REVIEWER IN QUALIFYING EXAMINATION

Income
Taxation

Cantorne, s.J.
Resources and references:

Soriano, N., Manuel, K., & Laco, R. (2021). The Tax Reviewer 2021 Edition.

Ampongan, O. (2023). CPA Reviewer in Taxation 2023 Edition.

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This paper is of public use and should not be sold in any form.
General Principles

Three Inherent Powers of Government

1. Taxation is “the inherent power by which the sovereign, through its law-making body, raises
revenue to defray the necessary expenses of government.”
2. Eminent Domain is “the power of the State to forcibly acquire private property, upon
payment of just compensation, for some intended public use.”
3. Police Power is “the power of the State to regulate liberty and property for the promotion
of general welfare.”

Basis of Taxation
1. Life Blood Theory
2. Necessity Theory
3. Symbiotic Relationship Theory

Purposes of Taxation
1. Primary - to raise revenue; to support the existence of the State and enable the state to
promote the general welfare.
2. Secondary - non-revenue or sumptuary
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequity
d. Encouragement of economic growth
e. Protectionism

Characteristics of Power to Tax

1. Comprehensive - covering persons, businesses, activities, professions, rights, and privileges
2. Unlimited - unlimited in force and searching in extent that judicial courts scarcely venture to
declare that it is subject to any restrictions
3. Plenary - complete, unqualified, and absolute
4. Supreme

Principles of a Sound Tax System

1. Fiscal Adequacy - sufficiency of revenue raised
2. Administrative Feasibility - clarity, concise, effective and efficient enforcement, convenient
as to time and manner of payment, must not obstruct growth and economic development.
3. Theoretical Justice - ability to pay of taxpayer
Absence of Fiscal Adequacy and Administrative Feasibility will render the system unsound but not
unconstitutional. Theoretical justice is a requirement in the Constitution.

Double Taxation
What is prohibited is the “Direct double taxation”, and this occurs when:
1. Both taxes are imposed on the same property or subject matter;
2. For the same purpose;
3. Imposed by the same taxing authority;
4. Within same jurisdiction;
5. During the same taxable year; and
6. Covering the same kind or character of tax.
Income Taxation

Computation of Income Tax

As to taxpayers, their income and treatment of tax

Income within Income without Treatment

Resident citizen (RC) Taxable Taxable Returnable

Resident alien (RA) Taxable Not Returnable

Non-resident citizen (NRC) Taxable Not Returnable

Non-resident alien engaged in Taxable Not Returnable

trade or business (NRAETB)

Non-resident alien NOT Taxable Not Final Tax

engaged in trade or business
(NRANETB)

Domestic corporation (DC) Taxable Taxable Returnable

Resident foreign corporation Taxable Not Returnable

(RFC)

Non-resident foreign Taxable Not Final Tax

corporation (NRFC)

Source of income
1. Compensation income
a. Subject to graduated tax rate ALWAYS
 b. Subject to substituted filing, the employer withholds the tax and is responsible for
filing the tax of employee
c. As a general rule, the employee needs not to file a tax return for his/her
compensation income, EXCEPT (1) when there is an error to the return of those taxes,
and (2) when the employee is a mixed-income earner
2. Business income
a. Subject to graduated tax rates
- Itemized deductions
- 40% OSD, cannot be claimed by nonresident aliens (whether ETB or NETB) and
nonresident foreign corporations
b. Subject to 8% option
- When total gross receipts/gross sales do not exceed the VAT threshold of
3,000,000 annually and the entity is not VAT registered (key: when the entity is
vatable, 8% will not be used)
- When the entity is purely business income, the gross receipts or gross sales is
subject to 250,000 exemption (just like under the graduated tax)
- When the entity is mixed-income earner, the gross is not deducted by
exemption because it is already received by the compensation income
- 8% option is only for individual only
3. Share of a partner in GPP
a. Subject to graduated tax rates and is returnable by the partner/individual partner
- The share of partners in the net income is the amount which is taxable even if
they are not actually withdrawn or received by the partner in the form of cash
or value, this follows the Constructive Receipt Doctrine
b. Scheduled withdrawals in the form of salaries to the partner will not form part of the
gross income, however, the creditable withholding tax or CWT on those withdrawals
will form part of the tax credit of the partner/individual taxpayer
- 10% CWT - 720,000 and below
- 15% CWT - more than 720,000
4. Passive income - subject to final withholding tax or FWT, except if arising from income
without because there is no such thing as FWT on passive income without (Philippine law
cannot require an agent from a foreign country to withhold a tax on passive income of a
resident citizen and remit the same to the former)
Passive income Individual Corporations

