EXERCISES 5-1
1.

None. The entire income is exempt because Minnie is a MWE.
Basic salary
P 48,000
Overtime and night-shift differential pay
14,000
Hazard pay
12,000
Other benefits:
13th month pay
P 4,000
Less: Exemption
30,000
- .
Total (not taxable)
74,000

2.
a.

None. Proceeds of life insurance policy payable upon the death of the
insured are excluded from gross income.

b Fernando must report P20,000 [(P12,000 x 10) – 100,000] as income.
.
The rule is "amounts received in excess of the face amount of the policy
are usually taxable as interest;” hence, included in the gross income.
c No. It does not matter whether the insured is the mother or the wife of
.

the beneficiary. The exclusion exists because life insurance benefits
closely resemble inheritances which are not taxable.
3.

None, because Angel is not required to pay income tax on the entire
amount he received as proceeds from insurance policy. The reason being
that the insured did not outlive the policy.
If however, his father outlived the life insurance policy, Angel must
report an income of P75,000 (the face amount of P100,000 minus the
premiums paid in the amount of P25,000).

4.

Rodolfo must report an income of P75,000.
Although acquired by him, he is not required to report the value of
the inherited properties in his income tax return because properties
acquired thru inheritance are subject to estate tax; the liability being on
the estate and not on the recipient of the estate.

5.
a.

The P20,000 given to cover medical expenses are actual damages, while
the other P20,000 constitutes moral damages. Both actual and moral
damages are not subject to tax.
b The P150,000 awarded by the court for winning in the libel case is not
. taxable. Libel is included in the phrase "personal injury or sickness,"
which is exempt from income tax.

c.


Not included in the gross income. The amount of P12,000 being given by
the employer to its employees in case of disability are not salaries but
compensation for personal injuries being suffered by its employees.


Taxable. Salaries received by employees who are unable to work due to
personal injuries or sickness are taxable. It does not make any difference
between receiving the salary while he is working and receiving the same
even while the employee is unable to work.

d.

Not taxable. The P60,000 is in the form of moral damages which is not
capable of pecuniary estimation. Besides, it is in the nature of a return of
capital.

e.

6. 6. No, because all the requisites for exemption from income tax are
present: (1) Tanda retired at age 60 which is more than the required age
of 50 years; (2) a private pension plan is maintained by the employer;
and, (3) he worked with San Jose Corporation for more than 10 years.
The law does not require continuous service. Therefore, the 10-year
service requirement is satisfied even if he had a broken service with the
company.
7.

The amount is taxable to Nilo. Separation pay is exempt from income
tax if the cause of separation from service is death, sickness, physical

disability, or any cause beyond the control of the employee.
None of the above-mentioned can be pointed out as the very cause
of his separation from service. Inefficiency in service due to frequent
tardiness caused by heavy traffic is not beyond the control of the
employee.
Taxable.

8.
a.

b Taxable.
.
c Not taxable. Kay was awarded without joining the contest and not
.
required to render substantial future services. Moreover, the prize given
was in recognition of an educational attainment.
9.

The prize won by Tornado is taxable. The fight was not sanctioned by a
national sports associations. As a matter of fact, it was held in a very
secluded place. The main purpose of the fight is for the gamblers to bet
on their favorite fighter and not to promote sports.

10.

Answer: P38,000
Salary (P20,000 x 12)
Add: Benefits
Christmas bonus
Productivity bonus


240,0
00
20,000
2,000


Loyalty award
Cash gift
Anniversary bonus
13th month pay
Total
Less: Exemption

3,000
1,000
2,000
20,000
48,000
30,000

Income subject to tax

18,0
00
258,0
00

EXERCISES 5–2.1:
1.


2.

ANSWER: D
The entire amount of proceeds of the insurance policy received by
the beneficiary of Okeze from Filipinas Life Assurance Company is not
taxable because they are more considered as indemnity rather than as
gain or profit.
ANSWER: B
Proceeds of life insurance
Less: Premiums paid (1,000 x 12 x 20)
Subject to tax

3.

ANSWER: C
Total amounts received (50,000 x 12)
Less: Face value of the policy
Deemed interest (taxable)

4.

