Taxation Notes 4.1.23 Midterm

Gross Income
a) Definition
b) Concept of Income from Whatever Source Derived
c) Gross Income vs. Net Income vs. Taxable Income
d) Sources of Income Subject to Tax
(1) Compensation Income
(2) Fringe Benefits
(3) Professional Income
(4) Income from Business
(5) Income from Dealings in Property
(6) Passive Investment Income
(7) Annuities, Proceeds from Life Insurance or Other Types of Insurance
(8) Prizes and Awards
(9) Pensions, Retirement Benefit or Separation Pay
(10) Income from Any Source
e) Exclusions
(1) Taxpayers Who May Avail
(2) Distinguished from Deductions and Tax Credits
4. Deductions from Gross Income
a) Concept as Return of Capital
b) Itemized Deductions vs. Optional Standard Deduction
c) Items Not Deductible
All incomes/Gross – exclusions – taxable income =

Multiple employers – not qualified for substituted filing (applicable ra to a single
employer)
If employer + business = lahi na pod
Compensation income – example nay na disgrasya unya thru court proceedings,
nabayran na xa, ireport sa BIR and pay tax.
Fringe benefits furnished to managerial and supervisory-level employees by the
employer are subject to a final FBT of 35%* (in general) on the grossed-up monetary
value of the benefits.
Servive rendered – taxable income
Given due to love – gift, not taxable ,
Borrowed in a corporation – wala na pabayri , taxable subject to dividend tax or capital
transaction if it increased the stocks by virtue of the cancellation of the debt
Illegal gains/jueting/swertes – taxable ALL THA GAINS FROM ILLEGAL TXNS ARE
RECOGNIZED, ALL LOSSES ARE NOT RECOGNIZED.
Bad debts – if borrower is insolvent, and written off considered as lost in 2023 but won a
lotto in 2024 and paid his debt, so the creditor receiving the money is taxable. Nka
benefit na bya pag written off
Excess money not spent in election from donated campaign funds – taxable
SOURCES OF INCOME SUBJECT TO TAX

1. Compensation income – there is employer-employee relation (to determine, the 4
fold test)
all remuneration for services performed by an employee for his employer under
an Er-Ee relationship.
E.g. Salaries, wages, fees, commissions and other similar items. Items not
considered as Compensation Income: (Sec. 78[A])
1. Agricultural labor paid entirely in products of the farm where the labor is
performed;
2. For domestic service in a private home;
3. For casual labor not in the course of employer’s trade of business;
4. For services rendered by a citizen or resident for a foreign gov’t or int’l org.
Special provisions on Compensation Income –

Minimum Wage Earners – exempt from income tax Soriano v. SoF, GR no.
184450
OFW – exempt if income/ wage is earned outside the Phil.

RATA and PERA – of govt employees - The RATA and PERA (Personal Economic
Relief Allowance) of government personnel are considered reimbursement for expenses
incurred while performing government duties and are therefore income tax-exempt
Transporation allowance of Private – if liquidated, not taxable, if given w/o the need of
recipts, it is compensation of private employee and taxable.
Winnings in parties such as oven – taxable based on market value
Performance based bonus – taxable withholding incl. 13 th month but if less tan 90k in a
year, not subj to tax Employees who receive a de minimis benefit of up to P90,000 in a year
will not have to pay any income tax on it. If all accumulated benefits more than 90k, taxable
2. Fringe benefits – 35% (AS AMENDED BY train law) FOR MANEGERIAL AND
SUPERVISORY POSITION ONLY – NOT FOR RANK AND FILE tax on the
benefit received by the employee, remitted by the employer in behalf of the
employee. (TAX ON THE EMPLOYEE) QUARTERLY
DEDUCTIBLE EXPENSE FROM GROSS INCOME
IF NRA-ETB IS 25% TNAN INCOME
EXEMPT FB FROM TAXES
IF NILAPAS ANG CLOTHING ALLOWANCE, yes, taxable generally but check first if
sulod bha xa sa 90k. If nilapas na, naa pay 250k
NOTE:
Excess of allowable/compulsory deduction in PAG-IBIG contribution is not deductible in
gross income.
3. Professional Income (no EE-ER relationship)
The 8% withholding tax rate replaces the two-tier rate of 10% (for self-employed