RC and NRC NRAET NRANE DC RFC NRFC

RA B TB

Interests from any 20% 20% 20% 25% 20% 20% 25%
bank deposit; yield
or other monetary
benefits from
deposit substitutes
and from trust funds
and similar
arrangements

Interests from 15% Exempt Exempt Exemp 15% 15% Exemp

depositary banks t t
under Foreign
Currency Deposit
System

Interests from long Exempt Exempt Exempt 25% 20% 20% Exemp
term deposit or FWT - FWT - t
investment, 5 years if if
minimum issued issued
Pre-terminated in: by by
4 years to less than 5 banks banks
years/4 to 4.9 years 5% 5% 5% or or
invest invest
3 years to less than 4 ment ment
years/3 years to 3.9 12% 12% 12% certific certific
years ates ates
consid consid
Less than 3 years/1 ered as ered as
year to 2.9 years 20% 20% 20% deposit deposit
substit substit
utes utes
20%/2 20%/2
5% 5%
RCIT - RCIT -
for for
those those
that that
are not are not

Royalties except 20% 20% 20% 25% 20% 20% 25%

from books and
other literary works
and musical
compositions

Royalties from 10% 10% 10% 25% Not Not Not

books and other applica applica applica
literary works and ble ble ble
musical composition

Prizes (prizes of 20% 20% 20% 25% Not Not Not

10,000 and below applica applica applica
are returnable) ble, ble, ble,
otherw otherw otherw
ise ise ise
returna returna subject
ble ble to 25%
FWT

Winnings (except 20% 20% 20% 25% Not Not Not

winnings from applica applica applica
Philippine Charity ble ble ble
Sweepstakes and
Lotto amounting to
10,000 or less, this is
exempt from tax)

Dividends from DC, 10% 10% 20% 25% Not Not 25%,
except share taxable taxable 10% if
dividends there is
 a
sparing
credit

Dividends from RFC Returna Not Not Not Return Not Not
ble taxable taxable taxable able, taxable taxable
subject
to
exemp
tion

Dividends from Returna Not Not Not Return Not Not

NRFC ble taxable taxable taxable able, taxable taxable
subject
to
exemp
tion
There is no such thing as royalties from musical composition/literary works for corporations,
have you seen a book authored by Ayala, music band of Ayala, etc.?
The same treatment may be used for corporation to business partnerships, except general
professional partnerships because share from this organization is returnable.

Returns, CWT, and FWT

1. Returnable income includes those income subject to creditable withholding taxes or CWT,
residual in nature that if such income is not subject to final tax and exemption, it is
returnable.
2. Creditable withholding taxes - the most common income subject to CWT is compensation
which is earned in an employee-employer relationship, other income such as rent and
professional income are commonly subject to 5% CWT.
3. Final withholding taxes - applies to income of NRANETB and NRFC, and passive income,
these will not form part of tax credit.
Tax rates
Graduated tax rates always start on January 1, single rates start on July 1; the essence is the
computation of prorated tax on changing rates in one year.
1. Graduated tax rates - ordinary income tax/regular income tax, ON TAXABLE INCOME
- The ordinary income tax of all individuals whether resident, citizen, or not, except
NRANETB
- Deductions
a. Itemized
b. 40% OSD, must be applied at the first quarter and is irrevocable for that year
c. Special allowable itemized deductions
2. 8% tax rate - option of self-employed individuals, ON GROSS SALES/RECEIPTS TOGETHER
WITH OTHER OPERATING INCOME, except those under FWT
- Must not be vatable and VAT registered, the gross receipts or gross sales together
with other operating income must not exceed P3,000,000
- When individual is:
a. Purely compensation income - not applicable
b. Purely business income (from business and/or practice of profession) - deduct
P250,000 exemption
c. Mixed-income (from compensation, and business and/or practice of profession)
- the P250,000 exemption is already deducted from the compensation,
 therefore, do not deduct the P250,000 from business and/or professional
income
3. Corporate income tax - normal corporate income tax/NIT/RCIT, ON TAXABLE INCOME
- The corporate income tax of DC, RFC, business partnerships, and consortium/ventures
with no special treatment
- Tax rates:
June 30, 2020 and before Effective July 1, 2020