ANSWER: C
Total amounts received (50,000 x 12)
Less: Amount of premiums paid
(1,000 x 12 x 20)
Subject to tax

Prob 5-2.2


1.

ANSWER: C

500,00
0
240,00
0
260,00
0
600,00
0
500,00
0
100,00
0
600,00
0
240,00
0
360,00
0


Proceeds of insurance
Less: Premiums paid (P10,000 x
20)
Income subject to tax
2.


500,0
00
200,00
0
300,00
0

ANSWER: D
None because Sonia died.

Prob 5-2.3

ANSWER: D
Income from coconut land

50,0
00
30,000
80,000

Income from bus operation
Income subject to tax
Prob 5-2.4:

ANSWER:

B

Proceeds of life insurance policy
Less: Amounts of premiums paid

Amount subject to tax

P
500,00
0
400,00
0
100,00
0

Prob 5-2.5:

ANSWER:

C

Proceeds of insurance policy
Less:
Amount paid upon
assignment
Premiums subsequently
paid
Taxable income

P
200,00
0
P
60,000
80,000


140,00
0
60,00
0

Prob 5-3.1

ANSWER:

C

Applying the principle of “beyond the control test,” the separation
from employment of Mr. Jacobo was due to a cause which is within his


control, that is resignation; while the cessation from employment of Mr.
Kintanar was made without his control.
Therefore, the separation pay received by Mr. Jacobo is a taxable
income while the amount received by Mr. Kintanar is not taxable.
Prob 5-3.2

ANSWER:

C

The retirement benefit of P300,000 is taxable to Jovito because he
retired at the age of 48. To be exempt from the payment of income
tax, the taxpayer must be at least 50 years on the date of his
retirement.

In the case of the proceeds from insurance policy, the amount
exempt is P40,000 (P2,000 x 20) only which represents the return of
the premiums paid.
Prob 5-3.3

ANSWER: B
There is no showing that Mario was in the service of the same
employer for at least ten (10) years, that he is at least fifty(50) years
of age at the time of retirement, that he has never availed of the
benefit of exclusion, and that the retirement gratuity came from a
reasonable retirement plan maintained by his employer.
The amount of P250,000 is taxable because Remus is only 49
years old upon retirement. To be exempt from income tax, the
retirement age of an employee must be at least 50 years.
Prob 5-3.4

ANSWER: D
The money value of the accumulated leave credits given to a
retiring government official or employee is not subject to tax (CIR s.
CA, et.al, 203 SCRA 72).
Prob 5-3.5

ANSWER: A
The P1,000,000 is part of Larry's retirement pay and not a gift.
Considering that the requisites for exemption from payment of tax are
satisfied, the additional P1,000,000 is not taxable.
Prob 5-3.6

ANSWER: D



The separation pay received by Evelyn is taxable because of the
voluntary action on her part. To be exempt, the causes for separation
must be either death, sickness, physical disability, or any cause
beyond the control of the employee.
The separation pay received by Ling-ling and Gina are exempt
because they are separated from service due to redundancy and
disability, causes which are beyond their control.
EXERCISES 5–4.
Prob 5–4.1
ANSWER: C
Only the amount of P300,000 corresponding to the income which was
lost during the period of treatment is taxable because even if he did
not meet an accident, that income would have been taxable.
Prob 5-4.2
ANSWER: A
Two months' salary
Increase in value of car (P600,000 450,000)
Income

40,0
00
150,00
0
190,00
0

Prob 5-4.3

ANSWER: C

Payment for the salaries

60,0
00

Prob 5-4.4

ANSWER:

D

The amount of P500,000 should not be declared in the income tax
returns of the heirs. The amount represents damages received on account of
personal injuries (which includes death), therefore excludible from gross
income [Sec. 32 (B) {1}, TRA). The reason is that life insurance proceeds
represents indemnity and not income.
The proceeds of life insurance policies paid to the beneficiary, in this
case the wife, upon the death of the insured is excluded from gross income.
EXERCISES 5–5

EXERCISE 5–


5.1:
ANSWER: C
Talent fee
Professional fee
Total amount taxable
Cash prize
Pay per view

Talent fee
Taxable amount

400,000
1,000,000
1,400,000
25,000,00
0
30,000,00
0
12,000,00
0
67,000,00
0

EXERCISES 55.2
a. The P350,000 value of the car is subject to a final tax of 20%.
b. The P5,000 is subject to graduated tax to be reported in the income tax
c.

return.
The cash prize and the equivalent amount of the 100 shares are subject
to 20% final tax because the awards given are not in recognition of
religious, charitable, scientific, educational, artistic, literary or civic
achievement.