and professionals earning less than ₱720,000 income every year) .
Avail 8% if less than 3M annual – no need to pay percentage tax (JO can elect this kay they
are not considered as employees of govt. but CONTRACTUAL)
If more than 3M, must be graduated INCOME TAX RATE no choice if nag exceed that year,
maski pag nag elect naka ug 8%
How to inform BIR that you will avail the 8%?
There are two ways to signify your intention to elect the 8% tax rate. Upon business registration
or renewal of business registration, using BIR Form 1905; Upon filing BIR Form 2551Q or 1701Q
for the initial quarter of the taxable year.
- IF NEW: Submit BIR form 1901 and write that you prefer 8% or in the 1 st quarterly ITR if
wala na apply sa 1901 SIGNIFY IT ON OF BEFORE MAY 15.
- EXISTING TAXPAYER: You need to file Form 1905 (Application for Registration Information
Update) You need to file Form 2551Q (Quarterly Percentage Tax Return) and/or Form 1701Q
(Quarterly Income Tax Return)
Basis – net taxable income

Optional Standard Deduction - OSD
(7) Retirement Benefits, Pensions, Gratuities, etc.-
(a) Retirement benefits received under Republic Act No. 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: Provided, That the
retiring official or employee has been in the service of the same employer for at least
ten (10) years and is not less than fifty (50) years of age at the time of his retirement:
Provided, further, That the benefits granted under this subparagraph shall be availed of
by an official or employee only once. For purposes of this Subsection, the term
'reasonable private benefit plan' means a pension, gratuity, stock bonus or profit-sharing
plan maintained by an employer for the benefit of some or all of his officials or
employees, wherein contributions are made by such employer for the officials or
employees, or both, for the purpose of distributing to such officials and employees the
earnings and principal of the fund thus accumulated, and wherein its is provided in said
plan that at no time shall any part of the corpus or income of the fund be used for, or be
diverted to, any purpose other than for the exclusive benefit of the said officials and
employees. (called RETIREMENT BENEFIT – DUE TO AGE)
4917 – dapat nay retirement plan approved by BIR
If 7641 If Nay CBA or if nay contract,
(In the private sector, the ½ month pay in retirement pay is equivalent to 22.5 days.
Retirement pay requires at least five (5) years of service. Retirement is optional at sixty
(60) years old, while mandatory at sixty-five (65) years old.)
(b) Any amount received by an official or employee or by his 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.(called SEPARATION BENEFIT – beyond
your control example retrenchment, nag close down ang office regardless of age,
availment once or twice)
GEN. RULE!
CAN AVAIL RETIREMENT AND SEPARATION BENEFIT IS SATISFIED THE

REQUIREMENTS
Voluntary resignation, if based on CBA or Contract and complied the length of

service, can avail separation benefit subject to tax (VOLUNTARY IS TAXABLE)
Cannot avail if there are pending cases

(c) The provisions of any existing law to the contrary notwithstanding, social security
benefits, retirement gratuities, pensions and other similar benefits received by resident
or nonresident citizens of the Philippines or aliens who come to reside permanently in
the Philippines from foreign government agencies and other institutions, private or
public.
(d) Payments of benefits due or to become due to any person residing in the Philippines
under the laws of the United States administered by the United States Veterans
Administration.
(e) Benefits received from or enjoyed under the Social Security System in accordance
with the provisions of Republic Act No. 8282.
(f) Benefits received from the GSIS under Republic Act No. 8291, including retirement
gratuity received by government officials and employees. (GSIS PENSION IS EXEMPT)
APRIL 15, 2023 – REMEDIES

