Rates of Tax on Taxable Income of Individuals

• Not over P250,000………………………………………………. 0%

• OverP250,000 but not over P400,000……………………….. 15% of the
excess over P250,000
• OverP400,000 but not over P800,000……………………….. P22,500 +
20% of the excess over P400,000
• Over
P800,000 but not over P2,000,000…………………….. P102,500 +
25% of the excess over P800,000
• Over
P2,000,000 but not over P8,000,000…………………... P402,500 +
30% of the excess over P2,000,000
• OverP8,000,000 ……………………………………………….. P2,202,500 +
35% of the excess over P8,000,000
Gross Business Income Cebu 5,000,000
Gross Business Income MNL 2,000,000
Gross Business Income Canada 500,000
Gross Business Income Singapore 500,000
Business Expenses PH 1,500,000
Allowable Deductions 1,500,000
Business Expenses Canada 1,000,000
Business Expenses Singapore 500,000

Determine Taxable Income for RC, NRC and NRA-

NETB
How much is the Tax Due for RC, NRC, and NRA-
GROSS INCOME
(INCLUSIONS)
SEC
•
32 (A) provides…
Except when otherwise provided in this Title, gross income means all income derived
from whatever source, including (but not limited to) the following items:
• (1) Compensation for services in whatever form paid, including, but not limited to
fees, salaries, wages, commissions, and similar items;
• (2) Gross income derived from the conduct of trade or business or the exercise of a
profession;
• (3) Gains derived from dealings in property;
• (4) Interests;
• (5) Rents;
• (6) Royalties;
• (7) Dividends;
• (8) Annuities;
• (9) Prizes and winnings;
• (10) Pensions; and
• (11) Partner's distributive share from the net income of the general professional
 1. COMPENSATION INCOME
• Income arising out of employer-employee relationship
• It
encompassed all remuneration for services performed by an employee for
his employer whether paid in cash or in kind
• Salaries and Wages
• Emoluments

• Honoraria

• Taxable Bonuses
• Allowances (transportation, representation, entertainment)
• Fees

• Other Income of a similar nature

 ER-EE RELATIONSHIP
• RR 2-98
The term "employee" is an individual performing services under an
employer-employee relationship.
• To ascertain the existence of an employer-employee relationship,
jurisprudence has invariably adhered to the four-fold test, to wit: (1)
the selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the power to control the
employee's conduct, or the so-called "control test”
• An employee is subject to the will and control of the employer not only
as to what shall be done, but how it shall be done. In this connection, it
is not necessary that the employer actually directs or controls the
manner in which the services are performed. It is sufficient that he has
the right to do so.
Compensation Income received after
termination of ER-EE relationship
• Remuneration for services constitutes compensation income even if the
relationship of employer and employee does not exist any longer at the time
when payment is made between the person in whose employ the services
had been performed and the individual who performed them.
• ILLUSTRATION:

On June 30, 2022, Chris resigned from employer “X” due to a better
career opportunities offered by employer “Y”. Chris started working for
employer “Y” on July 15, 2022. On July 31, 2022, Chris received his
salary from employer “X” for June 16 to June 30 payroll period as well
as his separation pay.
Question:
Should the amount received by Chris on July 31 from his former
employer be treated as compensation income despite of the
termination of employer-employee relationship?
 FIXED or VARIABLE ALLOWANCES
Allowances received by public officer or employee or officer or employee
of a private entity in addition to the regular compensation, fixed for his
position or office, is compensation income subject to income tax and
consequently, creditable withholding tax on compensation income.

TIPS AND GRATUITIES

Tips paid directly to an employee by a customer of the employer that are
not accounted for by the employee to employer are considered as taxable
income subject to basic tax.
However, the same shall not be subject to withholding (RR 2-98)
 2. BUSINESS INCOME
Gross Income derived from the conduct of trade or business or
the exercise of profession
FEES- PROFESSIONAL PERSON
RENTS- REAL ESTATE BUSINESS

In case of MANUFACTURING, MERCHANDISING, MINING BUSINESS

TOTAL SALES
(COST OF GOODS SOLD)
Income from Investments and from incidental or outside operations or
sources
-------------------------------------------------------------------------------
GROSS INCOME
BAD DEBT RECOVERY
• Subsequent recovery of a bad debt previously written off in the books is a
taxable income provided that the write-off of the account resulted to a lower
taxable income at the time of write-off.
• “TAX BENEFIT RULE”
• TO THE EXTENT OF THE TAX BENEFIT ENJOYED BY THE TAXPAYER
ILLUSTRATION:
X Company has a business connected receivable amounting to P100,000
from Y who was declared bankrupt by a competent court. Despite
earnest efforts to collect the same, Y was not able to pay, prompting X
Company to write-off the entire liability. During the year of write off, the
entire amount was claimed as a deduction for income tax purposes
reducing the taxable net income of X Company to only P100,000. Three
years later, Y voluntarily paid his obligation previously written-off by X
Company. Should the recovery of bad debt previously written-off be
considered part of X Company’s gross income?
• YES.

Applying the Tax Benefit Rule, X Company should

include the amount recovered in the computation of
its taxable income in the year of recovery considering
that it was able to get full tax benefit three years
earlier.
CANCELLATION or CONDONATION of
DEBTS
If services were rendered Subject to basic income tax
by the debtor, in
consideration of which the
indebtedness was
cancelled by the creditor.