30% 25% 20%

When net taxable income
do not exceed P5 million
and Total assets (not
including land value) do
not exceed P100 million
4. Minimum corporate income tax - MCIT, mandatory to the fourth year of operation of those
corporations not under the special rates, ON GROSS INCOME together with other operating
income such as capital gains not subject to CGT
- The tax of corporation is the higher of RCIT or MCIT
- When MCIT is the tax, the excess MCIT over RCIT is carried forward and credited
against RCIT for the 3 years immediately succeeding taxable years; when MCIT is
always higher than RCIT for said 3 years, the credit will no longer be credited beyond
that period (for example, the excess MCIT of P1,000 in 2021 will no longer be
effective in 2025, excess MCIT of P2,000 in 2022 and P8,000 in 2023 can be credited
against RCIT of P15,000 in 2025 in the amount of P10,000 but not if 2025 has MCIT of
15,000)
- Tax rates:
June 30, 2020 and before July 1, 2020 to June 30, July 1, 2023
2023

2% 1% 2%
- Relief from MCIT:
a. Prolonged labor disputes - lasted more than 6 months
b. Force majeure
c. Legitimate business reverses
5. Special DC tax - special DC cannot use MCIT when applying special rates
- Tax rates:
June 30, 2020 and before July 1, 2020 to June 30, July 1, 2023
2023

10% 1% 10%
- Subject to predominance test, if the income of such entity comes from unrelated
trade, business, or other activities is more than 50%, all income will be subject to RCIT
- Capital outlays may be deducted in full or depreciation
- GOCCs are taxable as other corporations with same activity and are subject to RCIT,
except:
a. GSIS
b. SSS
c. PHIC
d. Local water districts
 e. HDMF
6. Special RFC tax
- Tax rates:
Special RFC Tax base Tax rate

International carrier Gross Philippine billing for: 2.5%

a. International air - gross
revenue derived from the
carriage of persons, excess
baggage, cargo, or mail
originating from the
Philippines
b. International shipping - gross
revenue whether for
passenger, cargo, or mail
originating from the
Philippines
Exemption
- When there is reciprocity,
where the Philippine carriers
are also exempt
All other income that does not
qualify as Gross Philippine Billings
will be subject to RCIT

Offshore Banking Units Under CREATE it is now subject to RCIT

(OBU) the treatment same with those
under RCIT

Foreign Currency Offshore income - foreign currency Exempt from all

Deposit Units (FCDU) transactions with non-residents, taxes
OBUs in the Philippines, local
commercial banks including
Philippine branches of foreign banks

Onshore income - interest income 10% final tax

from foreign currency loans granted
to residents other than other OBUs
or local commercial banks

Others - taxable income or gross RCIT or MCIT

income

Branch Profit Remittance Total profits applied or earmarked 15%

Tax for remittance without deduction
for the tax component

PEZA registered is exempt from

Branch Profit Remittance Tax

Regional or area Philippine branch of a foreign Exempt

headquarters of multinational that does not earn or
multinationals earn income from the Philippines