EXERCISES 5-5.3
Being a resident citizen, Monique Salonga is taxable on income
within and without the Philippines. Consequently:
a.


The income of $75,000 is taxable to her unless she has acquired the
status of a contract worker. In which case, the $75,000 is not taxable to
her because contract workers are taxable only on income derived from
sources within the Philippines;

b. The talent fees derived from Inter-Island Broadcasting Network
amounting to P100,000 is a professional income subject to graduated
rates of tax.
c.

The $5,000 value of the trophy is not taxable to her because it is in
recognition of an outstanding achievement. An award for outstanding
achievement is a gift, and not a taxable income.

PROBLEM 5-6.1
ANSWER:

D


Salary (P25,000 x 12)

300,0
00

Other benefits:
13th month pay

25,00

0
2,500
30,000
57,500
30,000

Cash gift
Longevity pay
Total
Less: Amount of
exemption
Proceeds of life insurance (300,000 –
200,000)
Income subject to tax

27,5
00
100,00
0
427,50
0

EXERCISE 5 – 7
1. None. Holiday pay, overtime pay, night shift differential pay and hazard
pay earned by a minimum wage earner shall likewise be exempt from
income tax.
2 Basic salary
.
Commissions
Honoraria

Holiday pay
Overtime pay
Hazard pay
Other
benefits
(36,000
30,000)
Income subject to tax

95,000

–

15,000
10,000
7,000
8,500
6,000
6,00
0
147,50
0

EXERCISES 5 – 8
1.

ANSWER:

D


Only option D has complied with the requisites for exemption from tax
of retirement benefits, viz: (1) There must be a private pension
maintained by the employer and approved by the BIR; (2) The retiring
official or employee has been in the service of the same employer for
at least ten (10) years; (3) The age must be at least 50 years old at
the time of retirement; and (4) The benefit of exemption can be


availed of only once.
2.

ANSWER:

C

A monthly gratuity of P20,000 to a Medal of Valor awardee is
exempt from income tax (RA 9049).
Terminal leave pay of employees of the government are exempt
from tax (CIR v. Castañeda, GR 96016, Oct. 17, 1991).
Retirement per Collective Bargaining Agreement is considered
voluntary, hence subject to income tax and withholding tax on wages
(BIR Ruling No. 071-98).
Separation benefits consisting of the market value/zonal value of
the residential lot, is tax exempt (BIR Ruling No. 056-95).
3.

ANSWER:

C


Letter A refers to “deductions from gross income.”
Letter B refers to “tax exemption.”
Letter D refers to “tax credit.”
Exclusion refers to income received or earned but is not taxable as
income because exempted by law or treaty. Such tax free income are
not to be included in the income tax return unless information
regarding it is specifically called for (Sec. 61, Regs.).
4.

ANSWER:

A

This is a case of key insurance where the company insures the life
of its key employee. The proceeds is not taxable to the corporation
because it is considered as an indemnification for the loss of the
president which is one of the company's key employees.
5.

ANSWER:

A

The P3,500,000 is exempt from income tax because it is given as
indemnification for the loss on the destruction of the company
building.
6.

ANSWER:


B

The proceeds of life insurance should be declared for estate tax
purposes if the designation of the beneficiary was revocable.
7.

ANSWER: C
The provision exempting "interest on government securities" has


been deleted in the Tax Reform Act. Therefore, interest on government
securities are now subject to tax.
8.

ANSWER: D
The pension from GSIS is not taxable while the interest from the
time deposit is subject to a final tax of 20%.
No, the separation due to the economic condition is one which is
beyond the employee’s control, hence, excluded from gross income
and not subject to withholding tax.

