BAM031 Income Taxation

Introduction to Gross Income,

Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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Choose the letter of the correct answer.

REVIEW WELL! GALINGAN NIYO SA EXAM 🙂

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PROBLEM

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1. A taxpayer is employed by a shipping company touching Philippines and foreign
ports. In 2023, he received a gross payment for services rendered at P450,000. In
the year, the vessels on board of which he rendered services had a total stay in

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Philippine ports of five months. His gross income from the Philippines was
_______________
a) P450,000
b) P225,000
c) P187,500
d) P262,500 IN
PH
Answer: P450,000 * 5/12 = P187,500

2. A nonresident alien earned the following interest income:

OF

Interest income from peso savings deposit P600,000

Interest from expanded foreign currency deposit 1,500,00
Interest from yield deposit and other deposit substitutes 400,000

How much of the above income is nontaxable? ___________________

TY

a) P600,000
b) P1,500,000
c) P1,000,000
d) P2,500,000
ER

` Answer: P1,500,000. The interest income from expanded foreign currency deposit

3. Bernielyn took out a life insurance policy for P2,000,000 naming her son as
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beneficiary. Under the terms of the policy, the insurer, Malayan Insurance
Corporation will pay Bernielyn the amount of P2,000,000 after the 25th year of the
policy, and her beneficiary, should she die before that date. Bernielyn outlived the
policy and received the proceeds. The premiums paid on the policy was P1,200,000.
PR

How much of the proceeds from the insurance policy is taxable? ___________________
a) P2,000,000
b) P1,200,000
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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c) P500,000
d) P800,000

Answer: Taxable Proceeds = P2,000,000 - P1,200,000 = P800,000

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4. A resident alien had the following in 2023:

Gross Income, Philippines P2,000,000

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Business Expenses 1,200,000
Dividends received:
From domestic corporation (net)

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60% of its income came from the Philippines 160,000
40% of its income came from the Philippines 20,000

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From Resident foreign corporation (gross)
60% of its income came from the Philippines 50,000
40% of its income came from the Philippines 40,000
PH
How much is the final withholding tax? _________________
a) P36,000
b) P20,000
c) P18,000
d) P10,000
OF

Answer:
Final Tax Withheld on dividend income from domestic corp. = (P160,000 +20,000)
/90% x 10% = P20,000
TY

5. Lenovo, Inc., a resident foreign corporation, has earned the folLowing income during
2023 taxable year:

Dividend Income from:

ER

Microsoft, a non-resident corporation 500,000

Intel, a resident foreign corporation 500,000
IBM, a domestic corporation 300,000
OP

Interest Income from:

Current account, BDO 800,000
Savings deposit, ABN-AMRO bank, UK 700,000
US dollar deposit (FCDU)- BPI Makati 900,000
Royalty income from various domestic corporations 100,000
PR

Additional information:
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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•The ratio of Microsoft's gross income in the Philippines Over worldwide income for the
past three years was 40%.
•The ratio of Intel's gross income in the Philippines over worldwide income for the past
three years is 60%.

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•The ratio of IBM's gross income in the Philippines over worldwide income for the past
three years was 80%.

How much is the total income tax expense of Lenovo in 2023? ______________________

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a) P940,000
b) P500,000
c) P1,240,000

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d) P440,000

Resident Foreign Corporation

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DI-Microsoft; NRFC; foreign-sourced dividend based on RMC 62-2021
DI-Intel (P500,000 ×25% RC/7); RMC 62-2021
DI - IBM, a domestic corp.
Non-taxable
P125.000
Exempt
PH
Interest income - BDO @20% 160,000
Interest Income from FCDS deposit @ 15% - CREATE Act 135,000
Royalty income @ 20% 20.000
Total income tax expense P440.000
OF

6. Tris leased a facility from Divergent Company on January 1, 2021. Terms of the lease
were a s follows:
Annual rental P240,000
Annual real property tax assumed by Tris 60,000
Security deposit 300,000
TY

Lease term 12 years

Tris agreed to pay the entire amount of the fees above including the annual rental for 2022.
In addition to annual rental and real property taxes, part of the lease agreement was for Tris
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to improve the facility. The improvement was completed on January 1, 2023. Details of the
improvements were as follows:

Cost of leasehold improvement P3,000,000

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Estimated useful life of improvement 15 years

Determine the following the income to be reported by Divergent in 2021

a) P540,000
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b) P500,000
c) P480,000
d) P440,000
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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2021 income = (P240,000 x2) +60.000 = P540,000

