If it earns income ³ conjugal

Acquisition by gratuitous title during the
marriage ³ exclusive

If it earns income ³ conjugal

Income earned during the marriage, salaries,
income from operation of business,
profession, etc. ³ conjugal
Problem
H married to W in 1985 and died May 10, 2000. The following are the properties of the spouses
at the time of his death:
- Beach resort, P20,000,000
- Income from the resort, P 1,200,000
- 1,200 common shares of ABC Corp. (book value, P120 per share; par value, P100 per
share)
- Dividends from common shares, P 40,000
- 3 units of sand & gravel trucks brought into marriage by H (Value - P150,000 per unit)
- 2 units of truck purchased out of income of the other 3 units. Value per unit - P600,000
Jewelries inherited by W from her mother during the marriage, P2 million.
- Residential house and lot, inherited by H from parents in 1983, P4,000,000
- YSL handbag, donated to W by her parents, P1,700,000,
- Proceeds of irrevocable life insurance policy, payable to the estate of H, P400,000.
- Other business of spouses, P30,000,000.
QUESTIONS:
1. If there was no pre-nuptial agreement, what regime governed the properties of H and
W? Conjugal Partnership of Gains
2. How much is the gross estate on the estate of H?

Exclusive- W Conjugal Exclusive-H

Resort 20,000,000
Income from resort 1,200,000
Stocks (1,200 × 120) 144,000
Dividends 40,000
3 trucks (150K × 3) 450,000
2 trucks (600K × 3) 1,200,000
Jewelries 2,000,000
House & Lot 4,000,000
YSL Handbag 1,700,000
Insurance 400,000
Other business 30,000,000 GROSS ESTATE
TOTALS 3,700,000 52,984,000 + 4,450,000 = 57,434,000
Deemed gift: No threshold, just consider whether the deemed gift is material or immaterial.

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ESTATE TAX
Taxability of estate
If the decedent was a:
1. Resident or citizen (resident citizen or resident alien or non-resident citizen)- all
properties situated within and without the PH
2. Nonresident alien- all properties situated within the PH. If there is reciprocity, the
intangible properties are not taxable (so only real property within and tangible personal
properties within)
INTANGIBLE PERSONAL PROPERTIES WITHIN
1. Franchise, shares, obligations or bonds issued by DC
2. Shares, obligations or bonds issued by FC
GR: Intangible without
EXC.
a. If at least 85% of such business is located in PH; or
b. Even if less than 85% if the corporation has acquired business situs in PH

If problem is SILENT with regards

³ ASSUMPTION: THERE IS NO RECIPROCITY
to reciprocity

Problem
Decedent died leaving the following properties:
R or C NRA (no r) NRA (w/ r)
House and lot, Manila P6,000,000 P6,000,000 P6,000,000 P6,000,000
Condo unit in Hongkong P3,000,000 P3,000,000 - -
Car registered in the Philippines P1,200,000 P1,200,000 P1,200,000 P1,200,000
Franchise exercised in the Philippines P4,000,000 P4,000,000 P4,000,000 -
Franchise exercised in Hongkong P2,000,000 P2,000,000 - -
Shares in ABC Corp, domestic P100,000 P100,000 P100,000 -
Shares in foreign company, 90% of P200,000 P200,000 P200,000 -
business in the Philippines
Shares in foreign company, 20% of P100,000 P100,000 P100,000 -
business in the Philippines, with
business situs
Shares in foreign company, 40% of P50,000 P50,000 - -
business in the Philippines
16,650,000 11,600,000 7,200,000

COMPUTE gross estate if decedent was a:

1. Resident or citizen: 16,650,000
2. Nonresident alien: 11,600,000
3. Nonresident alien with reciprocity: 7,200,000

EXEMPTION OF CERTAIN ACQUISITIONS AND TRANSMISSIONS

 Refers to transfer mortis causa- not subject to estate tax, therefore excluded in gross
estate

The following shall NOT BE TAXED:

A. The merger or usufruct in the owner of the naked title

³ upon the death of the usufructuary

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B. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the fideicommissary

One civil degree of relationship

 parent & child
What if:
• siblings? 2nd civil degree
• Cousins- 4th civil degree
• Aunt/Uncle- 3rd civil degree
• Grandchild- 2nd degree

C. The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the desire of the predecessor

1ST TRANSFER: INTER VIVOS

• The heir is chosen by the donor

and not the donee, therefore the
donee is just a trustee (not the
absolute owner of the property)

COMMON REQUISITES
1. 2 transfer of property/ies
2. The 1st transfer is testamentary (with will or testament left by the 1st transferor) and
taxable
3. 2nd transfer is tax exempt

Why is the 2nd transfer not subject to estate tax?

Because if ever there is a transfer of property from Heir 1 to Heir 2, the will of the
decedent is still being followed not the will of the 1st Heir who dies subsequently, that’s
why it is required that the 1st transfer must be testamentary in nature.

D. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which inures to the benefit of any individual:
Provided, however, that not more than thirty percent (30%) of the said bequests,
devises, legacies or transfers shall be used by such institutions for administration
purposes
GR: TAXABLE
EXC. Donation is NOT TAXABLE if:
1 Donation is testamentary.
2 No part of income of donee inures to
the benefit of individual.
3 Not more than 30% shall be used for
administration purposes.

WHAT CONSTITUTES COMMUNITY PROPERTY

Unless otherwise provided in this chapter or in the marriage settlements, the community
property consists of:
1. All the property owned by the spouses at the time of celebrations of marriage or
2. Acquired thereafter
Property acquired during the marriage is PRESUMED to belong to the community, unless it is
proved that it is one of those excluded therefrom.

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EXCLUDED FROM THE COMMUNITY PROPERTY

1. Property acquired DURING THE MARRIAGE by gratuitous title by either spouse, and
the fruits as well as the income thereof, if any, unless it is expressly provided by the
donor, testator or grantor that they shall form part of the community property.
2. Property for personal and exclusive use of either spouse. However, jewelry shall form
part of the community property** clarify 55:00 mark on CTT Season 1 Ep 2.
 if jewelry is bought; but if jewelry is part of inheritance, it shall fall under (1)
3. Property acquired before the marriage by either spouse who has legitimate
descendants by a former marriage, and the fruits, as well as the income, if any, of
such

ABSOLUTE COMMUNITY OF PROPERTY REGIME

Owned by either spouse before the marriage

when married becomes common property;

Income earned ³ common property

EXC. With previous marriage and has a

LEGITIMATE descendant; property acquired
during previous marriage remains as exclusive
property
Inherits before the marriage, exclusive;

Married under ACoP, becomes common property

Income earned ³ common property
Inherits during the marriage, exclusive
Earns income, exclusive

*Main difference between CPR and ACoP

• Under CPR, acquisition by gratuitous
transfer regardless of when it was acquired
³ always exclusive
• Under ACoP, acquisition by gratuitous
transfer before marriage, when married
becomes community property
Properties acquired during the marriage,
community
Income earned ³ community

PROBLEM
H married to W in 2000 without any pre-nuptial agreement, died May 10, 2020. The following
are the properties of the spouses at the time of his death:
· Beach resort (zonal value - P20 M; assessor's value - P12 M)
· Income from the resort, P 1,200,000
· 1,200 preferred shares of ABC Corp. (book value, P120 per share, par value, P100 per share)
· Dividends from preferred shares, P 20,000
· 3 units of sand & gravel trucks brought into marriage by H (Value - P150,000 per unit)
· 2 units of truck purchased out of income of the other 3 units. Value per unit- P600,000
· Jewelries inherited by W from her mother before the marriage, P2 million
· Residential house and lot, inherited by H from parents in 2003, P4,000,000
· YSL handbag, donated to W by her parents in 2015, P1,700,000
· Proceeds of irrevocable life insurance policy, payable to the estate of H paid out of exclusive
money of H, P400,000.
· Other properties of spouses, P30,000,000 .

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QUESTIONS:
1. How much is the gross estate on the estate of H? 59,440,000
EXCLUSIVE- W COMMUNITY EXCLUSIVE H
Beach Resort (HIGHER) 20M
Income from resort 1.2M
1.2k preferred shares (use par 120K
value- 1.2K × 100)
Dividends 20K
3 trucks (150K X 3) 450k
2 trucks (600K X 2) 1.2M
jewelry 2M
Residential house and lot 4M
YSL handbag 1.7M
Insurance 400K
OTHER BUSINESS 30M
2.7M 54,990,000 4,450,000

2. If there was no pre-nuptial agreement, what regime of property ownership governed the
properties of H and W? Marriage is @ 2000 governed by the Family Code, Under the family
code, no prenup agreement, property relations shall be governed by Absolute Community of
Property Regime

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ESTATE TAX RATES

(The rate applicable shall be based on the law prevailing at the time of decedent’s
death)

Effective January 1, 2018 to present [Republic Act (RA) No. 10963]

There shall be an imposed rate of six percent (6%) based on the value of such NET
ESTATE determined as of the time of death of decedent composed of all properties,
real or personal, tangible or intangible less allowable deductions.
Effective January 1, 1998 up to December 31, 2017 (RA No. 8424)
If the Net Estate is
Over But not Over The Tax Shall be Plus Of the Excess Over
P 200,000.00 Exempt
P 200,000.00 500,000.00 0 5% P 200,000.00
500,000.00 2,000,000.00 P 15,000.00 8% 500,000.00
2,000,000.00 5,000,000.00 135,000.00 11% 2,000,000.00
5,000,000.00 10,000,000.00 465,000.00 15% 5,000,000.00
10,000,000.00 1,215,000.00 20% 10,000,000.00

Effective July 28, 1992 up to Dec. 31, 1997 (Section 77 of the NIRC, as amended (RA No. 7499)
If the Net Estate is
Over But not Over The Tax Shall be Plus Of the Excess Over
P 200,000.00 Exempt
P 200,000.00 500,000.00 5% P 200,000.00
500,000.00 2,000,000.00 P 15,000.00 8% 500,000.00
2,000,000.00 5,000,000.00 135,000.00 12% 2,000,000.00
5,000,000.00 10,000,000.00 495,000.00 21% 5,000,000.00
10,000,000.00 1,545,000.00 35% 10,000,000.00

Effective Jan. 1, 1973 to July 27, 1992 (Section 85 of the NIRC, as amended (Presidential Decree No. 69)
If the Net Estate is

Over But not Over The Tax Shall be Plus Of the Excess Over
P 10,000.00 Exempt - -
P 10,000.00 50,000.00 3% - P 10,000.00
50,000.00 75,000.00 P 1,200.00 4% 50,000.00
75,000.00 100,000.00 2,200.00 5% 75,000.00
100,000.00 150,000.00 3,450.00 10% 100,000.00
150,000.00 200,000.00 8,450.00 15% 150,000.00
200,000.00 300,000.00 15,950.00 20% 200,000.00
300,000.00 400,000.00 35,950.00 25% 300,000.00
400,000.00 500,000.00 60,950.00 30% 400,000.00
500,000.00 625,000.00 90,950.00 35% 500,000.00
625,000.00 750,000.00 134,700.00 40% 625,000.00
750,000.00 875,000.00 184,700.00 45% 750,000.00
875,000.00 1,000,000.00 240,950.00 50% 875,000.00
1,000,000.00 2,000,000.00 303,450.00 53% 1,000,000.00
2,000,000.00 3,000,000.00 833,450.00 56% 2,000,000.00
3,000,000.00 - 1,393,450.00 60% 3,000,000.00

Effective September 15, 1950 to December 31, 1972 (Section 85 of the NIRC, as
amended (RA No. 579)
Estate and Inheritance Tax
If the Net Estate is
Over But not Over ESTATE INHERITANCE
0 5,000.00 Exempt Exempt
5,000.00 12,000.00 1.00% 2%
12,000.00 30,000.00 2.00% 4%
30,000.00 50,000.00 2.50% 6%
50,000.00 70,000.00 3.00% 8%

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70,000.00 100,000.00 5.00% 12%

100,000.00 150,000.00 7.00% 14%
150,000.00 250,000.00 9.00% 16%
250,000.00 500,000.00 11.00% 18%
500,000.00 1,000,000.00 13% 20%
1,000,000.00 15% 22%

Effective July 1, 1939 to September 14, 1950 (Section 85 of the NIRC, as amended
(Commonwealth Act No. 466)
Estate and Inheritance Tax
If the Net Estate is
Over But not Over ESTATE INHERITANCE
0 3000 Exempt
1.00%
3,000.00 10,000.00 1.00%
10,000.00 30,000.00 1.50% 2.00%
30,000.00 50,000.00 2.00% 3.00%
50,000.00 80,000.00 2.50% 4.00%
80,000.00 110,000.00 3.00% 5.00%
110,000.00 150,000.00 3.50% 6.00%
150,000.00 190,000.00 4.00% 7.00%
190,000.00 240,000.00 4.50% 8.00%
240,000.00 290,000.00 5.00% 9.00%
290,000.00 350,000.00 5.50% 10.00%
350,000.00 420,000.00 6.00% 11.00%
420,000.00 500,000.00 6.50% 12.00%
500,000.00 600,000.00 7.00% 13.00%
600,000.00 720,000.00 7.50% 14.00%
720,000.00 850,000.00 8.00% 15.00%
850,000.00 1,000,000.00 8.50% 16.00%
1,000,000.00 1,200,000.00 9.00% 17.00%
1,200,000.00 1,500,000.00 9.50% 17.00%
1,500,000.00 10.00% 17.00%