9.

ANSWER: A
The phrase "personal injuries" which are exempt from income tax
includes moral damages awarded by the court on account of mental
anguish experienced by one person due to libelous statements made
against him.

10.


ANSWER: C
Prizes amounting to P10,000 or less are to be included in the
computation of gross income. They are not subject to final tax.

11.

ANSWER: C
The amount of P1,500 given by his mother to Luis is in the form of
a condonation or gift and not a taxable income.

12.

ANSWER: D
Dismissal from employer due to inefficiency in service is a cause
which is not beyond the control of the employee. Under the “beyond
the control test,” whenever an employee is separated from service for
a cause or causes which is/are beyond his control, the separation pay
received by him is not subject to tax.

13.

ANSWER: D
Damages received by a taxpayer due to physical injuries or
sickness are not taxable to him. However, damages received as
compensation for lost profits are subject to tax.

14.

ANSWER: D

Thirteenth month pay and other benefits are exempt from income
tax. However, the amount in excess of P30,000 are taxable to the
employee.


15.

ANSWER: B
Exclusion from gross income

16.

1,000,0
00

ANSWER: D
The exemption from income tax on a qualified senior citizen does
include exemption from value-added tax, estate tax, donor’s tax and
income tax on passive income.

17.

ANSWER: A
Monthly salary and allowance
(P3,500 + 1,000)
Months received (January to June
15)
Actual amount of salaries received
Net income from trimobile
Income subject to tax


4,5
00
5.5
24,750
24,000
48,750

EXERCISES 61
1.

CLASSIFICATION

SITUS
OF
TAXABLE
INCOME
a. Nonresident citizen
Within only
b. Nonresident
alien
Within only
(NETB)
c. Nonresident citizen
Within only
d. Resident alien
Within only
e. Nonresident
alien
Within only

(NETB)
f. Nonresident
alien
Within only
(ETB)

2. a. Yes, Allen is qualified as head of family because of his mother who is
dependent upon and living with him.
b. No. An aunt is not a qualified dependent for purposes of claiming the
status of head of family. Moreover, the aunt is not living with the
taxpayer.
c.

Yes. Cindy is already a widow and she is supporting her daughter who
lives with her.

d. No. A taxpayer who is separated in bed and board with the spouse but
not legally separated maintains the status of a married taxpayer.


e. No. A benefactor of a senior citizen would be qualified to acquire the
status of a head of family regardless of whether such senior citizen is a
relative or not if the senior citizen is living with the taxpayer.
3. a. In the absence of an agreement, John has the right to claim the
additional exemption because under Revenue Regulation 2-98,
husbands have the right to claim additional exemption on the
dependent children. Besides, he has actual custody over the two
children.
b. If Marsha could prove that she provided chief support over the children,
both spouses would be disqualified to claim additional exemption.

Marsha is disqualified because the children are not living with her
despite the support she is extending. John is disqualified because he
does not furnish chief support to his children.
c.

Yes, because not one of them can claim P50,000 which is the amount
allowed to each married individual taxpayer. At most, they would
acquire only the status of either single or head of family depending
upon the circumstances surrounding the case.

4. a. Julio is the one qualified to claim as head of family because he is
providing chief support to his mother who is also living with him. The
rest are giving only minimal amount of support.
b. None.
Additional personal exemption can be claimed only on
dependent children.
5. a. None. Aunties are not qualified dependents for purposes of claiming
additional exemption.
b. None. The mother is not a qualified dependent.
c.

None. The daughter is disqualified because of her age. She is already
more than 21 years old.

d. None. Both Decepeda and his sister cannot claim additional exemption
on their father.
e. P 100,000. Elantra is allowed to claim dependents on his four children
only.
6. a. Carina is qualified as head of family. She is already a widow and has
one dependent daughter living with her.

b. Gross compensation income
Less: Personal exemption

420,0
00


Basic personal
Additional

50,000
25,000

Taxable income
Tax on P 250,000
95,000 x 30%
Income tax
c.