7. Lenovo, Inc., a resident foreign corporation, has earned the folLowing income during
2023 taxable year:

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Dividend Income from:
Microsoft, a non-resident corporation 500,000
Intel, a resident foreign corporation 400,000

A-
IBM, a domestic corporation 300,000
Interest Income from:
Current account, BDO 600,000

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Savings deposit, ABN-AMRO bank, UK 700,000
US dollar deposit (FCDU)- BPI Makati 800,000

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Royalty income from various domestic corporations 200,000

Additional information:
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•The ratio of Microsoft's gross income in the Philippines Over worldwide income for the
past three years was 40%.
•The ratio of Intel's gross income in the Philippines over worldwide income for the past
three years is 60%.
•The ratio of IBM's gross income in the Philippines over worldwide income for the past
three years was 80%.
OF

Assuming Lenovo is a domestic corporation classified as MSME, how much is its total
income tax expense in 2023? _____________________
a) P1,040,000
b) P500,000
TY

c) P520,000
d) P840,000
ER

Domestic Corporation
Dividend income from Microsoft; NFC; considered as foreign-sourced P100.000
dividend under RR 5-2021 and RMC 62-2021; subject toRCIT unless
exempt if certain conditions are met; P500,000x20%RCIT for MSME
OP

Dividend income from Intel - exempt under RMC 62-2021 exempt

Dividend income from IBM, a DC exempt
Interest income- BDO @20% 120,000
Interest income UK.. @20%RCITfor MSME 140,000
PR

Interest Income From FCDS deposit @15% 120,000

Royalty income @ 20% 40,000
Total income tax expense P520.000
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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8. Juan Dela Cruz presented to you the following income for the year:

Basic salary (net of withholding tax) P1,000,000

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Withholding tax on basic salary 500,000
Director's fee 300,000
Business income:
Retail business 450.000

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Apartment rental (net of 5%) 570,000
Business expenses 125,000
Cash dividend:

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from a domestic corporation 50,000
from a resident corporation 100,000

Interest from savings deposit

Royalties from book publications IN
Stock dividend from a domestic corporation 25,000
20,000
50,000
PH
Prizes from contest won 50,000
PCSO winnings 50,000
13th month pay 90,000
Christmas bonus 30,000
Mid-year bonus 50,000
OF

Damages received from injuries and sickness 85,000

Proceeds from the life insurance coverage of his deceased father 300,000

Determine the Gross Income subject to Graduated Rate. ____________________

a) P2,500,000
TY

b) P3,025,000
c) P2,530,000
d) P2.940,000
ER

Income Subject to Basic Tax

Basic salary (P1,000,000+500,000) P1,500,000
Director's fee 300.000
OP

Business income:
Retail business 450.000
Apartment rental (P570,000/95%) 600.000
Dividend income from a resident corporation 100,000
PR

Taxable 13h, Xmas and Mid-Year Bonus 75.000

(P170,000 - 1st 5,000 as de minimis - P90,000 exclusions)
Gross Income subject to basic tax P3,025,000
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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9. Juan Dela Cruz presented to you the following income for the year:
Basic salary (net of withholding tax) P900,000
Withholding tax on basic salary 300,000

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Director's fee 200,000
Business income:
Retail business 250.000
Apartment rental (net) 190,000

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Business expenses 125,000
Cash dividend:
from a domestic corporation 50,000

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from a resident corporation 50,000
Stock dividend from a domestic corporation 25,000
Interest from savings deposit
Royalties from book publications
Prizes from contest won IN 20,000
50,000
50,000
PH
PCSO winnings 100,000
13th month pay 100,000
Christmas bonus 30,000
Mid-year bonus 50,000
Damages received from injuries and sickness 85,000
OF

Proceeds from the life insurance coverage of his deceased father 300,000

Determine the total final taxes on passive income. ___________________

a) P44,000
b) P49,000
TY

c) P30,000
d) P40,000

Income Subject to Final Tax

ER

Cash dividend from a domestic corporation @10% P5,000

Interest from savings deposit @20% 4,000
Royalties from book publications @10% P5,000
Prizes from contest won @20% 10,000
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PCSO winnings @20% (TRAIN Law) 20,000

Total final taxes on passive income P44,000

10. Juan Dela Cruz presented to you the following income for the year:
PR

Basic salary (net of withholding tax) P900,000

Withholding tax on basic salary 300,000
Director's fee 200,000
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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Business income:
Retail business 250.000
Apartment rental (net) 190,000

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Business expenses 125,000
Cash dividend:
from a domestic corporation 50,000
from a resident corporation 50,000

