C.

DIVIDEND INCOME

KINDS:
1) Cash Dividends
2) Property Dividends
3) Stock Dividends
4) Liquidating Dividends

CASH & PROPERTY DIVIDENDS

Cash and property dividends shall be taxable upon declaration.

STOCK DIVIDENDS
GENERAL RULE: Distribution of stock dividend is not taxable because they are not
realized income.
EXCEPTION: A stock dividend constitutes income if it gives the shareholder an interest
different from that which his former stockholding represented.

LIQUIDATING DIVIDENDS
Liquidating Dividends are exempt up to the stockholder in liquidation is less than the cost of
investment, the loss in the transaction is deductible to the extent allowed for capital losses.

D. GROSS INCOME FROM WHATEVER SOURCE DERIVED

The law imposes a tax on income from whatever source which means that it includes income
whether coming from legal or illegal sources.
EXAMPLE:
1) Income from jueteng
2) Income from swindling activities
3) Recovery of bad debts
4) Refund of taxes
5) Unutilized/excess campaign funds
6) Forgiveness of indebtedness

RECOVERY OF BAD DEBTS

In order for recovery of bad debts to be considered income, the following must be compiled:
1) Bad debts were written of in the previous year/s;
2) Such bad debts were deducted in arriving at taxable income;
3) There is a resulting tax benefit in the deduction.

REFUND OF TAXES
The following are the requirements before refund of taxes be considered income:
1) There is payment of tax in the previous year/s;
2) The tax paid was deducted in arriving at taxable income;
3) There is a resulting tax benefit on the deduction.
FORGIVENESS OF INDEBTEDNESS
Type TAX TRETMENT

Debtor performs services to the creditor Compensation Income

Creditor desires to benefit the debtor Gift

without any consideration

Creditor is a corporation and the debtor Dividend Income

is a stockholder of such corporation

E. EXCLUSIONS FROM GROSS INCOME

The following items shall not be included in gross income and shall be exempt from income
tax:
1) Life Insurance
2) Amount Received by Insured as Return of Premium
3) Gifts, Bequests, and Devises
4) Compensation of Injuries or Sickness
5) Income Exempt under Treaty
6) Retirement Benefits, Pensions, Gratuities, etc.
7) Miscellaneous Item
a) Income Derived by Foreign Government
b) Income Derived by the Government or its Political Subdivision
c) Prizes and Awards
d) Prizes and Awards in Sports Competition
e) 13th Month Pay and Other Benefits
f) GSIS, SSS, Medical and Other Contributions
g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness
h) Gains from redemption of Shares in Mutual Fund

LIFE INSURANCE
The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the
insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under
an agreement to pay interest thereon, the interest payments shall be included in gross income.
GENERAL RULE: Exempt from tax since it is a mere reimbursement for the loss of
life.
EXCEPTION: The following shall be taxable:
1) The beneficiary was chosen for a valuable consideration.
2) The interest earned on the insurance policy.

RETURN OF PREMIUM
The amount received by the insured, as a return of premiums 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 the upon surrender of the contract.
 Return of Premium Exempt

In excess Income

GIFTS, BEQUESTS & DEVISES

The Value of property acquired by gift, bequest, devise, or descent: Provided, however,
that income from such property, as well as gift, bequest, device, or descent of income
from any property, in cases of transfers of divided interest, shall be included in gross
income.
Property Inherited or received as gift Exempt

Income of above properties Taxable

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.

INCOME EXEMPT UNDER TREATY

Income of any kind, to the extent required by any treaty obligation binding upon the
Government of the Philippines.

RETIREMENT BENEFITS, PENSIONS, GRATIUTUES ETC.

1) Retirement benefits received under Republic Act No. 7641
2) 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
a. That the retiring official or employee has been in the service of the same employer for at
least ten (10) years;
b. At least fifty (50) years of age at the time of his retirement; and
c. That the benefits granted shall be availed of an official or employee only once:
3) 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:
a. Death;
b. Sickness;
c. Other physical disability or for any cause beyond the control of the said official or employee.
The following are considered involuntary separation, and therefore not taxable:
1. The installation of labor-saving devices;
2. Redundancy
3. Retrenchment
4. Cessation of the employer’s business.
4) Social security benefits, retirement gratuities, pensions and other similar benefits received by
p resident or nonresident citizens of the Philippines or allies who come to reside permanently
g in the Philippines from foreign government agencies and other institutions, private or public.
5) Payments of benefits due or to become due or to become due to any person residing in the u
j Philippines under the laws of the United State administered by the United State Veterans g
g Administration.
6) Benefits received from or enjoyed under the Social Security System in accordance
 with the provisions of Republic Act No. 8282.
7) Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity
g received by government officials and employees.