75,0
00
345,0
00

50,000
28,500
78,500

If Carina has no daughter to support, her filing status is
“single.”


d. Gross compensation income

420,0
00
50,00
0
370,0
00

Less: Basic personal exemption
Taxable compensation income
Tax on P 250,000
120,000 x

P
50,000
36,000

30%
Income tax
7. a. Compensation income – Jim
Less: Personal exemption
Taxable compensation income
Business income – Pat
Less: Expenses
Net income
Less: Personal exemptions
Taxable income
b. Compensation income – Jim


86,000
160,0
00
50,0
00
110,0
00
500,0
00
275,0
00
225,0
00
50,00
0
175,0
00
160,0
00


Less: Personal exemptions
Basic personal
Additional exemptions

50,000
25,000

Taxable income

Tax on P 70,000
15,000 x 20%
Income tax due

P 8,500
3,000
11,500

Business income – Pat

500,0
00
275,0
00
225,0
00
50,00
0
175,0
00

Less: Expenses
Net income
Less: Personal exemptions
Taxable income
Tax on P 140,000
35,000 x 25%
Income tax due
Income tax – Jim


22,500
8,750
31,250

Income tax – Pat
Total income tax

P
11,500
31,250
42,750

8. a. Tax on P 40 x 5%

2.00

b. Tax on P 10,000 x 5%
c.

Tax on P 10,000
2,245.40 x 10%
Income tax
d. Tax on P 250,000
e. Tax on P 250,000
206,780 x 30%
Income tax due
f.

Tax on P 500,000


75,00
0
85,00
0

500
500.00
224.54
724.54
50,000
50,000
62,034
112,034
125,000.
00


623,251.27 x 32%

199,440.
41
324,440.
41

Income tax due
9 a.
.
b.
c.
d.


Salary

- Compensation

Interest on bank deposit
Honorarium
Prizes

- Passive income – tax exempt
- Compensation income
- Ordinary business income (not exceeding
P10,000)
e. Lotto winnings
- Tax exempt
f. Income from farming
- Business income
g. Royalties on books
- Passive income (10%)
h. Dividends from domestic - Passive income (10%)
company
i. 13th month pay
- Exempt up to P 30,000
j. Interest on preterminated - Passive income (12%)
deposits

10 a. Juan
.
Salary


150,0
00

Less: Personal exemptions
Basic personal
Additional exemptions
(25,000 x 3)
Taxable income
Tax on P 10,000
15,000 x 20%
Income tax due
Less: Withholding tax
Income tax payable

50,000
75,000

125,0
00
25,00
0

500
3,000
3,500
10,100
( 6,6
00)

b. Maria

Salary
Less: Basic personal exemptions
Taxable income

125,0
00
50,00
0
75,00


0

11 a
.
.

Tax on P 70,000
5,000 x 20%
Income tax due
Less: Withholding tax
Income tax payable

8,500
1,000
9,500
15,000
( 5,500)

Income tax – Juan

Income tax – Maria
Income tax payable

( 6,600)
( 5,500)
12,100

Monthly insurance premium

150

Times number of months in a year
Deductible health insurance premium
b
.

Monthly insurance premium (maximum)
Times number of months in a year
Deductible health insurance premium

200
12
2,400

c
.

No amount of health or hospitalization insurance premium is
deductible because the total income of the family exceeds
P250,000.


d
.

Monthly insurance premium (maximum
Times number of months during the year
Deductible health insurance premium

1
2.

12
1,800

a
.

Compensation income
Less: Personal exemption
Basic personal
Additional (25,000 x 4)
Total compensation income
Tax on P 30,000
20,000 x 15%
Income tax due

b
.

Gross income

Less: Allowable deductions

200
8
1,600
200,000

50,000
100,000

150,0
00
50,000
2,500
3,000
5,500
200,000


Expenses
Basic personal
Additional exemptions
Taxable income
Tax on P 30,000
25,000 x 15%
Income tax due
c
.

2,500

3,750
6,250

Gross income

200,0
00
Less: Optional standard deductions
20,00
(200,000 x 10%)
0
Net income
180,00
0
Less: Basic personal and additional
150,00
exemptions
0
Taxable income
30,0
00
Income tax due P 30,000

1
3.