A-
Stock dividend from a domestic corporation 25,000
Interest from savings deposit 20,000
Royalties from book publications 50,000
Prizes from contest won 50,000

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PCSO winnings 50,000
13th month pay 100,000
Christmas bonus
Mid-year bonus
IN
Damages received from injuries and sickness
30,000
50,000
85,000
PH
Proceeds from the life insurance coverage of his deceased father 800,000

Determine the total income not subject to tax (exclusions to Gross Income).
_____________________
a) P910,000
OF

b) P1,049,000
c) P959,000
d) P1,005,000

Income Exempt from Tax:

TY

Xmas Bonus and other benefits (P5k de minimis + 90,000) 95,000

Stock dividend from a domestic corporation 25,000
Damages received from injuries and sickness 85,000
Proceeds-life insurance coverage of his father 800,000
ER

Total income exempt from tax P1,005,000

11. JJ Bibo, a national athlete, received the following during 2022:

OP

Ramon Magsaysay award P150,000

Athlete of the year award 100,000
Prize - KFC raffle 5,000
PR

Prize mandated by law for winning an Olympic Medal 400,000

Gift from Mayor Erap 250,000
Car from Honda Cars Philippines, as a gift 2,000,000
Winnings - Philippine lotto 100,000
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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Gambling winnings 500,000

Determine the total amount exempt from income tax. _____________________

a) P3,500,000

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b) P2,905,000
c) P3,005,000
d) P2,900,000

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Ramon Magsaysay award P150,000
Athlete of the year award 100,000
Prize mandated by law for winning an Olympic Medal 400,000

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Gift from Mayor Erap 250,000
Car from Honda Cars Philippines, as a gift 2,000,000

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Total Amount Exempt from Income Tax 2,900,000
NOTE: The gifts received are subject to Donor's Tax. The donor's tax return shall be filed and
paid by the donors, not the donee
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12. Mario retired at the end of 2023 taxable year after rendering twenty five (25) years
of continuous service for ABC Corporation which employed him immediately after
his graduation from college. He was then twenty (20) years old. He earned the
following income in 2023:'
Salary for the first quarter P180,000
OF

Honorarium as speaker in one of ABC's team building activities 50,000

Retirement pay 2,500,000
Commissions 30,000
Fee as a member of ABC's board of directors 50,000
10 days monetized vacation leave 12,000
TY

Interest income from time deposit 15,000

Productivity incentive pay 20,000
13th month pay 60,000
ER

Determine the gross "compensation" income of Mario. _____________________

a) P2,830,000
b) P3,000,000
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c) P2,810,000
d) P2.917,000

Salary for the first quarter P180.000

PR

Honorarium as speaker in one of ABC's team building activities 50,000

Retirement pay; (Taxable; failed to meet theage requirement) 2.500,000
Commissions 30.000
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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Free As a member of ABC's board of directors (compensation income since 50.000
he is at the same time an employee of the company)
10 days monetized vacation leave Exempt
Interest income from time deposit FW Tax/E

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***Productivity incentive pay and 13TMmonth pay (refer ot explanation Exempt
below) (However, the total of the productivity bonus amounting to P20,000
+60,000 bonus is not more than P90,000, hence tax exempt)
Total compensation income subject to tax P2,810,000

A-
NOTE: for Productivity incentive pay - refer to BIR Ruling No. 293-2015
if not more than 10k =exempt de minimis
if more than 10k =the entire amount is considered part of "other benefits" subject to the

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P90,000 limit.

IN
13.
Tris leased a facility from Divergent Company on January 1, 2021. Terms of the lease
were a s follows:
Annual rental P240,000
PH
Annual real property tax assumed by Tris 60,000
Security deposit 300,000
Lease term 12 years

Tris agreed to pay the entire amount of the fees above including the annual rental for 2022.
OF

In addition to annual rental and real property taxes, part of the lease agreement was for Tris
to improve the facility. The improvement was completed on January 1, 2023. Details of the
improvements were as follows:

Cost of leasehold improvement P3,000,000

TY

Estimated useful life of improvement 15 years

Determine the income to be reported by Divergent in 2023 assuming the company opted to
report income from improvement using the spread-out method.
ER

a) P3,300,000
b) P750,000
c) P400,000
d) P191,700
OP

2023 income (spread-out) =P400,000 computed as folows:

PR

Annual rental P240,000

Annual real property tax 60,000
Annual income from leasehold improvement:
Cost 3,000,000
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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X 5/10
Remaining BV after lease term P1,000,000
Divide By remaining lease term 10 years P100,000