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ORDINARY DEDUCTIONS FROM GROSS ESTATE

− Based on TRAIN LAW (Effective Jan. 1, 2018)

− Death prior to 2018: Deductions are under RA 8424 (with funeral expenses, judicial
expenses, medical expenses and more)

I. ORDINARY DEDUCTIONS (CUCUL TV) R or C NRA

Claims against the estate ✓ ✓
Should be prorated
Unpaid taxes ✓ ✓
Claims against insolvent persons ✓ ✓ PH Gross estate × CUCUL
Unpaid mortgages ✓ ✓ Total Gross Estate
Losses ✓ ✓
Transfer for public use ✓ ✓
Vanishing deduction ✓ ✓

II. SPECIAL DEDUCTIONS

Standard Deduction 5M 500K
Family Home ✓ 
RA 4917 ✓ 

DEDUCTION VS. TAX CREDIT

• Deduction- subtracted from gross estate to arrive at net estate
• Tax Credit- amount subtracted from a tax due to arrive at the tax payable, such as foreign
estate tax paid and estate tax paid in previously filed return (if amended)

Gross Estate P xx
Less: Deductions xx
Net Taxable estate xx
× Rate 6%
Estate tax due xx
Less: Tax credits xx
Estate tax payable xx

CLAIMS AGAINST THE ESTATE

• debts which are properly chargeable and enforceable against the deceased in his
lifetime and could have been reduced to simple money judgement. Claims against the
estate or indebtedness in respect of property may arise out of:
1. Contract
2. Tort
3. Operation of law

Requisites:
1 Personal obligation of the deceased existing at the time of his death (except
unpaid funeral expenses and unpaid medical expenses)
2 Contracted in good faith and for an adequate and full consideration in money
or money's worth;
3 Debt or claim is valid in law and enforceable in court;
4 Debt instrument was duly notarized
5 Indebtedness must not have been condoned by the creditor, or the action to
collect from the decedent must not have prescribed.
MCQ: Which of the following statements is CORRECT about "CLAIMS AGAINST THE
ESTATE"?
A. A loan contracted by the decedent which is secured by a mortgage of his lot can still
be claimed as deduction from gross estate falling under "claims against the estate."
UNPAID MORTGAGES
B. Unpaid income tax and real estate taxes that accrued before the death, being payable
during lifetime are deductible from the gross estate of the decedent as "claims against
the estate". UNPAID TAXES
C. Claims against the estate, as deduction from the gross estate, represents obligations
enforceable during the lifetime of the decedent.

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D. Debt contracted during the lifetime of the decedent which is payable in three (3) years
but the decedent debtor died on the second year is not deductible from the gross
estate. FALSE

UNPAID TAXES
To be deductible, unpaid taxes must have accrued BEFORE death.
Taxes accrued AFTER THE DEATH are not deductible because they are properly charged
against the income of the estate.

The following are deductible:

1 Income taxes on income earned before death;
2 Property taxes which have accrued before death;
3 Donor's taxes (donation inter vivos) that are unpaid at the time of death.

MCQ: All of the following, except one, are deductible from the gross estate of a
decedent who died September 30, 2021.
A. Income tax on income earned from January to September 29, 2021³ Accrued before
death = Deductible
B. Gift taxes on donations given June 12, 2021. ³ Accrued before to death = Deductible;
payment is 30 days
C. Real property taxes payable during the last quarter of 2021 ³ Accrued on Jan. 1,
2021, before death = Deductible
D. Income tax on income earned during the last quarter of 2021. ³ Accrued after to
death = Not Deductible

CLAIMS AGAINST INSOLVENT PERSONS

• Receivable of decedent which can no longer be collected due to insolvency of debtor
Insolvency is the state of not being able to pay the money owed because of insufficient
assets to pay all debts.
Requisite:
1 The amount of claim is included in the value of the gross estate
2 Debtor’s incapacity is proven, not merely alleged
Various properties 1.3M
Claims against Insolvent 200K
Gross estate 1.5M
Less: Deductions
Ordinary
Bad Debt 200K

The amount of deduction is the value of indebtedness which cannot be collected anymore
because the debtor has been declared insolvent AND THERE IS NO POSSIBILITY OF
COLLECTION.
MCQ: Which of the following options is CORRECT? In CLAIMS AGAINST INSOLVENT
PERSONS
A. as deduction from gross estate, only the entire amount of uncollectible claims shall
be included in the gross estate of the decedent. → FALSE, the entire claim shall be
included.
B. as deduction from gross estate, the full amount of receivable including uncollectible,
must be included in the gross estate.
C. such claim is not deductible from the gross estate if the decedent was also insolvent at
the time of his death. → FALSE
D. if the entire debt is uncollectible, it may be omitted in the gross estate and as
deduction therefrom. → FALSE. Include in the GE first, then deduct the claims
therein.

UNPAID MORTGAGES
A mortgage is an accessory contract whereby one party called the mortgagor constitutes
his property as security for the fulfillment of a principal obligation.

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Unpaid mortgages which are deductible from gross estate refer to obligations secured by
mortgage which remained unpaid until the death of the debtor.
If not secured by mortgage, it is a "claim against the estate."

REQUISITES for deductibility:

1 Contracted bona fide (good faith) and for an adequate and full consideration in
money or money's worth.
A debt of the decedent secured by a mortgage of property owned by a third person can be
deducted as "claim against the estate" instead of unpaid mortgage.

2 FMV of property mortgaged without deducting the mortgage indebtedness, is included

in the value of the gross estate
Unpaid mortgages are chargeable against the common property if the proceeds of mortgage
indebtedness had been beneficial to the conjugal partnership or the absolute community of
property even if the property mortgaged is an exclusive property.

FMV of property at time of death 3M

Unpaid mortgage @ time of death 500K
Gross estate 3M

RULE: Gross estate is based on FMV undiminished by the mortgage indebtedness

QUERY: Is an unpaid mortgage contracted by an NRA on property situated abroad deductible

from his gross estate? No. For a mortgage indebtedness to be deductible, the FMV of the
property mortgaged must be included in the gross estate. If decedent is NRA,
properties outside the PH is not included in the gross estate.

CHARGEABILITY OF UNDPAID MORTGAGE

CHARGEABLE AGAINST
Mortgage was contracted during marriage conjugal/community property
Contracted before or after the marriage Exclusive property

Mortgaged in Marriage 2000 Chargeable against

1980 1990 Death without having Exclusive property of
paid mortgage decedent

QUESTION:
Statement 1: If the proceeds of a mortgage loan is merely an accommodation loan, its value
must be included in the gross estate as a receivable amount and as a deduction thereof. TRUE

Statement 2: If there is legal impediment to recognize the accommodation loan as receivable of

the estate, the unpaid mortgage shall not be allowed as a deduction from the gross estate.
TRUE

A. Only the first statement is correct.

B. Both statements are correct
C. Only the second statement is correct.
D. Neither statement is correct.

LOSSES
To be deductible, the following requisites must be complied:
1. Must arise from fire, storm, shipwreck or other casualties or from theft, robbery or
embezzlement.
2. Not compensated by insurance or otherwise
3. Not claimed as deduction for income tax purposes
4. Incurred not later than the last day for the payment of the estate tax
Market value of property lost P5 M
Indemnity from insurance 2M
Deductible loss 3M

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QUESTION: Which statement is INCORRECT regarding "losses"?

a. A building that has been razed by fire immediately after the interment shall still be
included in the gross estate even if it the does not exist anymore at the time of filing the
estate tax return.
b. In a casualty loss, the value of the property is included in the gross estate but
subsequently deducted therefrom.
c. In a casualty loss, since the value of the property is included in the gross estate but
subsequently deducted therefrom, it may be omitted in both for after all there is no effect
on the net taxable estate.
d. In estate taxation, the amount of loss deductible is based on the value of the property
lost minus indemnity from an insurance company.

TRANSFER FOR PUBLIC PURPOSE

The amount deductible shall be the entire amount of all bequests, legacies, devises
or transfers to or for the use of the government of the Republic of the Philippines, or any
political subdivision thereof, for exclusively public purposes.
Donations of property to foreign governments are not deductible. Mortis causa
donations of properties situated abroad are deductible if the donee is the Philippine
Government or any of its political subdivisions.
To be deductible, the transfer must
1. Embodied in the will (testamentary in character). Oral transfers are not deductible.
2. Mortis causa donation to the Republic of the PH or any of its political subdivisions
3. Donated property must be exclusively for public purpose.

QUESTION
Statement 1: To be deductible, transfer for public purpose must be testamentary in character.
Statement 2: Donations of property situated abroad are deductible from gross estate if the
purpose is for public use. PROVIDED that the donee is PH gov’t or any of its subdivisions.

a. Only the first statement is correct.

b. Both statements are correct.
c. Only the second statement is correct.
d. Neither statement is correct.

A nonresident alien who died in the

Philippines but buried in his home Gross Estate, PH 3,000,000
country. had the following data on his Less: Deductions
estate: Unpaid taxes, PH 74,000
Unpaid mortgage, PH 100,000
Properties, Philippines P3,000,000 Claims vs. estate, abroad 300,000
Properties, foreign country, 6,000,000
Total 474,000
 Funeral expenses, Phil, 200,000
✓ Unpaid taxes, Philippines, 74,000
✓ Unpaid mortgage on property in the (3M/9M × 474,000) 158,000
Phil, 100,000
Transfer for Public Use 600,000
 Unpaid mortgage on property
abroad, 180,000 Standard Deduction 500,000 1,258,000
✓ Transfer for public use, Phil, Net Taxable Estate 1,742,000
600,000 Rate of Tax 6%
✓ Claims against the estate, abroad,
Estate tax due 104,250
300,000
 Estate tax paid abroad, 120,000
Gross Estate, PH 3M
How much is the estate tax due? Gross estate, abroad 6M
NRA ³ within only
Total 9M

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VANISHING DEDUCTION
- 2nd or 3rd transfer on property which has already been subject to estate tax
- to prevent double taxation on the same property within a relatively short period of time

Requisites for Deductibility:

1 property must be situated in the Philippines;
2 Must be succeeding transfer (second transferor must be dead) and a transfer mortis
causa (no VD in transfer inter vivos)
3 First transfer may be inter vivos or mortis causa but NOT ONEROUS TRANSFER.
(dapat gratuitous)
4 The 1st and 2nd transfers of the same property must take place within a period of 5 years
5 That the donor's tax (Inter-vivos transfer) or estate tax (Mortis Causa transfer) imposed
on the first transfer was finally determined and paid;
6 The property can be identified as the one received from prior decedent, or from the
donor, or acquired in exchange thereof.

Steps in computing the vanishing deduction:

Step 1: Get the lower value between the property’s market value during the 1 st transfer and the
MV of the same on the 2nd transfer.
Step 2: Subtract mortgage paid, if any, the result is Initial basis.
Step 3: Pro-rate the total of multiplier deductions and subtract from the initial basis. The result is
the Base.
Step 4: Multiply the base by the vanishing rate.

Lower Value 4,000,000 More than Not more than Rate

Less: Mortgage paid (800-500) (300,000) 1 year 100%
Initial Basis 3,700,000 1 year 2 years 80%
Less: Deduction (Initial basis/ 500,000 2 years 3 years 60%
gross estate × Multiplier deduction)
Base 3,200,000 3 years 4 years 40%
Rate (3.5 years) 40% 4 years 5 years 20%
Vanishing Deduction 1,280,000

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Not included as multiplier deductions in Vanishing Deduction

1 Family home

}
2 Standard deduction SPECIAL
3 RA 4917 DEDUCTIONS
4 Share of surviving spouse
5 Vanishing deduction

Problem
Val, decedent, had the following data at the time of Car 200,000
his death on July 20, 2020: Condo Unit 500,000
Total lower value 700,000
Prior Present Less: Mortgage paid (200,000)
d decedent decedent
Initial Basis 500,000
Car P 250,000 P 200,000
Less: Deductions (pro-rated)
Condo unit 500,000 900,000
Claims vs. estate 30,000
The condo unit had an unpaid mortgage of Bad debts
P300,000 at the time it was inherited from his 20,000
father on January 5, 2017. Val was able to pay TPP 50,000
P200,000 before his death. The gross estate of Al Unpaid mortgage 100,000
was P4,000,000 while the expenses are broken
down as follows: Total 200,000
Claims against the estate, P30,000; Claims (500K /4M × (25,000)
200,000)
against insolvent persons, P20,000; Legacy to
Cebu City for public purpose, 50,000; RA 4917, Base 475,000
P80,000. Rate (>3 years) 40%
Included in the gross estate is his family home. It Vanishing Deductions 190,000
was purchased on Feb. 2017 at P1.8 M. At the
time of death, it had a value of P2,000,000.
Compute for the vanishing deduction.