Regional operating Taxable income or Gross income RCIT or MCIT

headquarters of
 multinationals

7. Special NRFC tax

- Tax rates:
Special NRFC Tax base Tax rate

Non-resident cinematographic Gross income from Philippine 25%

film owner, lessor, or sources
distributor

Non-resident owner or lessor Gross rentals or fees derived 7.5%

of aircraft, machineries and within the Philippines
other equipment

Non-residents owner or lessor Gross rentals, lease or charter 4.5%

of vessels chartered by fees from leases or charters to
Philippine nationals Filipino citizens or corporation
as approved by Maritime
Industry Authority
8. 25% FWT on “all income of NRA NETB and NRFC” - this includes
a. Interest
b. Dividends other than share dividend
c. Rents
d. Salaries
e. Premiums
f. Annuities
g. Compensation, remuneration, emoluments
h. Capital gains - this refers to those gains not subject to 15%and 6% CGT
i. Other fixed or determinable annual or periodic or casual gains, profits, and income
9. Exemptions to “all income of NRA NETB and NRFC” -
a. Real property located in the Philippines, 6% CGT on higher between gross selling
price or FMV (higher between CIR and city assessors)
b. Sale of real property located in the Philippines to the Government and its political
divisions, at the option of the taxpayer, 6% CGT or graduated tax rates
c. Sale of unlisted stocks and listed stocks but through over-the-counter (OTC), 15% CGT
on the net taxable gain
Exclusions from gross income
Definitions
1. Exclusion means income which is excluded from returnable income because they are not
subject to tax;
2. Deduction means an item or amount which the law allows to be deducted from gross income
in order to arrive at net income;
3. Exemption means immunity from tax that others within the same taxing districts are obliged
to pay;
4. Amnesty means immunity from civil, criminal, and administrative liabilities arising from
nonpayment of tax; and
5. Credit means deduction from income tax due of any amount paid to a foreign country
subject to limitation.
Exclusions from gross income - as a general rule, interest on those exclusions is taxable, excluded
from gross income does not mean not taxable
1. Proceeds from life insurance
- Excluded, except
a. The insured outlived the policy, in such case the tax base is the difference
between proceeds and premiums paid; and
b. The insured did not outlive the policy but the beneficiary chose an option
where he gains, in such case the tax base is the difference between proceeds
and the face value of the insurance.
2. Gifts, bequests, and devises - properties acquired through gifts are subject to donor’s tax,
and bequests or devise are subject to estate tax; they are excluded but the interest,
earnings, etc. from the property given as gift, bequest, or device shall be subject to tax
3. Interest in government securities
4. Compensation for injuries or sickness - payment as damages, attorney’s fees, recoveries of
cost to hospitilization and other similar compensation is not taxable, but recoveries of losses
as well as payment in excess of the value of fully or partially damage properties are taxable
5. Income exempt under treaty - treaty of the Government and other countries granting
exemption of certain taxes
6. Retirement benefits, pensions, gratuities, etc - received by officials and employees of private
firms
- This includes retirement payment, gratuity, and terminal leave pay
- requisites
a. Reasonable private benefit plan maintained by employer and approved by BIR;
b. Retiring employee has been in the service of the same employer for at least 10
years;
c. Retiring employee must not be less than 50 years of age at the time of
retirement; and
d. Such benefit is availed only once
7. Separation pay - received by employee or his heirs
- Must be due to:
a. Death, sickness, physical disability, or
b. Any cause beyond the control of the employee
- However if there is CBA, such separation pay will be taxable due to the presence of
voluntary agreement even if at the time of separation the employee did not
voluntarily agreed
8. Income derived by foreign government
9. Income derived by the government and its political subdivision
10. Social security benefits - retirement, gratuities, pensions and similar benefits received from
foreign government agents and other institutions whether public or private are excluded
from tax
11. Benefits from GSIS and SSS - benefits from these institutions are not taxable
12. Prizes and awards in sports commission - are excluded from gross income for as long as the
sports are sanctioned by national sports associations
13. 13th month pay and other benefits - not taxable up to P90,000
14. De minimis benefits
15. GSIS, SSS, PhilHealth, HDMF, and union dues - deducted from the gross salaries so as not to
include them in gross income, provided that the excluded amount is the required due; any
voluntary payment in excess of required due is taxable income
16. Gains from the sale of bonds, debentures, or other certificate of indebtedness - gains
realized from sale, exchange, or retirement of bonds, debentures or other certificate of
indebtedness with maturity of more than 5 years
 17. Gains realized from redemption of shares in mutual fund
18. Compensation income of MWE - including his overtime pay, holiday pay, night shift
differential pay, and hazard pay but not his business income and other income not related to
his employment
Capital transactions
Ordinary assets - those not under CGT, include:
1. Sale of trading stocks or those stocks listed in Philippine Stock Exchange;
2. Property held primarily for sale in the ordinary course of business;
3. Depreciable property used in the trade or business;
4. Real property used in trade or business of taxpayers; and
5. Such other properties characterized as being part of inventory of taxpayers held for use in