If the creditor, without Subject to Donor’s Tax

receiving any consideration
from the debtor, and purely as
an act of liberality, cancels the
indebtedness
If the debtor is a shareholder Subject to 10% final tax
of a corporation that cancels
the indebtedness, such
cancellation constitutes
indirect dividend
3. GAINS DERIVED FROM DEALINGS (sale,
barter or exchange) IN PROPERTY
Includes all income derived from the disposition of property (real or
personal, for sale or in exchange of other property, or both)

The gain shall be taxable gain and the loss shall be deductible if incurred
in trade, profession or business
PROPERTY SOLD TYPE OF GAIN APPLICABLE TAX

Ordinary Asset Ordinary gain Basic Tax (graduated rate for

ind./RCIT for corporate TP)
Capital Asset

Shares of stock of a DC not Capital gain Capital gains tax

listed in the local stock
exchange
Real Property in the PH Capital gain Capital gains tax

Other types of capital assets Capital gain Basic tax

4. Interest Income
Interest Income Applicable Tax

Arising from indebtedness Basic Tax

Arising from: bank deposit

Bank deposit, deposit 20%; 25% FWT

substitute, trust fund, mutual
fund and other similar
arrangements
Deposit under FCDU (FOREIGN 15%
CURRENCY DEPOSIT UNIT)
Long term bank deposit or exempt
investment
5. Rental Income
• SEC 32 (A) (5)- RENT paid by the lessee for the use or lease
of property is taxable income to the lessor
• -amt paid for the use or enjoyment of a thing or right

NON TAXABLE RENT: SECURITY DEPOSIT

6. Royalty Income
• Share of the earnings as from invention, book or play, paid to the inventor,
writer, etc. for the right to make, use or publish the same.
• Subject
to basic tax if the royalty was generated in the active pursuit and
performance of the corporation’s primary purpose (BIR RULING No. DA
351-2003)
Subject to 10% final tax Royalties on books, other literary
works and musical compositions from
sources WITHIN the Philippines
received by INDIVIDUAL TP other
than NRA-NETBs
Subject to 20% final tax Royalties derived from sources WITHIN
the Philippines other than royalties
subject to 10% final tax
Subject to basic tax Royalties generated in the active pursuit
and performance of the corporation’s
primary purpose
Royalties derived by resident citizens and
domestic corporations from sources
WITHOUT the Philippines
7. Dividend Income Payments made by a corporation to its
shareholder members
Subject to basic tax Dividends from FC
Share in the net income of a general
professional partnership
Subject to final tax Cash and/or property dividends actually or
constructively received by individuals from
DC or from a joint stock company, insurance
or mutual fund company and regional
operating headquarters of multinationals
Inter-corporate dividends received from RFC
by RFC
Share of an individual in the distributable net
income after tax of a partnership (other than
a general professional partnership) of which
he is a partner
Share of an individual in the net income
(after tax) of an association, joint account, or
a joint venture or consortium taxable as
corporation for which he is a member or co-
venturer
Exempt from tax Inter-corporate dividends received from DC
8. Annuity Income
Refers to a specified income payable at stated intervals for a
fixed or a contingent period, often for the recipient’s life, in
consideration of a stipulated premium paid either in prior
installment payments or in a single payment.
9. Prizes and other winnings
• Prize-
an award to be given to a person or a group of people
to recognize and reward actions or achievements. Prizes are
also given to publicize noteworthy or exemplary behavior,
and to provide incentives for improved outcomes and
competitive efforts.
• Winnings- for tax purposes, should refer to rewards/income
by virtue of chance or bets. As a rule, prizes and winnings
are Subject
taxableto basic tax
unless exempt. Prizes and Other winnings derived
by RC and DC from sources
WITHOUT the Philippines
Prizes and winnings received by
corporations, if any
Prizes received by individuals from
sources within the Philippines
amounting to not more than 10,000
(except NRA-NETB)
Exempt from tax Prizes and award made primarily in
recognition of religious, Charitable,
Scientific, educational artistic,
literary; or civic achievement (SEC 32
(B) (7) (C ))
PROVIDED the recipient was:
a) Selected without any action on
his/her part to enter the contest or
proceeding (not constituting gains
from labor); and
b) Not required to render substantial
future services as a condition to
receive the prize/award
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 respective national
sports association (SEC 32 (B) (7) (D)
PCSO/LOTTO Winnings not exceeding
 Prizes received by individuals
Subject to 20% final (EXCEPT NRA-NETB) from sources
tax within the Philippines exceeding
10,000
PCSO/LOTTO winnings exceeding 10,000
received by individuals, except NRA-
NETB (CREATE Act)
Other winnings from sources WITHIN the
PH regardless of amount (Other than
PCSO and Lotto winnings)

Subject to 25% final tax Prizes and other winnings (including

PCSO and Lotto Winnings) received by
NRA-NETB
10. PENSIONS
•Pensions,in general, are subject to income
tax, except pensions and retirement benefits
exempt under the law (Exclusions)
11. Partner’s Share in the Net Income of
a •GPP
Sec 26: GPP is not subject to income tax
• However, partners shall be liable for Income Tax on their separate
and individual capacities
• Each partner shall report as gross income, his or her distributive
share (actual or constructive) in the net income of the GPP