FAMILY HOME
The deductible amount is the higher between the assessor's value and FMV or zonal value,
but not exceeding P10,000,000. Provided, however, that the total value must be included as
part of the gross estate of the decedent.
1. Dwelling house + land = FAMILY HOME
2. Must be situated in the Philippines
3. May also be constituted by an unmarried head of family on his or her own property.
4. Must be the actual residential home of the decedent at the time of death, as certified
by the Barangay Captain of the locality where the family home is situated.
5. Cannot be claimed as deduction from gross estate of a nonresident decedent.

ILLUSTRATION
DECEDENT PROPERTY/ FH GROSS ESTATE DEDUCTIBLE
RC H- 3M Exclusive 5M 5M
Lot- 2M Exclusive
RC H- 6M Exclusive 11M 10M
Lot- 5M Exclusive
RC H- 3M Common 5M 2.5M
Lot- 2M Common
RA H- 4M Common 5M 3M

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Lot= 1M Exclusive
NRA H- 5M exclusive  

RA 4917
Retirement benefits received by officials and employees of private firms, whether
individual or corporate, in accordance with a reasonable private benefit plan maintained by
the employer shall be exempt from all taxes

Various properties P 900,000

Claims vs. IP 200,000
RA 4917 400,000
Gross estate 1,500,000
Less: Deductions
Bad debt P 200,000
RA 4917 400,000

NET SHARE OF SURVIVING SPOUSE

Gross conjugal 2,000,000
Less: conjugal deductions 800,000
Net conjugal 1,200,000
Deductible amount (1.2M/ 2) 600,000

Problem

Wilson resident of Sta. Rosa City, Laguna died in a car accident. He died intestate on
October 10, 2020:

Exclusive properties:
Car P 400,000
Lot and house in Quezon City 6,000,000
Other real and personal properties 800,000
Community properties - Receivable as prize in a raffle 50,000
Receivable from an insurance company where his son, Gino was
designated in the policy as the revocable beneficiary 150,000
House and lot in Laguna, family home 4,000,000
Other personal properties 800,000
Other real properties 1,500,000

The following deductions were claimed:

Claims against the estate, not notarized ³ must be notarized to be deductible 50,000
Claims against insolvent persons 30,000
Unpaid mortgage on lot in Quezon City (contracted before marriage) 200,000

Unpaid mortgage on house and lot in Laguna 350,000

Accrued income taxes 35,000

Income tax on income earned from Oct. 11 to Dec 31 (year of death) 7,500
 accrued after death: not deductible
COMPUTE estate tax due

EXCLUSIVE COMMUNITY TOTAL

Car 400,000
House & Lot 6,000,000
Other real and personal properties 800,000
Rec’ble-prize 50,000
Rec-ble- insurance 150,000
Family Home 4,000,000

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Other personal properties 800,000

Other real properties 1,500,000
Claims-insolvent 30,000
Gross Estate 7,200,000 6,530,000 13,730,000
Less: Ordinary Deductions:
Bad debts 30,000
Unpaid Mortgage- QC 200,000
Unpaid Mortgage- FH 350,000
Unpaid Taxes 35,000
Total Ordinary Deductions 200,000 415,000 (615,000)
Net Estate after Ord. Ded. 13,115,000
Less: Special Deduction
FH (4M/2) (2,000,000)
Standard (5,000,000
NET ESTATE 6,115,000
Less: Share of SS (6,530,000- 415,000) /2 3,057,500
NET TAXABLE ESTATE 3,057,500
Rate of Tax 6%
Estate Tax due 183,450

ESTATE TAX AMNESTY MASTER!!!

Favorable to the taxpayer

CAUSE OF TRANSFER: TRANSFER

MORTIS CAUSA: DEATH OF THE OWNER
OF THE PROPERTY

TAX AMNESTY
• Immunity from all criminal and civil
obligations arising from nonpayment of
taxes. It is a general pardon given to all
taxpayers; it applies only to past tax
periods, hence retroactive application.
• Requires specific group of taxpayers to
pay certain amount relating to previous
tax liability including penalties and interest
without fear of criminal prosecution

Kapag nag-avail ng estate tax amnesty ay mawawala ang increments and additions thereto
at magiging immune sa lahat ng administrative, civil at criminal cases.

Kung nagbayad ka ng penalty estate tax dahil delinquent taxpayer sa minana bago tax
amnesty, hindi na ibabalik yung penalty kasi nung binayaran yung estate tax, wala pa
namang estate tax amnesty

LEGAL BASIS OF TAX AMNESTY

RA No. 11213 RA No. 11569
Revenue Regulations 6-2019 Revenue Regulations 17-2021

Until June 14, 2021 Extended until June 14, 2023

Coverage: Estate of decedent who died on or before Dec. 31, 2017, with or without
assessments duly issued therefor, whose estate tax/es have remained unpaid or have
accrued as of Dec. 31, 2017.

Exceptions: It shall not extend to the following:

1. Delinquent estate tax liabilities which have become final and executory and those
covered by Tax Amnesty on Delinquencies; and
2. Properties involved in cases pending in appropriate courts:

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a. Under the jurisdiction of the Presidential Commission of Good

Government
b. Unexplained or unlawfully acquired wealth under ra Np. 3019 (Anti-Graft
and Corrupt Practices Act) and RA No. 7080 (Crime of Plunder)
c. Involving violating od RA No. 9160 (Anti-Money Laundering Act), as
amended;
d. Involving tax evasion and other criminal offenses under Chapter II Title
X of the National Internal Revenue Code of 1997, as amended; and
e. Involving felonies of frauds, illegal exactions and transaction; and
malversation of public funds
Rate of Estate Tax Amnesty
6% on each decedent’s total net taxable estate at the time of
death without penalties at every stage of transfer of property

P5,000 Minimum estate amnesty tax for the transfer of the estate of each
decedent
Valuation of GE FMV @ the time of death
Time/Place of The Estate Tax Amnesty Return (ETAR) (BIR Form No. 2118-EA)
Filing shall be filed with the executor or administrator, legal heirs, transferees
or beneficiaries UNTIL JUNE 14, 2023 with the RDO having jurisdiction
over the last residence of the decedent.
Time/Place of
Payment The tax amnesty due shall be paid using the Estate Tax Acceptance
Payment Form (BIR Form No. 0621-EA) to the Authorized Agent Bank
(AAB) or Revenue Collection Officer (RCO) of the RDO

ESTATE TAX AMNESTY RETURN FOR UNDECLARED PROPERTIES

In case the estate has properties, which were not
declared in the previously filed return, the legal
heirs/executors/administrators can file an ETAR or
an amended ETAR, whichever is applicable, and pay
the estate amnesty tax without penalties, based on
the net taxable value of the Net Undeclared Estate.

Undeclared properties until the amnesty period , shall be subject to the applicable estate tax
rate prevailing @ the time of death including interest and penalties due thereon.

IMMUNITIES & PRIVELEGES OF AVAILING ESTATE TAX AMNESTY

Estates covered by ETA, which have fully complied with all the conditions set forth hereof
including the payment of estate tax amnesty, shall be immune from:

a. Payment of all estate taxes as well as any increments and additions thereto, arising from
the failure to pay any and all estate taxes for taxable year 2017 and prior year, and
b. All appurtenant civil, criminal, and administrative cases, and penalties under the 1997
Tax Code, as amended

RA No. 11569
Extension of Amnesty: June 15, 2021- June 14, 2023

WHO SHALL FILE

Shall be filed in triplicate by the executor/administrator/ authorized representative of estates
availing the Estate Tax Amnesty under RA No. 11213, otherwise known as the <Tax Amnesty
Act=, as amended by RA No. 11569.

WHEN AND WHERE TO FILE AND PAY

This return together with complete documentary requirements, shall be filed not later than June
14, 2023 to the Revenue District Office (RDO) having jurisdiction over the last residence of
the decedent as the time of his death.

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In case of NRC decedent with executor or administrator in PH, the return shall be filed with the
RDO where such executor or administrator is registered or if not yet registered with the BIR, at
the executor or administrator’s legal residence. If the decedent has no legal residence in PH,
the return shall be filed with RDO No. 39, South Quezon City

The tax amnesty due shall be paid using the Estate Tax Acceptance Payment Form (BIR
Form No. 0621-EA) to the Authorized Agent Bank (AAB) or Revenue Collection Officer (RCO) of
the RDO

ATTACHMENTS:
For issuance of Certificate of Availment of Estate Tax Amnesty
MANDATORY:
1. CTC of Death Certificate (DC)
2. Taxpayer identification Number (TIN) of decedent (BIR Form No. 1904) and
Original copy heir/s
3. Certification of the Brgy. Captain for the last residence of the decedent and
and 2 claimed Family Home, if any
4. For <Claims Against the Estate= arising from Contract of Loan, Notarized
photocopies of Promissory Note, if applicable
5. Proof of the claimed <Property Previously Taxed=, if any
each document 6. Proof of the claimed <Transfer for Public Use=, if any
7. At least 1 valid government ID of the executor/administrator of the estate,
or if there is no executor or administrator appointed, the heirs,
transferees, beneficiaries or authorized representative

For Real properties, in any:

8. CTC of the Transfer/Original/Condominium Certificate/s of Title of real
properties

9. CTC of Tax Declaration of real property/ies, including the improvements @

the time of death or the succeeding available tax declaration issued
nearest to the time of death of the decedent, if non is available @ the time
of death.
Saan kukuha ng Tax Declaration? Assessor9s office
10. Where declared properties have no improvement, <Certificate of No
Improvement= issued by the Assessor’s Office @ the time of death of
decedent
For Real properties, in any:
11. Certificate of Deposit/ Investment/ Indebtedness owned by the decedent
Original copy alone, or decedent and the surviving spouse, or decedent jointly with
and 2 others
photocopies of 12. Certificate of Registration of vehicle/s and other proofs showing the
each document correct value of the same
13. Certificate of stocks
14. Proof of valuation of shares of stock at the time of death
a. For shares of stock listed/traded- price @ time of death or the
arithmetic mean between the highest and lowest quotation at a date
nearest the date of death, if none is available on the date of death
itself
b. For shares of stock not listed/ not traded- book value for common
shares and par value for preferred shares as shown in the audited FS of
the issuing corporation nearest to the date of death of the decedent
with computation of the book value per share
c. For proprietary shares- Bid price on the death of date or nearest the
date of death, if none is available on the date of death itself, as
published in the newspaper of general circulation
15. Proof of valuation of other types of personal property

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Original copy Other requirements, if applicable:

and 2 1. If the person transacting/processing the transfer is the authorized
photocopies of representative, duly Notarized Original Special Power of Attorney (SPA)
each and/or, if one of the heirs s designated as executor/administrator, Sworn
document Statement
2. If document is executed abroad, Certification from the Philippine
Consulate or Apostille
3. If zonal value cannot be readily determined from the documents
submitted Location Plan/ Vicinity Map
FOR ISSUANCE OF ELECTRONIC CERTIFICATE AUTHORIZING REGISTRATION (Ecar)
Mandatory Reqs
1. Estate Tax return (ETAR) 2118AA
2. Estate Tax Acceptance Payment Form (APF), Revenue Official Receipt
(ROR), if paid to Revenue Collection Office (RCO)
3. Certification of Availment
4. ONETT (One Time Tax Transaction) Computation Sheet of Tax Due duly
approved by authorized Officer
5. Affidavit of Self Adjudication (if sole heir) or Deed of Extra-judicial
Settlement (EJS) (if multiple heirs) of the Estate of the decedent; or Court
decision/ judgement if the estate has been settled judicially or if there is a
last will and testament

Original copy Other requirements if applicable:

and 2 1. If the person transacting/processing the transfer is the authorized
photocopies of representative, duly Notarized Original Special Power of Attorney (SPA_
each and/or, if one of the heirs is designated as executor/administrator, Sworn
document Statement
2. If document is executed abroad, Certification from the Philippine
Consulate or Apostille
3. If zonal value cannot be readily determined from the documents
submitted Location Plan/ Vicinity Map

VALUATION OF THE ESTATE

Valued @ FMV as of the time of death. However, the value of real property as of the time of death shall
be whichever is higher of:

1. The zonal value as determined by the Commissioner of Internal Revenue; or

2. FMV as shown in the schedule of valued fixed by the Provincial or City Assessors (aka Tax
Declaration)

DEDUCTIONS
Allowable deductions shall be based on the law applicable at the time of death of the decedent (refer to
Annex A of IRR)

NOTE: DO NOT APPLY THE DEDUCTIONS UNDER TRAIN LAW

SITUATION:

Francisco San Francisco, resident of Balatan, Camarines Sur, died in 1970 leaving to his sole heir a one
(1) hectare of agricultural land in that municipality. The property is not titled but registered with the
assessor's office with Tax Declaration No. 1965-5678-0052.