the ordinary course (machine for sale, building for sale) of business or in support thereof
(machine used to produce goods for sale, building as storage for goods for sale), including
those who profits from sale of stocks (traders of stocks)
Capital assets - as a residual definition, those that cannot qualify as ordinary are deemed capital.
Capital assets located in the Philippines are subject to CGT which is a FWT
1. Those subject to 15%
a. Not subject to 15%
- Sale is done through PSE;
- Foreign stocks;
- Stock of dealers; and
- Stock sale resulted in a loss.
b. Sale of stocks not listed in stock exchange, or even listed but sold over the counter
- Tax base: Net capital gain = Selling price - cost
- Alternately, Net capital gain = FMV - CTS - cost (FMV of common shares = book
value based on latest FS; FMV of preferred shares = liquidation value)
2. Those subject to 6%
a. For individuals
- Real property sale - this consist of all real properties such as machineries
b. For corporations
- Real property sale - this consist only of land and building
- Other real properties are subject to income tax and is returnable to gross
income
c. Tax base - higher of
- Gross selling price
- FMV - higher of Zonal Value or Assessor’s FMV
Real properties - applicable only if located within
1. Classified as capital assets - subject to 6% CGT
2. Not classified as capital assets - tax base: higher of gross selling price or FMV(higher of Zonal
value or Assessor’s FMV)
a. Exempt - seller is exempt from CWT
b. When seller is not habitually engaged in real estate business - 6% CWT
c. When seller is habitually engaged in real estate business:
- 1.5% CWT - 1 to 500,000
- 3% CWT - 500,001 to 2,000,000
- 5% CWT - 2,000,001 and more
Capital properties other than those under CGT of 6%, 15%, and CWT
1. Capital losses are deductible only to capital gains.
 2. For individuals, net capital loss can be carried over in the succeeding year valid only for one
year, the creditable net capital loss should not exceed the net income of the year in which
the net capital loss has incurred.
3. Also for individuals, the gain and loss to be recognized in the computation of taxable income
is subject to holding period (100% when the asset is held only for 12 months and below, and
50% when more than 12 months).
4. For corporations, however, there is no holding period and carry over.
5. For GPP, the gains and losses arising from disposition of capital assets of partnership shall
be divided among partners in their proportion of interest in the partnership.
Deductions from gross income
Optional standard deductions (OSD) and itemized deductions
1. Itemized deductions - must be:
a. Ordinary and necessary;
b. Substantiated by adequate proof;
c. Not contrary to law, morals, public policy or order; and
d. Taxes required to be withheld have been properly withheld and remitted on time
2. OSD - 40% of:
a. Gross Sales (Sale of goods)/Gross receipts (Sale of service) - for Individual
b. Gross income (Gross receipts/sales less cost of sales) - for Corporation
Itemized deductions includes
1. Expenses, interest, & taxes
2. Losses, bad debts, depreciation, & depletion
3. Research and development, pension trust, & contributions
Expenses
1. Compensation - payment made to employees in an employer-employee relationship for the
services rendered for the employer which includes the grossed-up monetary value of fringe
benefits to supervisory and managerial employees. To be deductible, the compensation
must be reasonable.
2. Traveling expenses - expenses paid by the employer for the transportation, lodging, and
meals of a representative who is an employee for purposes related to the conduct of trade
and business. Requisites for deductibility:
a. Reasonable and necessary
b. Incurred while away from taxpayer’s employee’s place of employment
c. Paid or incurred in the conduct of trade or business
3. Rentals - payment made to the lessor by the taxpayer who is the lessee for the continuance
of possession and operation of the leased property.
4. Entertainment, amusement, and representation expenses - steps (in the case of taxpayers
engaging in both sale of goods and services):
a. Compute the prorated expense: Expense related to the sale of service = Net revenue
/ (Net revenue+Net sales) x Actual expense; Expenses related to the sale of goods =
Net sales / (Net revenue+Net sales) x Actual expense
b. Compute the limit for net sales = Net sales x 0.5%
c. Compute the limit for net revenue = Net revenue x 1%
d. The deductible entertainment expense is the lowest between incurred expense
(pro-rated in the case of both sale of goods and service) and the limit (which is 0.5%
of net sales and 1% of net revenue)
5. Special deduction on privileges given to senior citizens, PWDs, and national athletes and
coaches.
 a. 20% sales discount - must be exclusive only to the privileged and not by proxies,
formula: Deductible discount = Gross Sales x (1-3/28) x 20%
The 3/28 is the VAT component, discount should be net of the VAT
b. 15% of salaries to PWDs and senior citizens - employment shall have to continue for
at least 6 months and the annual taxable income of senior citizen/PWDs does not
exceed the poverty level, formula: Deductible salaries = Compensation payments
(1+15%)
Not deductible expenses
1. Bribes, kickbacks and other similar payments - payments made to official or employee of
government, GOCC, representative of foreign government, including private corporation,
GPP or similar entity.
2. Personal, living, and family expenses.
3. Capitalizable expenditures.
4. Expenditures for which an allowance has been made in relation to the restoration of
property.
5. Premiums paid on any life insurance with the employer being the beneficiary.
Interest
Formula