105,000
50,000
100,000 255,00
0

(55,00
0)

Compensation income
Business income
Gross income
Less: Deductions
Optional (186,000 x
40%)
Itemized
Personal exemption
Total
Taxable income

EXERCISE 6 – 2
1. ANSWER: B

28,50
0
Case 1
125,0
00
186,0
00
311,0
00

Case 2
80,000
230,00

0
310,00
0

74,40
0
50,0
00
124,4
00
186,6
00

105,00
0
50,00
0
155,00
0
155,00
0


Gross receipts
Less: Expenses
Prize, contest
Salary (37,600 + 2,400)
Rent income (38,000/95%)
Less: Depreciation
Total


950,00
0
120,00
0
40,000
8,000

Less: Basic personal exemption
Taxable income
2. ANSWER: D
Tax on P 500,000

Income tax due

Salary
Rent (40,000 – 38,000)

142,50
0
2,400
2,00
0

Income tax payable
3. ANSWER: B
Interest on preterminated deposit (20,000 x
12%)
Winnings in raffle (100,000 x 20%)
Dividend from C Corp. (6,000 x 10%)

Total final withholding tax
4. ANSWER: B
Interest on long-term bank deposit
Winnings in lotto
13th month pay
Life insurance benefits
Loan benefits - SSS

32,000
907,00
0
50,00
0
857,00
0
125,00
0
114,24
0
239,24
0

357,000 x 32%

Less: Withholding taxes
Profession (950,000 x 15%)

830,00
0
5,000

40,000

146,90
0
92,34
0
2,400
20,000
600
23,000
40,000
20,000
3,500
150,00
0
20,00
0


Total income exempt from income tax

233,50
0

EXERCISE 6 - 3
INCOME
1. Interest on bank deposit with Banco de
Oro- Php
2. Interest on bank deposit with a bank in the
United States in U.S. dollar

3.
4.
5.
6.

Resident or
citizen
20%

NRA ETB

Tax table

20%
Exempt
20%
Exempt
5%
10%
10%

Not
taxable
20%
20%
10%
Tax
table
20%
Exempt

20%
Exempt
5%
20%
20%

7.5%

Exempt

Earnings from interest on money market
Royalties on inventions
Royalties on books
Prizes amounting to P7,500

20%
20%
10%
Tax table

7. Prizes amounting to P20,000
8. Winnings in lotto – Philippines
9. Winnings in lottery
10. Interest on long-term investment
11. Interest on deposit for 4 ½ years
12. Cash dividends – domestic corp.
13. Share of partner in net income of taxable
partnership
14. Interest income under expanded foreign
currency deposit system


20%

EXERCISES 6–4.1
1.

ANSWER:

A

Under the Tax Reform Act, only resident citizens are taxable on
income derived from sources within and without the Philippines. All
others are taxable on income within only.
EXERCISE 6–4.2
INCOME

RC

1. Rent on apartment in the

YES

RA,
NRC
YES

Phils.
2. Rent on apartment in

YES


Canada
3. Dividend-domestic
corporation
4. Dividend-foreign corporation

NRA(ETB)NRA(NETB)
YES

YES

NO

NO

NO

YES

YES

YES

YES

YES

NO

NO


NO


5.
6.
7.
8.
9.

Lotto winnings in the Phils.
Lotto winnings in U.S.A.
Cash prize on contest, Phils.
Cash prize on contest, U.S.A.
Interest, bank deposit in

YES
NO
YES
YES
YES

NO
NO
YES
NO
NO

NO
NO


NO
NO

YES

NO
NO

NO
NO

U.S.A.
10. Interest bank deposit – Phils.

YES

YES

YES

YES

Problem 6–
4.3
1.
ANSWER: C
Taxpayer is resident citizen.
Compensation income, Philippines


120,00
0
350,00
0
5,000,0
00
5,470,0
00

Business income, Philippines
Business income, Canada
($200,000 x P25)
Total gross income
Less: Deductions
Expenses, Philippines
Expenses, Canada
($150,000 x 25)
Net income
Less: Personal exemptions
Basic personal
Additional

220,00
0
3,750,00
0

50,000
25,000


Taxable income
Tax on P500,000
925,000 x 32%
Income tax due
Less: Withholding tax
Income tax payable
2.