1 Where should the ETAR be filed? RDO No. 66

2. What BIR Form/s is/are required? BIR Form No. 2118-EA and APF-BIR Form No 0621-EA
3. What are the required attachments to the return if there are no improvements to the property?
a. Death Certificate

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b. Certified True Copy of Tax Declaration

c. Certificate of No Improvement
d. Notarized Original SPA if the person filing is not the sole heir

4. When is the deadline for the availment of estate tax amnesty? June 14, 2023

5. What documents are needed for the issuance of eCAR?

a. Estate Tax Amnesty Return (ETAR)
b. Estate Tax Acceptance Payment Form (APF). Revenue Official Receipt (ROR), if paid to RCO
c. Certification of Availment
d. ONETT Computation Sheet of Tax Due duly approved by the Authorized Officer
e. Affidavit of Self Adjudication
(#5 is to be prepared by a lawyer)

PROOF OF SETTLEMENT OF THE ESTATE

Proof of settlement/ whether judicial or extrajudicial, need not accompany ETAR if it is not yet available
at the time of its filing, but no electronic Certificate Authorizing Registration (Ecar) shall be issued
unless such proof is presented and submitted to the concerned RDO.

After payment, the duly accomplished and sworn ETAR and APF with proof of payment, together with
complete documentary requirements, shall be submitted to RDO. Failure to submit them until June 14,
2023 is tantamount to non-availment of the amnesty and any payment made may be applied against
the total regular estate tax due inclusive of penalties.

The Ecar shall only be issued upon submission of proof of settlement (EJS, Court Order) in the event that
these documents include properties not indicated in the ETAR, the particular properties shall likewise be
excluded in the Ecar, unless additional estate tax amnesty payment shall be made if submission is within
the amnesty period.

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PROBLEM
Abel Amnes Ty died October 20, 2011 leaving the following properties and obligations:
Exclusive properties:
Residential land, 231 sq meters (FMV, Tax Declaration - P4.5 M; zonal value, P6,000,000
Community properties
Condominium unit. Unit 20-A, Tower 7, Manhattan Parkview Residences, Cubao, Quezon City, f family
home, 50 sq m, CCT No. 2013-431567 (FMV per Tax Dec No. 13-84317 -P3,800,000, zonal v value, P80,000
per sq m
Savings deposit (MBTC Acct #509-007-9087652), P800,000

The following deductions were claimed:

Funeral expenses, P195,000
Judicial expenses, P15,000
Unpaid mortgage on land (contracted before marriage), P200,000
Unpaid mortgage on Condo unit, P350,000

Additional information:
TIN of Estate-900-765-864
Executor-Abel Sia Ty, Jr.
Address-53 Madulas St., Bgy Fairview, QC
TIN of Executor-853-797-136

COMPUTE for the estate tax due if the estate has availed of the tax amnesty.
EXCLUSIVE COMMUNITY TOTAL
Land P 6,000,000
Condo unit P4,000,000
Savings deposit 800,000
Gross estate 6,000,000 4,800,000 10,800,000
Less: Deductions
Ordinary Funeral expenses 195,000
Judicial expenses 15,000
Unpaid mortgage-land 200,000
Unpaid mortgage-condo 350,000
Totals 200,000 560,000 (760,000)
Estate after ordinary deductions 10,040,000
Share of surviving spouse (4,800,000 - 560,000)/2 2,120,000
Estate of the decedent 7,920,000
Special deductions
Standard (1,000,000)
Family home (4M/2) Max under RA 8494 (1,000,000)
Net taxable estate 5,920,000
Rate of tax 6%
Estate tax due 355,200

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DONOR’S TAX

• tax on the privilege to transmit property between 2 or more persons living at the time of the
donation (TRANSFER INTER VIVOS); tax shall apply whether transfer is in trust or otherwise,
whether the gift is direct or indirect

ESSENTIAL REQUISITES OF A DONATION

1. Capacity of the donor

2. Donative intent in cases of direct gift (if indirect gift, even if there is no donative intent, it is valid
because it has complied with the essential requisites)
3. Acceptance by the donee
4. Delivery, whether actual or constructive, of the subject matter of the gift (e.g. longa manu, brevi
manu, etc)

FORMAL REQUISITES FOR VALIDITY OF DONATION

1. Personal property- may be oral; if the value of property donated exceeds P5,000, the donation
and the acceptance shall be made in writing. Otherwise, the donation shall be void.

2. Immovable property- it must be made in a public instrument, specifying therein the property
donated and the value of the charges which the donee must satisfy

Are the following properties taxable if the donor is a

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RESIDENT OR CITIZEN NRA no R NRA with R

Real property w/in ✓ ✓ ✓
Real property w/o ✓  
Tangible personal w/in ✓ ✓ ✓
Tangible personal w/o ✓  
Intangible personal w/in ✓ ✓ 
Intangible personal w/o ✓  

INTANGIBLE PROPERTY WITHIN

1. Shares, obligations or bonds issued by domestic corporation
2. Shares, obligations or bonds issued by foreign corporation:
a. If at least 85% of such business is located in the PH, or
b. Even if less than 85% if the corporation has acquired business situs in PH

PROBLEM NRC NRA w/

A made the following donations. reciprocity
- To B, a land worth P450,000 in Cubao, Quezon Land, Cubao 450,000 450,000
City Jewelry, HK 100,000 -
- To C, jewelry worth P100,000 in Hongkong Shares- Jollibee 150,000 -
- To D, Jollibee shares amounting to P150,000 Condo, HK 1,600,000 -
- To E, a condo unit in Hongkong, P1,600,000, Land, Davao 400,000 400,000
mortgaged for P50,000 assumed by the donee Bank deposit, HK 300,000
(never mind the mortgage bec. What you are looking for Gross Gift 3,000,000 850,000
is the gross gift)
- To F, land in Davao, P400,000
- Bank deposit of P300,000 to G in Hongkong.
COMPUTE gross estate if A is NRC or NRA with
reciprocity.
DEDUCTIONS FROM GROSS GIFT

1. Mortgage of the property donated assumed by the donee

2. Amount specifically provided by the donor as diminution on the property donates
3. Gifts made to the national government or any entity created by any of its agencies which is not
conducted for profit, or any political subdivision (MUST BE FOR PUBLIC PURPOSE)
4. Gifts in favor of the following non-profit institution
a. Educational
b. Charitable
c. Religious
d. Cultural
e. Social Welfare
f. Accredited NGO
g. Trust or philanthropic organization
h. Research institution
5. Annual exemption of 250,000 of net gift

REQUISITES:

1. Provided, that not more than 30% of said gifts shall be used for administration purposes
2. The non-profit institutions must be accredited by the Philippine Council for NGO certification
(PCNC)
A non-profit institution is one which is:
a. Organized as a non-stock entity;
b. Paying no dividends;
c. Governed by trustees who receive no compensation; and

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d. Devoting all income whether student’s fees or gifts, donation subsidies or other forms of
philanthropy, to the accomplishment of the purposes enumerated in its Articles of
Incorporation

TAX RATE
6% computed on the basis of total gifts in excess of 250,000 exempt gift made during the calendar year

VALUATION OF PROPERTY
@ fair market value at the time of donation

30 days grace period to file the return and pay donor’s tax

HOW MUCH IS SUBJECT TO DONOR’S TAX?

Land 1,000,000
Deduction: Mortgage 200,000
Net Gift 800,000
If itutuloy sa pag-compute ng donor’s tax
Less: Exemption 250,000
Total 550,000
Rate 6%
Donor’s Tax Due

Land 1,500,000
Deduction: Utang 250,000
Net gift 1,250,000
Less: Exemption 250,000
1,000,000
6%
Donor’s Tax 60,000

DONOR’S TAX?
EXEMPT; donated sa DepEd
 BUT IS MANDATORY TO FILE DONOR’S TAX RETURN
FOR RECORD PURPOSES KAHIT WLANG BABAYARAN

DONATED PROPERTY IS CONJUGAL/ COMMUNITY

SHARE OF HUSBAND (1⁄2) SHARE OF WIFE (1⁄2)

1. He is a donor of his 1⁄2 share 1. He is a donor of his 1⁄2 share
2. Subject to donor’s tax on his gift. 2. Subject to donor’s tax on his gift.
3. Entitled to 250,000 exemption 3. Entitled to 250,000 exemption
TWO DONOR’S TAX RETURNS WILL BE FILED
If only one spouse signed the deed of donation, there is only one donor for donor’ tax purposes, without
prejudice to the right of the other spouse to question the validity of the donation.

<you cannot give what you do not own=

PROBLEM Solution:
N made donations to O and P, son and daughter-in- Gross gift P1,500,000
law, on account of marriage, of real property with a Less: Mortgage 200,000

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fair market value of P1,500,000, but subject to a Net gift 1,300,000

mortgage of P200,000 which was assumed by the Less: Exemption 250,000
donees. Taxable 1,050,000
Rate 6%
COMPUTE the donor's tax due. Donor's tax 63,000

PROBLEM
Compute for the donor's taxes due in spouses
Solution: Mr. MG Mrs MG
McGayver gave the following donations on
To Sisa (900,000/2) 450,000 450,000
March 1, 2022:
Basilio 500,000
Community property was donated to Sisa, sister Gross gift 950,000 450,000
of Mr. McGayver. The fair market value of the Less: Exemption 250,000 250,000
property is P900,000. Sisa promised to pay the Net gift 700,000 200,000
tax due on the donation. Rate of tax 6% 6%
Exclusive property of Mr. McGayver worth Tax due/payable 42,000 12,000
P500,000 was donated to his brother, Basilio.

TRANSFER FOR INSUFFICIENT CONSIDERATION

Where property is transferred for inadequate consideration (like barter sale, exchange) , the amount by
which the excess of FMV over the consideration shall be deemed a gift, subject to donor’s tax. ³ indirect
gift

Exception: If the property is real property- capital asset

IS THE RULE ON TRANSFER FOR INSUFFICIENT CONSIDERATION APPLICABLE IF THE PROPERTY IS:

1. Personal Property Capital Asset YES Unless transfer is made in the ordinary
2. Personal Property Ordinary Asset YES course of business (bona fide, at arm’s
3. Real Property Ordinary Asset YES length and free from any donative intent)
4. Real Property Capital Asset NO
WHY?

THE OWNER SOLD/TRANSFERRED HIS PROPERTY, IF THE CONSIDERATION IS

1. Sufficient- Income Tax

2. Insufficient- Donor’s Tax except
DONOR’S TAX except ESTATE TAX if
a. Property classified as Real 1. Revocable transfer
Property Capital Asset 2. In contemplation of death
b. transfer is made in the ordinary 3. General power of appointment
course of business (bona fide, at  deemed gift is not subject to estate tax
arm’s length and free from any
donative intent) Amount included in gross estate is the
difference between the SP and MV
@time of death if market value is greater.

PROBLEM
Sailor sold the following properties. Compute for the donor's tax due, if any, in each of the following
independent transactions.
Market Value Selling Price Tax due
Jewelry P 530,000 P 150,000 P 7,800
Residential House 3,000,000 2,300,000 None
Apartment house 2,500,000 1,600,000 39,000
Delivery Truck 450,000 150,000 3,000

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SOLUTION: Jewelry Residential House Apartment house Delivery Truck

PP Capital Asset Real Property Real Property Personal Property
Capital Asset Ordinary Asset Ordinary Asset
Market Value 530,000 2,500,000 450,000
Less: Selling Price (150,000) (1,600,000) (150,000)
Deemed Gift 380,000 900,000 300,000
Less: Exemption (250,000) (250,000) (250,000)
Net gift 130,000 650,000 50,000
Rate 6% 6% 6%
Tax Due 7,800 0 (EXEMPT) 39,000 3,000
IMPORTANT: Real Property Capital Asset- not subject to donor9s tax.

PROBLEM
ANSWER:
Irish sold his residential land on September 5, Capital Gains Tax:
2021 to his high school classmate for P3,000,000
when the market value was P5,000,000. Cost of the FMV (higher) 5,000,000
land to Q was P1,000,000. Rate of tax 6% 300,000
He gave a commission of P150,000 to the broker
and spent for documentary stamp taxes and Documentary Stamp Tax:
transfer fees the amount. Base (5M/1,000) 5,000
Rate 15 75,000
How much is the total internal revenue tax/es Internal Revenue 375,000
payable? Taxes

Commissions expense is not deductible because CGT is a misnomer; it9s called 8gain9 tax but even if the
seller suffered loss on the transaction, he will still pay gain tax.
DST Tax Rate: P15 for every P1,000

DONATIONS BETWEEN SPOUSES

Every donation or grant of gratuitous advantage, direct or indirect, between the spouses during the
marriage shall be void, except moderate gifts which the spouses may give each other on the occasion of
any family rejoicing.

The prohibition shall also apply to persons living together as husband and wife without a valid marriage.