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Total income 2018 P400,000

14. ABC Corporation had the following data ni 2022:

Gross Income, Philippines P15,000,000

A-
Allowable itemized deductions/expenses 5,000,000
Dividend income FROM:
a. Diaz Corporation, a domestic corporation 1,000,000

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b. Tokyo Corporation, a resident foreign corporation, 80% 800.000
of its gross income were derived from the Philippines

IN
c. Olympiad Corporation, a resident foreign corporation,
50% of its gross income were derived from the
Philippines
800,000
PH
d. Nonresident foreign corporation, 25% of its gross 400,000
income were derived from the Philippines

Assume ABC Corporation is a resident foreign corporation, how much is the taxable
income in 2022? ________________
OF

a) P11,830,000
b) P11,600,000
c) P11,210,000
d) P11.817,000

Resident Foreign Corp = Taxable on income from Philippine sources only

TY

Gross Income P15.000.000

Allowable deductions (5.000,000)
Dividend income from Diaz- DC exempt
ER

Dividend income fromTokyo, RFC (exempt; RMC 62-2021); (derived 800.000

entirely from the Phils. based on RMC 62-2021)
Dividend income from Olympiad, RFC (exempt; RMC 62-2021): 800,000
(derived entirely from the Phils. based on RMC 62-2021)
OP

Dividend income from NFC (taxable -RCIT; foreign-sourced Non-taxable

dividend based on RR5-2021 andRMC 62-2021)
Taxable income P11,600.000
PR

15. Which of the following Is not a characteristic of income?

a. Increase in taxpayer's wealth
b. Realization or receipt of gain.
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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c. Earningsconstructively received.
d. Return of taxpayer's wealth.

16. Which Is not a valid definition of Income?

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a. Income is the return from capital invested.
b. Income is a fund at one distinct point of time.
c. Income means all wealth which flows into the taxpayer other than a mere
return of capital.

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d. Income means cash or its equivalent unless otherwise specified.

17. Which of the following is considered or construed as an example of constructive

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receipt?
a. Retirement benefits, pensions, gratuities
b. Fees paid to a public official

cashed
IN
c. Interest coupons that have matured and are payable but have not been

d. Deposits For rentals to answer for damages, restricted as to use

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18. Constructive receipt occurs when the money consideration or its equivalent is
placed at the control of the person who rendered the service without restrictions by
the payor. The following are examples of constructive receipts, except.
a. A Security deposit to insure the faithful performance of certain obligations of
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the lessee to the lessor.

b. Deposit Banks Which are made available to the seller of services without
restrictions;
c. Issuance By The debtor of a notice to offset any debt or obligation and
acceptance thereof by the seller as payment for services rendered;
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d. Transfer of the amounts retained by the payor to the account of the

contractor.

19. There Is Constructive Receipt Of Income When:

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a. Payment Is Credited To Payee's Account

b. Payment is set aside for the payee,or otherwise made available so the payee
may draw up on it at any time,or so the payee could have drawn upon it
during the taxable year notice of intention to withdraw had been given
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without substantial limitations.

c. Both"a" and “b”
d. Neither "a"nor "b"

20. When different types of income are subjected to common tax rate,the tax system is
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described as
a. Global tax system
b. Scheduler tax system
c. Final tax system
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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d. Mixed income tax system

21. Situs of taxation on income from sale of property purchased.

a. Place of the seller

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b. Place of sale
c. Place of buyer
d. As determined by the Commissioner

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22. Which of the following tests of source of income is incorrect?
a. Interest income - residence of the debtor
b. Income from services - place of performance

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c. Royalties - place of use of intangible
d. Gain on sale of real property - place o f sale

23. For tax purposes, income:

I.
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Refers to all earnings from any origin, be it legal or illegal, unless explicitly
exempted by the Tax Code.
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II. Encompasses all financial gains received by the taxpayer, excluding the
return of initial investments.
III. Is considered as received in the tax year when it is either physically received
or made available to the taxpayer,
IV. Is in the form of compensation for services, interest, or profits from
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investments, during a defined period.

a. I, II and III only
b. I and IV only
c. I, II, III and IV
d. None of the above
TY

24. The sources from which income is derived

a. Labor
b. The use of capital
ER

c. Profits derived from sale or exchange of capital assets

d. All of the above

25. The sources from which income is derived

OP

A B C D
Labor True True True False
Gifts and inheritance True False False False
PR

Use of capital True True False False

26. Which of the following is a characteristic of income?

A B C D
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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Increase in taxpayer's wealth True True True False
Realization of gain True False False False
Return on taxpayer's wealth True True False False