Deductible interest expense = Interest expense* + (Interest expense from bank - Interest income
gross of FWT x 33%)**
*this pertains to the interest expense not included in the passive income subject to FWT if it was an
interest income.
**this pertains to the interest expense included in the passive income subject to FWT if it was an
interest income.
Not all interest income is subject to FWT. An interest income earned between taxpayers in a private
instrument of a simple loan is not subject to FWT even though it is a passive income.
Interest expense incurred to a bank for which the interest income for a bank deposit is subject to
FWT will be reduced by 33% of the interest income gross of FWT rate.
Optional treatment of interest - the interests incurred in relation to the financing of acquisition of
properties to be used in trade or business may be, at the option of the taxpayers, capitalized as
cost of the asset or treated as deductible expense. The effect is that the interest incurred will be
deductible as part of depreciation.
Not deductible interest
1. Interest on loan paid in advance through discount or otherwise by an individual taxpayer
reporting income on a cash basis. The interest will be deductible only when indebtedness is
paid.
2. Interest on loan between related taxpayers - such as:
a. between family members;
b. between controlling interest held by an individual and a corporation;
c. between corporations in which controlling interest is held by same individual directly
or indirectly;
d. between grantor and fiduciary of any trust;
e. between fiduciary of trusts with same grantor; or
f. between fiduciary of trust and beneficiary of such trust.
3. Indebtedness is incurred to finance petroleum operations
Taxes
Tax paid, as a general rule, is deductible unless law does not permit. This does not include
surcharges, penalties, or fines incident to delinquency.
Tax deductions related to the NRAETB and RFC are allowed only if and to the extent that they are
connected with income from sources within the Philippines.
Not deductible taxes
1. Philippine income tax
2. Foreign income tax if claimed by the taxpayer as a tax credit
3. Estate and donor’s tax
4. Taxes assessed against local benefits of a kind tending to increase the value of the property
assessed
5. Energy tax on electrical power consumption
6. Taxes which are not connected with the trade or business of the taxpayer
7. VAT
8. FWT not including FBT
Deductible taxes
1. Local business taxes
2. Real property taxes
3. License and permit fees
4. Percentage tax (except specific % tax in stock transaction of 60% of 1%)
5. Documentary stamp tax or DST
Tax credit - deduction to the income tax due to arrived at income tax payable
Who can claim? Those whose income is taxable within and without:
1. RC
2. DC
3. Partners of GPP
4. Beneficiaries of estates or trusts
Treatment of deductible taxes paid
1. Claimed as deduction - no limit
2. Claimed as credit - subject to limitation
Limitations on foreign tax credit (not applicable when taxes paid in a foreign jurisdiction is claimed
as deductions):
1. Determine first the tax paid in a foreign country;
2. 1st Limitation, compute the limit per foreign country: Country A Limit = (Country A net
income/Total net income) x Philippine income tax, Country B Limit = (Country B net
income/Total net income) x Philippine income tax…;
3. Determine the tax credit by comparing the tax paid and 1st limitation, the tax credit to be
compared with 2nd limitation is the lower between the tax paid and 1st limitation;
4. 2nd limitation, compute the limit of all foreign taxes paid: Total Foreign Country Limit =
(Total Foreign Country net income/Total net income) x Philippine income tax; and
5. The tax credit to be deducted from income tax due is the lower between amounts
determined in number 3 and 4.
Losses
Requisites for deductibility:
1. Actually sustained during taxable year;
2. Not compensated by insurance or indemnity;
3. Related to trade, business, or profession;
4. Arise from fire, storms, shipwreck, or other casualties, or from robbery, theft, or
embezzlement;
5. Not have been claimed as tax deduction for estate tax purposes; and
6. In case of casualty loss, it must have been filed within 45 days after occurrence of such
event.
Amount of deductibility:
1. Total destruction - net book value less insurance or compensation received
2. Partial destruction - replacement cost to the extent of net book value, excess replacement
cost over net book value is capitalized
Net operating loss carry-over (NOLCO)
This is deductible only to gross income which means this cannot be claimed as tax credit
1. Can be carried over for consecutive 3 years (under Bayanihan to Recover as One Act, it is
extended up to 5 years)
2. Application of OSD, 8% option, or MCIT will not interrupt the running of 5 years.
3. There must be no substantial change in ownership
4. Loss from wash sales - not deductible
5. Loss from wagering - deductible only to wagering gains
6. Impairment - not deductible
Entities not entitled to claim NOLCO
1. OBUs and FCDUs
2. PEZA and BOI registered
3. SBMA registered
4. NRFC - international shipping or air carriage
5. Any person enjoying exemption from income tax
Bad debts
Requisites:
1. Existing indebtedness due to taxpayer;
2. Not in between related taxpayers;
3. Connected with trade, business, or profession;
4. Must be written off from the book;
5. Actually ascertained to be worthless (except for Banks, which is ascertained by BSP)
Other deductions:
1. Depreciation
2. Depletion
3. Charitable and other contributions
4. Research development
5. Pension and retirement expense
6. Training of employee expense
Miscellaneous topics
Accounting period:
1. Individual - calendar year ending December 31
2. Corporation - calendar year or fiscal year
BIR Forms Title of the form