OTHER PERSONS WHO CANNOT DONATE TO EACH OTHER (VOID DONATIONS)

1. Those made between persons who were guilty of adultery or concubinage at the time of
donation
2. Those made between persons found guilty of the same criminal offense in consideration
thereof; and
3. Those made to a public officer or his wife, descendants and ascendants, by reason of his office

DONATION TO CANDIDATES OR POLITICAL PARTIES

Any donations/contributions in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes

a. Shall be exempt from donor’s tax if utilized/spent during the campaign period. Those utilized
before or after the campaign period are subject to donor’s tax.
b. Corporations, domestic or foreign, which shall give donations in aid of any political party or
candidate or for purposes of partisan political activity shall be subject to donor’s tax

Unutilized/excess campaign funds, net of the candidate’s or political party’s/ party list’s campaign
expenditures, shall be considered as subject to income tax and such, must be included in their/his
taxable income as stated in their/his Income Tax Return (ITR).

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No further deduction, either itemized or optional, shall be made against the said taxable income.

DONATIONS TO CANDIDATE, POLITICAL PARTY, OR COALITION OF PARTIES

DONATION IS UTILIZED/SPENT DONOR IS INDIVIDUAL DONOR IS CORPORATION

BEFORE CAMPAIGN PERIOD TAXABLE TAXABLE
DURING NOT TAXABLE TAXABLE
AFTER TAXABLE TAXABLE

PROBLEM
DONNA Chun Prima, a resident of Biak na SOLUTION
Bato St., Naga City with TIN 917-352-063 Common Shares (1K × 50) 50,000
made the following donations in 2019: Lot (5,000 × 3,000) 15,000,000
Gross/ Net Gift 15,050,000
May 5- Dondie, brother, land worth P2M Add: Net gift, May 5 (2M-300 K) 1,700,000
mortgaged with a bank for P300,000 to be Total Net Gifts 16,750,000
assumed by Dondie Less: Exemption 250,000
Net gift subject to tax 16,500,000
June 12 Rate of tax 6%
− Donita, sister, with TCT #147 985-320, Tax due 990,000
1,000 common shares of A Corp, not Less: Tax paid, May 5
traded. Book value, P50 per share; par (1,700,000- 250,000) × 6% 87,000
value, P30. Tax payable 903,000
− Residential lot in Naga City, TCT
1456987; TD 17-2000; Area: 5,000 sq m;
zonal value P3,000, MV per declaration,
P 12,000,000. tax

REQUIRED: Compute for the donor's tax due

on the second donation in BIR Form 1800.

CUMULATIVE SYSTEM- Net gift during the previous donations in the same year shall be added to the
present net gift but the taxes paid during the previous donation shall be claimed as tax credit from the
tax due.

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DOCUMENTARY REQUIREMENTS

The following requirements must be submitted upon field of office audit of the tax case before the Tax
Clearance Certificate/Certificate of Authorizing Registration can be released:

1. Duly notarized Original Deed of Donation

2. Taxpayer Identification Number (TIN) of Donor and Donee/s
3. Proof of claimed tax credit, if applicable
4. Duly notarized original Special Power of Attorney (SPA) for the transacting party if the person
signing is not one of the parties to the Deed of Donation.
5. Validated return and Original Official Receipt/Deposit Slip as proof of payment, for no payment
return, copy of Acknowledgment Receipt of return filed thru eBIR Forms.

FOR REAL PROPERTIES [Additional two (2) photocopies of each document]

1. Certified true copy/ies of the Original/Transfer/Condominium Certificate of Title of the donated

property, if applicable.
2. Certified true copy/ies of the Tax Declaration at the time or nearest to the date of the
transaction issued by the Local Assessor's Office for land and improvement, if applicable.
3. "Certificate of No Improvement" issued by the Assessor's Office, if applicable.

OTHER ADDITIONAL REQUIREMENTS, IF APPLICABLE

Additional two (2) copies of the following documents:

1. Duly Notarized Original Special Power of Attorney (SPA), if the person transacting/processing
the transfer is not a party to the transaction;
2. Certification from the Philippine Consulate if document is executed abroad;
3. Location Plan/Vicinity map, if zonal value cannot be readily determined from the documents
submitted;
4. Certificate of Exemption/BIR Ruling issued by the Commissioner of Internal Revenue or his
authorized representative, if tax exempt;
5. Such other documents as may be required by law/rulings/regulations/etc.

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SEASON 3: EPISODE 1
OTHER PERCENTAGE TAXES
• Business taxes other than VAT
BUSINESS TAXES IN NIRC
VALUE-ADDED TAX Sale of goods or properties; sale of services; lease
and use of properties; importation if goods or
properties
EXCISE TAX ON BUSINESS Alcohol products; tobacco products; petroleum
products; mineral products; miscellaneous
articles (automobiles; non-essential goods; non-
essential services; sweetened beverages)
OTHER PERCENTAGE TAXES 1% non-VAT; common carriers tax; premiums tax
& agents of foreign insurance companies; tax on
banks, etc; overseas communication tax; stock
transactions tax; franchise tax; amusement tax

ANNUAL GROSS SALES/GROSS RECEIPTS

For taxpayers under Sec. 116. Based on GROSS SALES (on sales, regardless whether collected or not yet)
OR GROSS RECEIPTS (referring to collections)
3,000,001- unlimited 12% VAT even if not VAT registered unless subject to Other Percentage
Taxes (Sec 117 to 127)

100,001-3M 1% Non-VAT under Sec. 116 (if not VAT registered) unless subject to Other
Percentage Taxes (Sec 117 to 127)

BUT STARTTING JULY 1, 2023- Balik sa 3%

P1.00-100,000 Marginal income earner: NOT SUBJECT TO VAT/OPT
Considered not engaged in business, therefore not subject to business tax.

OTHER PERCENTAGE TAXES

SECTION TAX TAX RATE
116 Tax on Persons Exempt from Value-Added Tax (VAT) 3%; 1% from July 1, 2020 to
June 30, 2023
117 Percentage Tax on Domestic Carriers and Keepers of 3%
Garages
118 Percentage Tax on International Carriers 3%
119 Tax on Franchises 3%-radio/tv broadcasting
company;2%- gas & water
utilities
120 Tax on Overseas Dispatch, Message or Conversation 10%
Originating from the PH
121 Tax on Banks & Non-Bank Financial Intermediaries 5%;1%;0%;7%
Performing Quasi-Banking Function
122 Tax on Other Non-Bank Financial Intermediaries 5%; 1%
123 Tax on Life Insurance Premiums 2%
124 Tax on Agents of Foreign Insurance Companies 4%; 5%
125 Amusement Taxes 10%;15%;18%;30%
125A Gaming Tax on Services Rendered by Offshore Gaming 5%
Licenses
126 Tax on Winnings (horse racing) 10%; 4%
127 Tax on Sale, Barter, or Exchange of Shares of Stock 6
�㕜�㕓 1%
Listed & Traded through the LSE 10

SEC. 116: TAX ON PERSONS EXEMPT FROM VAT

Any persons engaged in sale or lease of goods or properties or the performance of services
whose annual sales or receipts do not exceed P3 million and who is not a VAT-registered person shall

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pay a tax equivalent to 3% (1% from July 1,2020 to June 30, 2023) of his gross quarterly sales or
receipts.
Cooperatives shall be exempt from the tax herein imposed:

Nagregister sa VAT. Tapos masyado Malaki binbayaran. Pwede ba bumalik? Pwede, after 3 years.

PROBLEM 1
A person had the following sales during the preceding year (assume independent situations):
Indicate whether subject to VAT, 1% non-VAT, or exempt from VAT/percentage tax.
CASE GR- Prior Year VAT Registered Not VAT Registered
1 80,000 VAT EXEMPT; Marginal income earner
2 800,000 VAT 1% Non-VAT
3 3,500,000 VAT VAT kasi lumampas na sa threshold na 3M

LEASE OF RESIDENTIAL UNITS

Monthly rental per unit does not exceed 15,000 Exempt from business tax
Monthly rental per unit is more than 15,000 but
1% Non-VAT
the aggregate annual rental does not exceed 3M
Monthly rental per unit is more than 15,000 and
VAT
aggregate is more than 3M

Residential units (pangmatagalan)

• Refers to apartments and houses and lots used for residential purposes, and building or parts or
units thereof used solely as dwelling places (e.g., dormitories, rooms, and bed spaces) EXCEPT
motels, motel rooms, hotels and hotel rooms, lodging houses, inns and pension house
Unit
• Means an apartment unit in the case of apartments, house in the case of residential houses; per
person in the case of dormitories, boarding houses and bed spaces; and per room in case of
rooms for rent

PROBLEM 2
A person had the following gross receipts from rental of real property. Put a check on the VAT column
if subject to VAT, or in the 1% OPT column if subject to 1% non-VAT
Type of Monthly Aggregate
CASE VAT 1% OPT
Property rent per unit Annual Rental
 ✓; commercial buiding, therefore
Commercial
1 12,000 2,300,000 hindi sakop nung threshold kasi pang
Building
residential lang yung may threshold
 ; monthly rental does not exceed
2 Residential 14,500 2,900,000
15,000
 ✓; over 15,000 monthly but under 3M
3 Residential 16,000 2,700,000
annual
4 Residential 15,500 3,500,000 ✓ 
5 Residential 14,500 3,500,000  ; exempt

COMMON CARRIERS’ TAX (DOMESTIC CARRIERS)

Who are subject?
1. Cars for rent or hire driven by the lessee;
2. Transportation contractors on land, including persons who transport passengers for hire;
3. Other domestic carriers by land for transport of passengers, except owners of bancas and
owners of animal-drawn two-wheeled vehicles; and
4. Keepers of garages

RATE AND BASE: 3% OF GROSS RECEIPTS

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Gross receipts is gross of expenses for driver’s/conductors compensation, cost of oil, gasoline,
repairs and other expenses (hindi ibabawas yung mga nabanggit na expenses)

Note that the marginal income earners are exempt. (tryicycle, etc)

BUSINESS TAX ON TRANSPORT NETWORK VEHIVLE SERVICE (TNV)

STATUS GRAB/Partner
With certificate of public convenience (Franchise) 3% common carrier’s tax
No certificate of public convenience 3% Non-VAT (1% Non-VAT ngayon) if
qualified/ VAT if aggregate annual gross
receipts exceeds 3M

PROBLEM 3
Nena Ivana y Magdalena, a professional actress, had the following data for the quarter ending
March 2021 (amounts are exclusive of tax):
TIN 169-888-969
RDO Code 069
Registered address 88 Biak na Bato St., Bgy. Bulubundukin, Malaybalay City, Bukidnon
ZIP Code 9990
Contact Number 0999 6666777

Receipts from talent fees P4,000,000

Gross receipts from jeepneys (4 units) 1,000,000
Purchases of wardrobes used in films 1,000,000
Purchase of spare parts of jeepneys 40,000
Public relations services for image build-up as an actress 100,000
Salary of jeepney drivers 160,000
Insurance premiums for jeepneys 20,000
Rent of office space used both for her occupation and jeepney business, 400,000
subject to VAT

REQUIRED:
1. Compute for the VAT payable by Miss Ivana. Talent Fee- VAT
2. Compute for the percentage tax payable by Miss Ivana. Gross receipt from jeepney- Sec. 117
common carrier9s tax

Output Tax (4,000,000 × 12%) 480,000

Less: Input Tax
Wardrobe (1,000,000 × 12%) 120,000
Public Relations (100,000 × 12%) 12,000
Rent (400,000 × 12%) × 4/5 38,400 (170,400)
VAT Payable 309,600

VATABLE 4,000,000
Non-VATABLE 1,000,000
Total 5,000,000

2. OPT (1,000,000 × 3%) 30,000

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SEC. 118: PERCENTAGE TAX ON INTERNATIONAL CARRIERS

Who are subject?
 International air carriers and international shipping carriers doing business in PH
Rate and base: 3% of gross receipts
Gross receipts shall include, but shall not be limited to, the total amount of money or its equivalent
representing the contract, freight/cargo fees, mail fees, deposits applied as payments, advance
payments and other service charges and fees actually or constructively received during the taxable
quarter from cargo and/or mail, originating from the PH in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the passage documents.
Rule on International Carriers
BUSINESS TAX CARRIAGE OF PASSENGERS CARRIAGE OF CARGOES
12% VAT Not taxable Not taxable
3% Common Carriers Tax Not Taxable 3% carrier’s tax on outgoing flight/voyage

ROUTE PASSENGER BAGGAGE/ CARGO

Qatar- Clark Exempt Exempt
Clark- Qatar Exempt 3% business tax

SEC. 119: FRANCHISE TAX

The following are subject to franchise tax:
1. Radio/television broadcasting companies whose annual gross receipts of the preceding year do
not exceed 10million – 3%
The radio and television broadcasting companies shall have an option to be registered as a value-
added taxpayer and pay the tax due thereon.
Once this option is exercised, it becomes irrevocable.
2. Gas and water utilities- 2%
All other franchise holders shall pay the VAT.

SEC. 120: TAX ON OVERSEAS DISPATCH, MESSAGE OR CONVERSATION ORIGINATING FROM THE PH

RATE AND BASE: 10% of the amount paid upon every overseas dispatched, message or conversation
transmitted from the PH (outgoing) by telephone, telegraph, telewriter exchange, wireless, and other
communication equipment services.
EXEMPTIONS: This tax shall not apply to:
1. Government
2. Diplomatic services
3. International organizations
4. News services
Time for filing- The person rendering services shall collect and pay taxes within 20 days after the end of
each quarter.