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27. Which of the following is a requisite for an income to be taxable?
a. There must be gain
b. The gain must be realized or received
c. The gain must not be excluded by law from taxation

A-
d. All of the above

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28. Which of the following is not an income for income tax purposes?
a. Gain derived from labor
b. Return on capital
IN
c. Excess of selling price over cost of assets sold
d. Gift received
PH
29. Which of the following is not an income for income tax purposes?
a. Collection of Loans Receivable
b. Condonation of Debt For Services Rendered
c. Excess of Selling Price Over the cost of an asset sold
OF

d. None of the above

30. Situs of taxation on income from sale shares of a domestic corporation.

a. Always treated as income derived from within the Philippines
b. Always treated as income derived from without the Philippines
TY

c. May be treated as income within or without the Philippines depending on

the place of sale
d. May be treated as income within or without thePhilippines depending where
the shares are kept
ER

31. Situs of taxation on income from sale shares of a foreign corporation.

a. Always treated as income derived from within the Philippines
b. Always treated as income derived from without the Philippines
OP

c. May be treated as income within or without the Philippines depending on

the place of sale
d. May be treated as income within or without the Philippines depending
where the shares are kept
PR

32. Pedro earned Interest Income from a Promissory Note issued to him by Juan, a
resident of California, U.S.A. Assuming that Pedro is a nonresident citizen, the
interest income is
a. Subject to basic income tax
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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b. Subject To Final Tax
c. Not subject to income tax
d. Partly subject ot scheduler and partly subject to final tax

UP
33. It is important to know the source of income for tax purposes (i.e., from within or
without the Philippines) because:
a. Some individual and Corporate taxpayers are taxed on their worldwide
income while others are taxable only upon income from sources within the

A-
Philippines
b. The Philippines Imposes income tax only on income from sources within
c. Some individual taxpayers are citizens while others are aliens

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d. Export sales are not subject to income tax

34. Situs, for taxation purposes will depend upon various factors, including

IN
I The nature of the tax and the subject matter thereof.
II. The possible protection and benefit that may accrue both to the government and
the taxpayer.
PH
III. Domicile Or Residence
IV. Citizenship
V. Source of income

a. I and V only
OF

b. I, III and IV only

c. I, III, IV and V
d. I, II, III, VI and V

35. Which of the following is NOT true about the source of income?
TY

a. Incase of income derived from labor, source is the place where the labor is
performed.
b. In case of income derived from use of capital, source is the place where the
capital is employed.
ER

c. In case of profits from the sale or exchange of capital assets, source is the
place or transaction occurs.
d. None of the above.
OP

36. All of the following are correct except one. Which is the exception?
a. The source of interest income is the country where the debtor resides
b. The source of interest income is the country where the creditor resides.
c. Rents or royalties are considered derived from the country where the
property is located.
PR

d. Income from personal services is considered derived from the country

where the services were rendered
 BAM031 Income Taxation
Introduction to Gross Income,
Inclusions and Exclusions

Name :______________________________________________________

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Section: ___________ Date: _______________

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37. Statement 1: Again from sale of shares of a domestic corporation shall be
considered derived from the Philippines Regardless Where The shares were sold.
Statement 2: A gain from a sale of shares of a foreign corporation shall be
considered derived from the country where the corporation was created or

UP
organized.
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true

A-
d. Statements 1 and 2 are true

38. Which of the following is not an income derived from sources within the Philippines

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for income tax purposes?
a. Interests derived from bonds issued by a foreign corporation
b. Interest on notes or other interest-bearing obligations of residents c.
c. Both "a" and "b"
d. Neither "a" nor"b"
IN
PH
39. The taxpayer received a cash dividend of P50,000 in 2023 from a foreign
corporation residing in the Philippines, and this corporation derived 40% of its total
income from Philippine sources.
Statement 1: Partly taxable if he is a resident citizen.
Statement 2: Partly taxable if he is a non-resident alien
OF

a. Statements 1 and 2 are false

b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true,
d. Statements 1 and 2 are true
TY

Statement 1 is wrong. If the taxpayer is RC, it must be taxable in full

Statement 2 is wrong. If the taxpayer is NRA, it is not taxable because
dividend income is considered derived purely from without the Philippine
ER

40. Which of the following is correct? A cash dividend of P100,000 received by a

taxpayer in 2022 from a resident foreign corporation whose income from Philippine
sources was 40% of its total income. The cash dividend is
OP

a. Exempt from income tax if he is a resident citizen.

b. Partly Taxable if he is a resident alien.
c. Taxable in full if he is a nonresident citizen.
d. Exempt from income tax if he is a nonresident alien.
PR