REVENUE DISTRICT OFFICE - LOA
120 DAY DOES NOT RENDER THE ASSESSMENT VOID BUT YOU CAN FILE
ADMINISTRATIVE CASE TO THE RO – REVEUNE OFFICER
CHECK IN LOA IF CYA JUD NA EXAMINER AND DAPAT MO EXAMINS SA INYO
NOTE!
Photocopy only and ihatag sa BIR sa checklist of requirement kay gamiton pana ang
orig copy if nay protest.
Q; May a tax payer be investigated in more than once in a taxable year?
A: Yes. Sec 235, NIRC
Gen Rule, only once but exemptions:
- Fraud
- Tax payer requests REINVESTIGATION
- (continue the list)
RR 22-2020
W/O NOD, THERE IS A VIOLATION OF DUE PROCESS
SHOULD NOT EXCEED 30 DAYS FROM RECEIPT OF NOD
ENDORSEMENT TO RRO W/N 10 DAYS FROM END OF DISCUSSION
Check if PAN was sent
Absence of PAN is
SEC 3.1.1 PAN – must state the legal basis to assess the tax payer for any deficiency
tax or taxes RA 18-2018 (factual and law must be indicated) IF GI DISCUSS LANG,
OKAY RA KAY YOU ARE ADEQUATELY INFORMED.
BIR NO NEED TO ISSUE PAN
1. Mathematical error
2. Tax w/held and amount actually remmited
3. Automatically applied to the same amount claimed
4. Excise tax due on excisable articles
5. Transferred to non-exempt person\
FAN/FDN
- Check if FAN was filed within the prescribed period. Must be within 3 years
after the filing or last day of filing W/C EVER IS LATER (we cannot extend
something that has already expired) unless there are fraud or exemptions
stated below
EXEMPTIONS:
1. False/fradaulent of return or no return – 10 years prescriptive period from
DATE OF DISCOVERY (NIRC, Sec. 222)
2. Suspension of prescriptive period.
Mere understatement of gross earning does NOT of itself prove faraud. There
must be intentional misstatement of more than 30% (Yutivo Sons v CTA)
Mere negligence or clerical error is not intentional.
Sec 288. Protest of assessment

1. State whether reconsideration od reinvestigation
2. Letter of
RECONSIDERATION VS REINVESTIGATION
PROTEST – IS MANDATORY FILING
3 DIFFERENCES OF PAN AND FAN FINAL EXAM!
FDDA ISSUED BY CIR

1. FILE TO CTA
FDDA ISSUED BY AUTHORIZED REP
1. FILE TO CTA
2. ADMINISTRATIVE APPEAL 30 DAYS TO THE CIR
2ND CTA – MAY file MR or not

SC – MAY file MR or not

Taxation Notes 4.1.23 Midterm

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Gross Income

All incomes/Gross – exclusions – taxable income =

SOURCES OF INCOME SUBJECT TO TAX

Special provisions on Compensation Income –

OFW – exempt if income/ wage is earned outside the Phil.

3. Professional Income (no EE-ER relationship)

The 8% withholding tax rate replaces the two-tier rate of 10% (for self-employed

How to inform BIR that you will avail the 8%?

Basis – net taxable income

(7) Retirement Benefits, Pensions, Gratuities, etc.-

4917 – dapat nay retirement plan approved by BIR

If 7641 If Nay CBA or if nay contract,

CAN AVAIL RETIREMENT AND SEPARATION BENEFIT IS SATISFIED THE

Voluntary resignation, if based on CBA or Contract and complied the length of

Cannot avail if there are pending cases

APRIL 15, 2023 – REMEDIES

2. Suspension of prescriptive period.

Sec 288. Protest of assessment

PROTEST – IS MANDATORY FILING

3 DIFFERENCES OF PAN AND FAN FINAL EXAM!

FDDA ISSUED BY CIR

2ND CTA – MAY file MR or not

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