PROBLEM 4
Cea is a businessman with transactions in the Philippines and abroad. His domestic and
international transactions during the period are as follows:
Overseas calls: Local Calls 2,500
Outgoing - Monthly Bill 1,100
Paid by Cea Boyo P 20,000 Total 3,600
Paid by the call receiver 10,000 Rate of Tax 12%
Local calls VAT 2,500 1. VAT Payable 432
Monthly bill VAT 1,100
Assume that the amounts do not include the tax. Outgoing call paid by the caller 20,000
Rate of Tax 10%
Compute for VAT payable & overseas
communications tax 2. Overseas Communications Tax 2,000

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SECTION 125: AMUSEMENT TAXES

The following amusement places shall be subject to the corresponding tax rates based on gross receipts:
10% Place for boxing exhibitions
15% Place for professional basketball games
18% Cockpits, cabarets, night or day clubs
30% Jai-Alai and racetracks

Boxing exhibitions shall be exempt from amusement tax, if:

1. World or Oriental Championships in any division is at stake (Oriental = East Asia);
2. One of the contenders is a citizen of PH; and
3. Said exhibitions are promoted by
a) citizens of the PH, or
b) by a corporation or association at least 60% of the capital of which is owned by such citizens.

PROBLEM: SUBJECT TO AMUSEMENT TAX?

1. Pacquiao- Ugas fight in Las Vegas NO, because it is conducted abroad
2. Philippines Super League (PSL) in Araneta Coliseum NO, because PSL is women’s volleyball
3. PBA in Mall of Asia Arena YES

PROBLEM 5 1. VAT on Kainan

1. Kainan is a VAT registered eatery. During the Cash Sales P350,000
month, it had the following data on sales and Debit card Sales 130,000
purchases: Online sales 286,000
Cash Sales P350,000 GROSS RECEIPTS 766,000
Debit card Sales 130,000 Rate of Tax 12%
Online sales 286,000 Output Tax 91,920
Purchases (70% from VAT sellers) 300,000 Less: Input Tax (300,000 × 70% × 12%) (25,200)
COMPUTE VAT payable. VAT Payable 66,720

2. Panggabi is a nightclub. During the period, it had 2. Amusement tax on Panggabi

the following receipts and expenses: Gross Receipts (285 + 200) 485,000
Sale of liquors and wine P 285,000 Rate of Tax 18%
Sale of food 200,000 Amusement Tax 87,300
Expenses 190,000
COMPUTE amusement tax.

SECTION 127: STOCK TRANSACTION TAX

RATE AND BASE: 6/10 of 1% on Gross selling price or gross value in money
Applied on: the sale, barter, exchange or other disposition of shares listed and traded thru a local stock
exchange, other than by a dealer in securities ³ Subject to VAT; if NOT listed and traded in LSE, subject
to Income Tax ³ 15% of net capital gain (CGT); Initial Public Offering Tax- no more IPO tax
Filing and payment: Within 5 banking days from the date of collection

PROBLEM 6
1) Gross selling price (10,000 x P5.50) P 55,000
Pabakal sold 10,000 shares of stocks of a
corporation at a selling price of P5.50 Cost per share Rate of tax .006
is P4.50 per share. Stock transaction tax 330
COMPUTE tax due if:
1) The stocks are listed and traded in the stock 2) Net capital gain (5.50 -4.50) x 10,000 10,000
exchange. Rate of tax 15%
2) The stocks are not listed and traded in the Capital gains tax 1,500
stock exchange

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PROBLEM 7
A business earned gross receipts of P600,000 during the quarter. Costs and expenses were P86,000 and
P58,000, respectively.
COMPUTE for the business tax payable if the business is:

A. BEAUTY SALOON - engaged in sale of services

Tax rate & tax base- 1% of gross receipts
Percentage tax (600,000 x 1%) = P 6,000

B. TAXICAB- subject to Common Carriers Tax (domestic)

Tax rate & tax base - 3% of gross receipts
Common carriers’ tax (600,000 x 3%) = 18,000

C. VIDEOKE BAR, RESTO BAR, KTV BAR, MUSIC LOUNGES subject to AMUSEMENT TAX
Tax rate & tax base - 18% of gross receipts
Amusement tax (600,000 x 18%) = 108,000

D. LPG DEALER - subject to Franchise Tax

Tax rate & tax base-2% of gross receipts
Franchise tax (600,000 x 2%) = 12,000

E. RADIO and/or TELEVISION BROADCASTING COMPANIES- subject to:

1) Franchise tax if annual gross receipts do not exceed P10 million and are not VAT registered;
2) VAT if VAT registered and/or annual gross receipts exceed P10 million
Tax rate & tax base-3% of gross receipts
Franchise tax (600,000 x 3%) = P 18,000

FILING DATE: The return (BIR Form 2551Q) shall be filed and the tax paid within twenty-five (25) days
after the end of each taxable quarter.

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VALUE ADDED TAX (PART 1)

Is a business activity?
1 Regularity: Is there a habitual engagement to the conduct of that activity?
2 Intended for profit

VAT and Percentage Tax should not both be imposed in one transaction
✓ VAT or Percentage + Excise (if Possible)
 VAT + Percentage

REGISTRATION OF BUSINESS ACTIVITY

Sec. 236 (A) of National Internal revenue Code (NIRC)
<Every person subject to any tax shall register once with the appropriate Revenue District Office=

Sec. 236 (B)

<An annual registration fee in the amount of five hundred (500) pesos for every separate or distinct
establishment or place of business&=
 in other words, it is not imposed on each taxpayer but imposed on each establishment

Registration Certificate (BIR Form 2303)

• Proof that the taxpayer has complied with the registration requirements. COR, together with the
validated Registration Fee (BIR Form 0605), must be posted at a conspicuous place in the
principal place of business.
• If not posted and BIR conducts a tax mapping operation, the penalty will be 1,000 pesos for
every document not posted.

• Mandatory VAT Registration (Sec. 236 G)

Any person who, in the course of trade or business, sells, barters or exchanges goods or
properties or engages in the sale or exchange of service shall be liable to register VAT Tax type
if:
➢ His gross sales or receipts for the past 12 months, other than that are exempt, have
exceeded 3 million pesos
➢ There are reasonable grounds to believe that his gross sales or receipts for the next 12
months, other than those that are exempt, will exceed 3 million pesos

If non-VAT and becomes mandated to register as VAT BUT did not register as VAT-taxpayer.

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Consequences:
1. Still pay the percentage tax as if you are non-VAT
2. You have to pay the VAT output tax, and not allowed to claim input taxes
3. You will pay the surcharge of 50%.

• Non-VAT Registration (Sec 236)

a. Those persons subject to OTHER PERCENTAGE TAXES
b. Those whose transactions are VAT-exempt
c. Marginal income earners as herein defined (gross sales do not exceed 100 thousand
pesos per year)
• Optional VAT Registration (Sec 236 H)
a. Any person whose general sale of goods and services (those that are not mandatorily
subject to percentage tax) do not exceed 3 million pesos, and are not required to
register for VAT may elect to be VAT-registered
b. Any person who is VAT registered but enters into transaction which are exempt from
VAT may opt that the VAT apply to his transactions which would have been exempt.
(If you are VAT registered but you have transactions that are exempt from VAT, you
can choose to treat those VAT exempt transactions as vatable transactions
Benefit: If VAT-exempt, you cannot claim input taxes but you can claim such if you are
a vatable taxpayer)
c. Franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed 10 million pesos derived from business
covered by law granting the franchise may opt for VAT registration

GR: Any person who elects to register under VAT shall not be entitled to cancel his
registration for the next three (3) years.
EXC. If radio/tv franchise grantee register as VAT taxpayer, it is irrevocable-
perpetually.

Documentary stamp tax does not require regular tax payments. It will only be due if
there is a document subject to documentary stamp tax.

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VALUE ADDED TAX

• An indirect business tax (can be passed on to the consumers) imposed and collected on every:
a. Sale, barter or exchange of goods or properties (Real or personal) 
b. Lease of goods or properties ³ There is regularity
c. Rendition of services in the course of trade or business 
d. Importation of goods (whether or not in the course of trade or business) ³ VAT must be
payed to be able to withdraw the goods because you are the end-user so you have to pay for
the VAT importation

WHO IS LIABLE FOR VAT WHO PAYS FOR VAT

Business Entity Consumers

CHARACTERISTICS

a. Tax on value added of a taxpayer (Output Tax from sales less Input Tax from purchases)
b. Excise tax based on consumption (excise tax as a business tax- imposition on manufacturer or
importers of excisable products; excise tax as a classification of tax- privilege tax, any taxes
imposed on the privilege; based on consumption because it is only paid when it is finally
consumed or sold)
c. National tax, imposed by the national government
d. Collected through the tax credit method (whatever we sell, we must deduct first whatever we buy
before determining the VAT payable)
e. Indirect tax where tax shifting is always presumed
f. Revenue or general tax (collections are used for general public purpose)

TAX CREDIT METHOD

VAT Payable= Output VAT less Input VAT

• Output VAT VAT due on the sale or lease of taxable goods, properties or services by any
person registered or required to register under the tax code

• Input VAT VAT due from or paid by a VAT-registered person in the course of his trade or
business on importation of goods or local purchase of goods, properties or
services, including lease or use of property, from a VAT registered person

CLASSIFICATION OF TRANSACTIONS UNDER THE VAT SYSTEM

1. VAT-taxable transactions
▪ Subject to 12% VAT rate
▪ Zero-rated transactions
2. EXEMPT transactions

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TRANSACTION OUTPUT VAT INPUT VAT VAT PAYABLE effect

Subject to 12% VAT ✓ ✓ ✓ If input vat  output, carry it over
in the succeeding year until the
company ceases operation then
file for a refund for any excess
input VAT or excess payments
Zero-rated sales  (0 since ✓ (can be NEGATIVE OPTIONS:
anything claimed)
multiplied by 1. Can be applied as credit if
0, is 0) you have transactions
subject to 12%, or
2. Claim for a refund or Tax
credit certificate (TCC)

Exempt sales    Input VAT paid shall be part of

total expenses.

Entries for above transactions

SALES PURCHASES PAYMENT OF VAT

Vatable Cash or A/R XX Purchases- net xx Output Tax xx
Sales- net xx Input Tax xx Input Tax xx
Output Tax xx Cash or A/P xx VAT Payable xx
Exempt No need to separate input
tax; VAT component of
purchase should be lumped
together with purchases
and expense; claim it as
expense

Timing of recognition will depend on the transaction

TAX BASE
• Sale of Goods: Gross Selling Price

Gross Sales ×××

Supporting document for sale of
Less: Sales Returns ×××
goods is invoice which is issued upon
Sales Allowances ×××
point of sale; therefore, output VAT or
Sales Discounts ××× ×××
input VAT is recognized at the point of
Total Net Sales ×××
sale or purchase, regardless whether it
Add: Excise Tax, if any ×××
is paid or not yet paid
GROSS SELLING PRICE ×××

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• Sale of Services and Lease of Properties: Gross Receipts

Cash Received (actually or constructively) ××× Payments received shall be subject

Add: Advance payments for future services ××× to VAT upon receipt, regardless
Materials charges with the services ××× ××× whether the service has already
GROSS RECEIPTS ××× been rendered or is yet to be
rendered; the same manner shall be
Supporting document: official receipt applied to purchases at the point of
payment

IF THE PAYMENT IS STILL A RECEIVE PAYMENT PURCHASES

RECEIVABLE
A/R Cash (total payment) Purchase
Sales- Net A/R Def. input VAT
Deferred Output VAT Cash or A/P
Def. Output VAT
Output VAT

TRANSACTIONS SUBJECT TO 12% VAT

• Sale of goods
- Based on GROSS SELING PRICE
• Sale of services
- Based on GROSS RECEIPTS
• Sale and Lease of Properties
- Based on GROSS RECEIPTS
• Transactions Deemed Sale (not actual sales but are considered deemed sale for VAT purposes
because the general reason is that when you purchase a product, it is intended for sale, therefore,
you claim input VAT on purchase and when you dispose it not through sale, there is no output
VAT that’s why it is assumed by the BIR as a deemed sale so that you can pay output VAT and may
pangbangga dun sa claimed input VAT.)

TRANSACTIONS DEEMED SALE

• Transfer, Use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business
- There must be a transfer of ownership
If the property donated is ordinary asset, the completed gift is VATABLE.