MISCELLANEOUS ITEMS
1) Income derived from investments in the Philippines in loans, stocks, bonds or other g g
g domestic securities, or from interest on deposits in bank in the Philippines by:
a. Foreign governments
b. Financing institutions owned, controlled, or enjoying refinancing from foreign governments;
and
c. International or regional financial institutions established by foreign governments.
2) Income derived from any public utility or from the exercise of any essential government d d
d function accruing to the Government of the Philippines or to any political subdivision thereof.
3) Prizes and awards made primarily in recognition of religious, charitable, scientific,
hheducational, artistic, literary, or civic achievement but only if:
a. The recipient was selected without any action on his part to enter the contest or proceeding;
d and
b. The recipient is not required to render substantial future services as a condition to receiving
ddthe prize or award.
4) All prizes and awards granted to athletes in local and international sports competitions and
ggtournaments whether held in the Philippines or abroad and sanctioned by their national sports
vvassociations.
5) Gross benefits from 13th month pay and other benefits received by officials and employees of
ggpublic and private entities up to the extent of P90, 000.
6) GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of individuals.
7) Gains realized from the sale or exchange or retirement of bonds, debentures or other
ggcertificate of indebtedness with a maturity of more than five (5) years.
8) Gains realize by the investor upon redemption of shares of stock in a mutual fund company
ggas defined in Section 22(BB) of this Code.

F. SOURCE OF INCOME
CLASSIFICATION OF INCOME AS TO SOURCE
1) Income from source within the Philippines
2) Income from source partly within or partly without the Philippines
3) Income from source without the Philippines

INCOME FROM SOURCE WITHIN THE PHILIPPINES

1) Interests derived from sources within the Philippines, and interest on bonds, notes or other
ghinterest-bearing obligations of residents, corporate or otherwise;
2) Dividends from:
a. Domestic Corporation
b. Foreign Corporation, IF at least 50% of gross income for the three years period ending
g with the close of its taxable year preceding the declaration of such dividends (or for such
g part of such period as the corporation has been in existence) was derived from source g
h within the Philippines.
Dividend Income PXXX
Multiply by: (GI, Ph/GI, World) X%
Dividend Income, Ph PXXX
3) Compensation for labor or personal services performed in the Philippines;
4) Rentals and royalties from property located in the Philippines or from any interest in such
ddproperty;
5) Gains, profits and income from the sale of real property located in the Philippines;
6) Gains, profits and income from sale of personal property:
a. If purchased, only if sold in the Philippines;
b. If manufactured, only if manufactured and sold within the Philippines.

INCOME FROM SOURCE PARTLY WITHIN OR PARTLY WITHOUT

1) Gains, profits and income from the sale of personal property produced (in whole or in part) by
ddthe taxpayer within and sold without the Philippines; or
2) Produced (in whole or in part) by the taxpayer without and sold within the Philippines.

Chapter IV. Deductions

A. ALLOWABLE DEDUCTION, DEFINED

Deductions are items or amounts which the law allows to be deducted from gross income
of certain taxpayers in order to arrive at the taxable income.

B. KINDS OF DEDUCTIONS
1. Itemized Deductions
2. Options Standard Deduction
3. Special Deductions allowed in special cases.
TAXPAYER ALLOWABLE DEDUCTIONS

Individuals earning pure compensation 1) Premium Payments on

income health/hospitalization insurance

Individuals deriving income from trade, 1) Premium Payments on

business or practice of profession health/hospitalization insurance
2) Itemized deductions or Optional Standard
Deduction

Corporations Itemized deductions or Optional

Standard Deduction

C. ITEMIZED DEDUCTIONS
1. Ordinary and necessary business expenses in general
2. Interest
3. Taxes
4. Losses
5. Bad debts
6. Depreciation
7. Depletion
8. Charitable Contribution
9. Research and development
10. Contributions to Pension Trust
11. Premium Payments on Health and/or Hospitalization Insurance