BIR Form No. 1700 Annual Income Tax Return For Individuals Earning Purely
Compensation Income (Including Non-Business/Non-Profession
Related Income)

Filing date: April 15

BIR Form No. 1701 Annual Income Tax Return For Individuals (including MIXED Income
Earner), Estates and Trusts

Filing date: April 15

BIR Form No. 1701A Annual Income Tax Return for Individuals Earning Income PURELY
 from Business/Profession

Filing date: April 15

BIR Form No. 1701Q Quarterly Income Tax Return for Individuals, Estates and Trusts
Description

Filing date:
1st Quarter - May 15
2nd Quarter - August 15
3rd Quarter - November 15

BIR Form No. 1702-EX Annual Income Tax Return For Corporation, Partnership and Other
Non-Individual Taxpayer EXEMPT Under the Tax Code, as Amended,
{Sec. 30 and those exempted in Sec. 27(C)} and Other Special Laws,
with NO Other Taxable Income

BIR Form No. 1702-MX Annual Income Tax Return for Corporation, Partnership and Other
Non-Individual with MIXED Income Subject to Multiple Income Tax
Rates or with Income Subject to SPECIAL/PREFERENTIAL RATE

Filing date: 15th day of 4th month after the close of taxable year

BIR Form No. 1702-RT Annual Income Tax Return For Corporation, Partnership and Other
Non-Individual Taxpayer Subject Only to REGULAR Income Tax Rate
Description

Filing date: 15th day of 4th month after the close of taxable year

BIR Form No. 1702Q Quarterly Income Tax Return for Corporations, Partnerships and
Other Non-Individual Taxpayers

Filing date: 60 days after the close of 3 quarters

BIR Form No. 1706 Capital Gains Tax Return for Onerous Transfer of Real Property
Classified as Capital Asset (both Taxable and Exempt)

Filing date: 30th day after receipt of payment

BIR Form No. 1707 Capital Gains Tax Return for Onerous Transfer of Shares of Stocks
Not Traded Through the Local Stock Exchange

Filing date: 30th day after receipt of payment

BIR Form No. 1707-A Annual Capital Gains Tax Return for Onerous Transfer of Shares of
Stock Not Traded Through the Local Stock Exchange

Filing date:
Individual - April 15
Corporation - 15th day of 4th month after the close of taxable year

BIR Form No. 1709 Information Return on Transactions with Related Party (International
and/or Domestic)