SCENARIO: You have a housing construction supplies. You wanted to construct a house so the
materials you used are those that you have in your hardware. Therefore, there is a transfer of
ownership and there is a use not in the course of business. Using those items for personal
purposes will now be considered a transaction deemed sale.
• Distribution or transfer to:
a. Shareholders or investors share in the profit of VAT-registered persons
- In the form of property dividends (subjected to output tax)

b. Creditors in payment of debt or obligation

- Dacion en pago arrangement (use of government property for the payment of debt)
• Consignment of goods if actual sale is not made within 60 days following the date such goods
were consigned
- To prevent taxpayer from deferring recognition of output VAT by non-reporting or delayed
reporting sales
• Retirement from or cessation of business
- All goods on hand whether capital goods, stocks in trade, supplies or materials as of the date
of cessation
- Whether or not the business is continued by the new owner or successor
Dr. ; Cr. Output VAT

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• Cessation of status as a VAT-registered person

- Change of activity from VAT-taxable to VAT-exempt
- Cancellation of registry due to:
a. Revert to exempt statues after the lapse of 3 consecutive years
b. Failure of the taxpayer to exceed the gross sales/ receipts during the 12 months of
operations
• NOT CONSIDERED AS DEEMED SALE (because they can still sell and generate output VAT)
a. Change of control of a corporation by the acquisition of the controlling interest
of such corporation by another stockholder or group stockholder
b. Change in the trade or corporate name of the business
c. Merger or consolidation of corporations

TRANSACTIONS DEEMED SALE - EXAMPLE

1. Luis, owner or a Merchandising Center, reported a total sale of goods, exclusive of Value-
added tax of P3,800,000. During the year, Luis used goods intended for sale amounting to
P180,000 for various parties he celebrated. How much is subject to VAT? How much is the
OUTPUT VAT?
2. Cebu Household Center is a distributor of various appliances. During the month of July of
the current taxable year, it distributed 15 units of 52-inch television set to its shareholders
as payment of dividends. The 18 units are sold to the market at P32,000. How much is
subject to VAT and its corresponding Output Vat?

#1 #2 (assumed inclusive of VAT)

Sales 3,800,000 (15+18= 33 units × 32,000) 1,056,000
Add: Deemed Sale 180,000 ÷ 1.12
Total Sales subject to VAT 3,980,000 942,857.14
Rate 12% × 12%
OUTPUT VAT 477,600 113, 143

TRANSACTIONS DEEMED SALE - EXAMPLE

Cebu Company is a wholesaler/retailer of RTW. The Mandaue City Not deemed sale -
consignment data showed the following: Lapu-lapu City Not deemed sale -
Carcar City Deemed sale 260,000
- Consignment to Mandaue City (1 to 30 days) = P 200,000 Naga City Deemed sale 150,000
-Consignment to Lapulapu City (31 to 60 days) = P220,000 Actual Sale 120,000
-Consignment to Carcar City (61 to 90 days) = P 260,000 Total Sales 530,000
- Consignment to Naga City (over 90 days) = P150,000 Rate 12%
For the month, the consignment to Mandaue has a OUTPUT VAT 63,600
sale of P120,000. What is the amount subject to VAT?
How much is the Output VAT?

Assume that the amounts are exclusive of VAT

When we say amount subject to VAT, it is exclusive because it is the amount that will be multiplied by 12%

VAT-EXEMPT TRANSACTIONS
EXEMPT SALE
• Exempt consumption of goods or services from domestic sellers. Exempt sales are NOT SUBJECT
TO VAT AND PERCENTAGE TAXES.
• Hence,
- VAT taxpayers making exempt sale of goods, properties, or services shall not bill any output
VAT to their customers because the sale is not subject to VAT.
- A non-VAT person making exempt sales shall not be subject to the 3% percentage tax on the
sales or receipt.

VAT-EXEMPT TRANSACTIONS- GOODS

• Sale of Goods to Senior Citizens and Persons with Disability
SC PWD

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Drugs, vaccines, and foods for special medical purpose EXEMPT EXEMPT
Vitamins and mineral supplements EXEMPT NOT EXEMPT
Accessories and equipment by or for SC, such as eye glasses, EXEMPT
hearing aid, dentures, prosthetics, artificial bone replacements,
NOT EXEMPT
walkers, crutches, wheelchairs, quad canes, geriatric diapers, and
other essential medical supplies, accessories and equipment
Casket or urn EXEMPT EXEMPT
• Agricultural or marine food products and inputs
- Sale and importation of agricultural and marine food products in their original state, livestock,
and poultry of a kind generally used as, or yielding or producing foods for human consumption;
and breeding stock and genetic materials therefore

a. Sale of agricultural and marine food products in their original state

- ORIGINAL STATE- unprocessed or undergoes SIMPLE PROCESS of:
a. Preparation for the market- boiling broiling, husking, roasting, stripping, grinding
b. Preservation- freezing, drying, salting, smoking
c. Packaging, including advanced technological means of packaging
b. Sale of agricultural or marine food products and inputs
- Sale and importation of fertilizers; seeds, seedlings, and fingerlings; fish, prawn,
livestock, and poultry feeds, including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other animals generally
considered as pets)

b.1. Sale of Fertilizers

• Sale of certain Farm and Fishery Inputs
For plants or fruits fertilizers, seeds and seedlings
cultivation
Livestock, feeds, and ingredients for livestock and
For animal husbandry
poultry feeds (except if ingredients which may also be
used for the production or processing of food for
human consumption vatable)
Fingerlings, fish, and prawn
For fishery operations
• OTHER EXEMPT SALES
- Books, newspapers and magazines
a. Must appear at regular intervals with fixed prices for subscription
b. Sale must not be devoted principally to the publication of paid advertisements
- Medicines for diabetes, high cholesterol or hypertension
 As determined by the DOH
- Passenger or cargo vessels and aircrafts including engines, equipment, and spare parts
thereof for domestic or international transport operations (also importation)
 subject to the requirements on restriction on vessel importation and
mandatory vessel retirement program of MARINA
a. Passenger or cargo vessel- 15 years
b. Tankers- 10 years
c. High speed passenger crafts- 5 years
• SALE OF COOPERATIVES
- EXCEPT electric cooperatives, cooperatives of any kind are exempt under the following
cases:
a. Transaction from RELATED activities (exempted)
- Sale to members
- Sale to non-members- if their accumulated reserves do not exceed
P10,000,000
b. Transaction from UNRELATED activities (Vatable)
• SALE OF REAL PROPERTIES
a. By a person NOT engaged in the realty business

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b. By a person ENGEGED in the realty business which complies with statutory price ceilings
(if sale of adjacent lots within 12-month period in favor of ONE buyer shall be treated as one)
➢ Utilized for Socialized Housing Unit
- House & Lot- P450,000
- Residential Lots only- P180,000
➢ Low Cost Housing- price per unit is P750,000
➢ Residential lot- P1,919,500/unit
➢ Residential Dwelling- P3,199,200/ unit
Exemption applies to:
- Real property classified as capital assets of VAT taxpayers
- Any real properties on NON-VAT taxpayers
- Any real properties of persons not engaged in business (not regular)
• EXPORT SALE OF NON-VAT TAXPAYERS
• SALES EXEMPT UNDER TREATIES, INTERNATIONAL AGREEMENTS OR SPECIAL LAWS
- Entities granted VAT exemption under special laws or international agreement to which
PH is a signatory.
• SALE OF GOLD TO THE BSP
• TAX FREE EXCHANGE OF PROPERTY
- Exchange of properties by a corporation in pursuant to a plan of merger or consolidation
- Exchange of properties by a person, alone or together with others not exceeding four,
which resulted to the acquisition of control

VAT-EXEMPT TRANSACTIONS- SERVICES

• EDUCATION
- Schools
a. Accredited by DepEd, CHED and TESDA and government educational institutions
• EMPLOYMENT
- Services performed by individuals in pursuant to an employer and employee relationship
· Professional practitioners, consultants, talents, TC artist, brokers and agents are
not employees, hence subject to business tax.
- Director’s Fees
· Not subject to Business Tax even if the Director is not an employee of a
corporation

• SERVICES BY AGRICULTURAL CONTRACT GROWERS AND MILLING FOR OTHERS of palay into
rice, corn into grits, and sugar can into raw sugar
- Agricultural contract grower- persons producing for others poultry, livestock or other
agricultural and marine food products in their original state
- Milling services for the processing of agricultural produce for ultimate human
consumption are specifically exempted (GR: Milling services are subject to VAT)

• LEASE OF REAL PROPERTIES

- Lease of Residential Dwelling not exceeding P15,000 a unit per month
For commercial spaces, regardless of the amount, it is subject to the general rule
(if it is under 3M- OPT, if over 3M-VAT).

• COOPERATIVES
- Lending, marketing or multi-purpose cooperatives
· Transactions from RELATED activities (exempted)
- Sale to members
- Sale to non-members- if their accumulated reserves do not exceed 10M
· Transactions from UNRELATED activities (subject to the GENERAL RULE)

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• HEALTH OR HOSPITAL SERVICES

- Medical, dental, hospital and Veterinary Services, except those rendered by
professional
- Sales of drug by a hospital drug store (for in-patients only)

• HOME OWNER’S ASSOCIATION OR CONDOMINIUM CORPORATION

- Purely reimbursement basis

• LEASE OF PASSENGER OR CARGO VESSELS AND AIRCRAFTS, INCLUDING SPARE PART AND
EQUIPMENT THEREOF

• TREATY-EXEMPT SALES OF SERVICES

• REGIONAL OR AREA HEADQUARTER OF A MULTINATIONAL COMPANY

- Services rendered by REGIONAL OR AREA HEADQUARTERS (not operating)
a. Established in PH
b. By multinational corporations
c. Supervisory, Communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region and do not derive income
from PH (purely administrative functions)

• SALES OF SERVICES TO SENIOR CITIZENS AND PERSONS WITH DISABILITY

- Lodging establishments
- Hospital and clinic
- Sports and recreation centers
- Restaurants such as eating places regular or special menus
- Land, air and sea travel
- Medical, dental, diagnostic and laboratory fees and professional medical fees
- Funeral or burial services
e.g. SC/PWD 1,000 (assumption is inclusive of VAT)
Total 1,000
Less: VAT (1,000/ 1.12 × 12%) (107) rounded off
Net of VAT 893
Less: 20% Discount (893 × 20%) (179)
NET BILL 714

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ZERO-RATED SALES

ZERO-RATED TRANSACTIONS EXEMPT TRANSACTIONS

• The tax rate is at zero, therefore it results to • The taxpayer/seller shall not bill any output
no tax chargeable against the purchaser. tax on his sales to his customers.
• The seller of such transactions charges no • Is not allowed any credit or refund on the
output tax. input taxes he paid on his purchase
• Can claim a refund or tax credit certificate for
the VAT previously charged by suppliers
• No VAT shall be shifted or passed-on by VAT
registered seller

ZERO-RATED SALE OF GOODS

• EXPORTING
- The sale and actual shipment of goods from PH to a foreign country irrespective of any shipping
arrangement ³DIRECT EXPORT

- Sale of raw materials or packaging materials by a VAT-registered entity to a non-resident buyer

for delivery to a resident local export-oriented enterprise used in the manufacturing,
processing, packing, repacking in the PH of the said buyer9s goods ³ INDIRECT EXPORT

- REQUISITES: a. paid for in an acceptable foreign currency or its equivalent in goods or services
b. accounted for under the rule of BSP

- Sale of raw materials or packaging materials to export-oriented enterprise whose export sales
exceed 70% of total annual production ³ INDIRECT EXPORT

- Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations
When to consider if engaged in international shipping or international air transport?
If the flight originates from PH and the destination is a foreign country.
- SALE TO ECONOMIC ZONES OR TOURISM ZONES
· Economic zones including tourism zones are considered foreign territories.
· Zero-rated transactions
a. Sale of PEZA-registered entities- direct exporting
b. Sale to PEZA-locators
- Sale to persons or entities whose exemption under special laws or international agreements to
which the PH is a signatory effectively subjects such sale to zero-rate

- Requires prior approval with the appropriate BIR office. Without an approved application for
effective zero-rating, the transaction otherwise entitles to zero-rating shall be considered
exempt.

ZERO-RATED SALE OF SERVICES

• SALE OF SERVICES TO NON-RESIDENTS
- Processing, manufacturing or repacking goods for other persons doing business outside the PH,
which goods are subsequently exported

- Other services rendered to a person engaged in business conducted outside the PH or to a

non-resident person not-engaged in business who is outside the PH when the services are
performed.
- REQUISITES:
a. Must be performed in PH
b. Paid for in acceptable foreign currency or its equivalent in goods or services
c. accounted for under the rule of BSP

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- TRANSPORT OF PASSENGERS AND CARGO BY DOMESTIC AIR OR SEA CARRIERS FROM THE PH
TO A FOREIGN COUNTRY
a. International
· Outgoing flight from PH ³ exempt
· Incoming flight from PH ³ not taxable because service rendered outside PH
b. Domestic
· Outgoing flight from PH ³ zero-rate
· Income flight to PH ³ not taxable because service rendered outside PH
· Domestic flight ³ vatable/ subject to the general rule

- SERVICES RENDERED TO PERSONS ENGAGED IN INTERNATIONAL SHIPPING OR AIR

TRANSPORT OPERATIONS, INCLUDING LEASES OF PROPERTY FOR USE THEREOF
· Exclusive for international shipping or air transport operations

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INPUT VAT
The VAT due from or paid by a VAT-registered person in the course of his trade or business on importation
of goods or local purchase of goods, properties or services, including lease or use of property, from a VAT
registered person.

RULES IN CLAIMING INPUT VAT

a. Must be separately reflected in the VAT invoice or official receipts issued by a VAT-REGISTERED
SUPPLIER
b. Must be paid or incurred in the course of trade or business
c. Incurred in relation to vatable sales and not from exempt sales

WHO CAN CLAIM INPUT VAT CREDIT?

a. Importer upon payment of VAT prior to releases of the goods from Customs custody
b. Purchaser of the domestic goods or properties upon consummation of sale
c. Purchaser of service upon payment of the compensation, rental, royalty or fee

TYPES OF CLAIMABLE INPUT VAT

a. Regular input VAT
b. Transitional input VAT
c. Presumptive input VAT
d. Amortized or deferred input VAT- currently, repealed by TRAIN Law- Jan. 1 ,2022
e. Standard input VAT- currently, repealed by TRAIN Law- Jan 1, 2021
A. REGULAR INPUT VAT
- Purchase or importation of goods intended for: (SERBES AS INVENTORY)
a. Sale
b. Conversion into or form part of a financial product for sale, including packaging materials
c. Use of supplies in the course of business
d. Use of raw materials supplied in the sale of services
e. Use in trade or business for which deduction for depreciation or amortization is allowed
- Purchases of real properties for which VAT has actually been paid
- Purchases of services in which VAT has actually been paid

Princess Merchandise, a VAT-registered taxpayer, provided the

information (VAT exclusive):
Local purchase of goods intended for sale Purchases-cash basis 150,000
On cash basis P 150,000 Purchases- on Account 400,000
On account 400,000 Packaging 20,000
Purchase of packaging supplies 20,000 Returned goods (15,000)
Returned goods due to defects 15,000
Purchase discount (10,000)
Purchase discounts granted by the seller 10,000
Gross Sales Total Purchases 545,000
Cash Sales 300,000 Rate 12%
On Account 400,000 Input VAT 65,400
Sales returns and allowances 20,000
Inventory ending 50,000
Cash Sales 300,000
On Account 400,000
Sales Ret & Allow. (20,000)
Output 81,600 Total Sales 680,000
Less: Input (65,400) Rate 12%
VAT payable 16,200 Output VAT 81,600

B. TRANSITIONAL INPUT VAT

- Input VAT allowed for a taxpayer who elected to be a VAT-registered person from being a non-
VAT person
- Can only be claimed once at the point of transition from non-VAT to VAT
- Transitional Input: 2% value of ending inventory or the actual VAT paid, whichever is higher
• Ending Inventory at the time the taxpayer shifted to VAT
· Ending inventory when sold will be subject to VAT

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· Regardless from where the inventory was purchased (VATable or non-VATable

supplier)
· Gross amount of inventory
Princess Merchandising becomes liable to the VAT Inventory 250,000
system during the current taxable year since the gross 2%
sales from the past 12 months are more than Transitional 5,000
P3,000,000. At the beginning of the year, the Actual 6,500 Higher
inventory has a current value of P250,000 with actual 6,500
input tax on VAT purchases of P6,500. The business Supplies 12,000 1,440
entity also has a carrying value of supplies of P12,000 2% 7,940 TIV
with P1,440 VAT payment. How much is the amount Transitional 240
of transitional input tax to be charged against the Actual 1,440 Higher
output tax?

C. PRESUMPTIVE INPUT TAX

- Provided to a limited number of taxpayers engaged in the manufacture of goods where the
inputs to the production make use of primary agricultural products
· Processors of sardine, mackerel and milk
· Manufacturers of refined sugar and cooking oil
· Manufacturers of packed noodles
- HOW MUCH? 4% of gross value of primary agricultural products

Sardines Processing Company has the following data:

Local Sales P 780,000
Export Sale ($1= P40) $10,000
Fishes purchased from various fishermen P350,000
Cans from supplier exclusive of VAT,
used for local and export sale 40,000
Oil, tomato paste and other ingredients from supplier
exclusive of VAT, used for local and export sale 32,000
Onions, pepper and garlic from various farmers, used
for local and export sale 20,000
Packaging materials and labels from suppliers, exclusive
of VAT, used for local and export sale 10,000

Sales Output 780,000 × 1% = 93,600

Export sales Zero- based × 0% = 0
Fishes purchased from various fishermen VAT-exempt - - -
Cans from supplier Input 40,000 × 12% = (4,800)
Oil, tomato paste and other ingredients input 32,000 × 12% = (3,840)
Onions, pepper and garlic presumptive 20,000 × 4% = (800)
Packaging materials and labels input 10,000 × 12% = (1,200)
VAT PAYABLE 82, 960

D. AMORTIZED OR DEFERRED INPUT VAT (take note of the date of acquisition)

- Allowable for purchase of Capital Goods
- Capital Goods- refer to goods or properties with estimated useful life greater that 1 year and
which are treated as depreciable assets used directly or indirectly in the production or sale of
taxable goods or services
- GUIDELINES PRIOR TO JAN. 1, 2022
 If the cost of capital goods, exclusive of VAT, is not more than 1M, the input tax is
creditable in the month of purchase
 If more than 1M (input tax is amortized over 60 months or the life of the asset,
whichever is shorter)
CG useful life is less than 5 years Input tax is apportioned over useful life in months
CG useful life is more than 5 years Input tax is apportioned over 60 months

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 1M base is the aggregate amount, meaning the total purchase of capital goods, however
the amortization of the input tax will be on a per item basis
- If SOLD (2 options)
 The amortized input tax shall be continued even if the capital goods are no longer with
the taxpayer or the entire unamortized input tax can be claimed as input tax credit
during the month of sale or quarter when the sale or transfer is made

− GUIDELINES (effective Jan. 1, 2022)

 Amortization on purchased or imported capital goods will no longer be allowed;
therefore, asset bought from Jan. 1, 2022 onwards, any input tax therein must be
claimed fully at the time of purchase or importation.
 The unutilized input VAT on purchases and importation made prior to Jan. 1, 2022 may
still be amortized as scheduled until fully utilized.
In October 2020, Clouds Company made the OCT. 2020
following purchases of capital goods exclusive of VAT Cost of CG= 500K + 900K + 1.2M + 2.5M= 5.1M
Machine A, useful life of 3 years 500,000 × 12%= 60,000 ÷ 36mos= 1,667
Machine B, useful life of 8 years 900,000 × 12%= 108,000 ÷ 60mos= 1,800
Machine C, useful life of 4 years 1,200,000 × 12%= 144,000 ÷ 48mos= 3,000
Machine D, useful life of 8 years 2,500,000 × 12%= 300,000 ÷ 60mos= 5,000
Total Input creditable 11,467
IF PURCHASE WAS MADE AFTER JAN. 2022
500,000 × 12%= 60,000 NOTE:
900,000 × 12%= 108,000 1st step: Determine the date of acquisition of
1,200,000 × 12%= 144,000 the capital asset: Jan. 1, 2022, onwards, claim
2,500,000 × 12%= 300,000 the input tax fully on date of acquisition. If
Total Input creditable 612,000 bought before Jan. 1, 2022:
2nd Step: Compute for the total purchase
(aggregated cost) of capital goods.
3rd Step: Multiply the separate capital goods by
12%, then divide by the useful life or 60
months, whichever is shorter.

E. STANDARD INPUT VAT (INPUT TAX SALE TO THE GOVERNMENT)

- Sale to the government or any of its political instrumentalities is subject to 12% of output value-
added tax
- Input tax that can be directly attributed to VAT taxable sales of goods and services to the
government or any of its political subdivisions cannot be credited against output tax arising
from sales to non-government units
- RULES (prior to Jan. 1, 2022)
 Government or any of its political subdivisions SHALL deduct and withhold a FINAL VAT
due at the rate of 5%; considered FINAL because the taxpayer will not be paying anything
 The remaining 7% shall account for the standard input VAT for sale of goods or services
to the government (7% is based on sales)
Note: Standard rate of 7% as an input and withholding VAT of 5% will always
result to a 0 payable

A Company sells medicine to the Department of Health. The total consideration was 1,000,000
and the VAT of 120,000, with a total of 1,120,000. DOH will pay 1,120,000 to A Company but
withheld 5% of total net of VAT of 50,000 (1M ×5%) and as a requirement, the government will also
withhold 1% (for sale of goods) or 2% for their creditable expanded withholding tax of 10,000 (1M ×
1%) ³ 1,120,000 – 50,000 – 10,000= 1,060,000 total payment of DOH to A Company.
A Company’s report to BIR
Output Tax (1M × 12%) 120,000
INPUT VAT
Actual 60,000 (assumption)
Standard input VAT (7% × 1M) 70,000 70,000
VAT Due 50,000
Less: VAT Credits- withholding (50,000)
VAT Payable 0

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According to the rule, the allowable input VAT will always be the standard of 7%.

− Treatment if
➢ Actual < Standard = OTHER INCOME; for taxation purposes, it will be part of Gross
Income, since it is a benefit on the taxpayer’s end because he can claim more than what
he had paid for
➢ Actual > Standard = OTHER EXPENSE, for income tax purpose, it is fully deductible. It is an
expense because you can only claim less than what you have paid

- RULES (EFFECTIVE Jan. 1, 2021)

 Government or any of its political subdivisions SHALL deduct and withhold a
CREDITABLE VAT due at the rate of 5%- creditable means it will only serve as an
advanced VAT payment, not yet the VAT payment as compared to the final withholding
VAT before (before Jan. 1, 2021, it was a final withholding VAT)
ÿ
Therefore, no more concept of standard input VAT (7%) as the actual input VAT related
on sale to government will now be the basis as credit against output (treated as a
regular sale)

Reven Enterprise, a VAT-registered Output Tax

taxpayer, presented the following data for Private 280,000 × 12%= 33,600
August 2020 (exclusive of VAT): Government 112,000 × 12%= 13,440
Sales Purchases 47,040
Local sales to private entities 280,000 200,000 Input Tax
Local sales to government 112,000 80,000 Private 200,000 × 12%=
24,000
Government 80,000 9,600 (actual)
× 12%=
How much is the VAT payable?
112,000 7,840 (standard)
× 7%=
Total Input 31,840
Output VAT 47,040 According to the rule, the allowable input VAT will
Input VAT (31,840) always be the standard of 7%.
VAT Payable 15,200
Less: WTAX (5,600) Assuming the government withheld 5% of 112,000
VAT Payable 9,600

If transactions occurred on Jan. 1, 2021 onwards

Input Tax
Private 200,000 × 12%= 24,000
Government 80,000 × 12%= 9,600 (actual) ³ no more standard of 7%
Total Input 33,600

Output VAT 47,040

Input VAT (33,600)
VAT Payable 13,440
Less: WTAX (5,600) Assuming the government withheld 5% of 112,000
VAT Payable 7,840

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INPUT TAX: MIXED TRANSACTION

- RULES:
· Specific identification- if input tax is directly attributable: can be specifically identified
· Pro-rate allocation- if indirectly attributable, allocate based on total gross sales

Assume this is in 2020 Machineries & Rental are indirectly attributable

Excel file

VAT PAYABLE: FILING

- VAT returns must be filed and VAT payable be paid on a monthly (2550M) and quarterly
(2550Q) basis
- DEADLINE
 Month VAT Return- 20th day of the following month
 Quarterly VAT Return- 25th day of the month after the close of the quarter
- VAT CREDIT:
 Monthly VAT Payments (for quarterly returns) ³ consolidated, thus whatever paid in
the first 2 months will be considered as credit
 Creditable VAT Withheld
 Advance Payment for Sugar and Flour Industries
 VAT Paid in previously filed returns, if amended
 Advance Payments
- Excess input vat credit from prior years will be added to INPUT VAT not VAT credits

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Excel file

ADVANCE VAT PAYMENTS

- Transaction requiring advance VAT payment:

· Sale of refined sugar
· Sale of flour
· Transport of Naturally Grown and Planted Timber Product
- The advance payment made by the seller/owner of refined sugar, importer or miller of
wheat/flour and sellers/owners of naturally grown and planted timber products shall be
allowed as credit against their output tax on the actual gross selling price of refined
sugar/flour/timber products

OTHER VAT ADMINISTRATIVE ISSUANCES

- SUSPENSION OF BUSINESS OPERATIONS AND TEMPORARY CLOSURE OF BUSINESS

 For VAT registered person
· Failure to issue receipts or invoices
· Failure to file VAT return
· Understatement of taxable sales or receipts by 30% or more of his correct
taxable sales or receipts for the taxable quarter
 Failure to register as a taxpayer

- LIABILITY OF A NON-VAT PERSON WHO ISSUES A VAT INVOICE

 Subject to percentage tax
 Subject to output tax
 No benefit of INPUT
 50% surcharge

Downloaded by Orolfo Gabriel ([email protected])

 lOMoARcPSD|6075400

Downloaded by Orolfo Gabriel ([email protected])