3,970,0
00
1,500,0
00
75,0
00
1,425,0
00

125,000
296,000
421,000
10,000
411,200

ANSWER: C
Total final taxes paid:
Dividend from a domestic
company
Final tax rate

40,00

0
10%

4,000

YES


Share in income of business
partnership
Final tax rate
Total final tax
3.

50,00
0
10%

5,000
9,000

ANSWER: A
Resident citizen opted to avail
of OSD.
Compensation income
Business income, Philippines
Business income, Canada
($200,000 x 25)
Total
Less: Optional deductions

(5,350,000 x 40%)
Net income
Less: Basic personal exemption
Taxable income

4.

120,00
0
350,00
0
5,000,00
0
5,350,00
0
2,140,00 3,210,00
0
0
3,330,0
00
50,0
00
3,280,0
00

ANSWER: B
Taxpayer is a resident alien.
Compensation income, Philippines

120,0

00
350,00
0
470,00
0
220,00
0
250,00
0

Business income, Philippines
Gross income
Less: Expenses, Philippines
Net income
Less: Personal exemption
Basic personal
Additional exemption
(P25,000 x 4)
Taxable income

50,00
0
100,000

150,00
0
100,00
0



5.

ANSWER: A
Taxpayer becomes a nonresident
citizen.
Net income
Less: Basic personal exemption
Taxable income

6.

ANSWER: D
Nonresident alien ETB.
Business income, Philippines
Less: Expenses, Philippines
Net income
Less: Personal exemption (lower)
Taxable income

7.

350,0
00
220,00
0
130,00
0
20,00
0
110,00

0

ANSWER: D
Taxpayer is NRA NETB.
Business income, Philippines
Dividend from a domestic
company
Shares in net income of a
partnership
Gross income
Rate
Final tax

8.

250,00
0
50,0
00
200,00
0

ANSWER: D
Value of inheritance
Lotto winnings
Proceeds of life insurance
Total exemption

350,0
00

40,000
50,00
0
440,00
0
25%
110,00
0
500,00
0
1,540,0
00
250,0
00
2,290,0


00
EXERCISE 65.1
ANSWER:

D

Optional standard deductions are allowed only on professional or
business income of an individual taxpayer, provided that he has
signified in the tax return his intention to avail of said deductions.
Corporations can avail also of optional standard deductions
EXERCISE 65.2
ANSWER:
.


B

The term gross income means total sales, less cost of goods sold
plus any income from investments and from incidental or outside
operations or sources.
Deductions should not be made for items not ordinarily used in
computing the cost of goods sold.

PROBLEM 6-5.3

1.

ANSWER: A
Salary (99,000 + 5,000)
Professional income (83,000 + 7,000)
Gross income, business
Total
Less: Professional and business expenses

104,00
0
90,00
0
125,00
0
215,00
0
56,50
0


Rent income (57,000/95%)
Net income
Less: Personal exemptions
Basic personal
Additional (25,000 x 2)
Taxable income

50,00
0
50,000

158,50
0
60,00
0
322,50
0

100,00
0
222,50
0


Tax on P 140,000
82,500 x 25%
Income tax due
Less: Tax credit
Withholding tax on Wages

P 5,000
Professional income
7,000
Rent (60,000-57,000)
3,000
Income tax payable
2.

ANSWER:

22,50
0
20,625
43,125

15,000
28,125

D

Salary

104,00
0

Gross receipts on business
Rent income
Professional income
Total
Less: Optional deductions (P275,000 x

40%)
Net income
Less: Personal exemption
Basic personal
Additional

P
125,00
0
60,000
90,00
0
275,00
0
110,00
0

50,0
00
50,000

Taxable income
Tax on P 140,000
29,000 x 25%
Income tax due
Less: Withholding tax
Income tax payable

22,5
00

7,250
29,750
15,000
14,750

165,00
0
269,00
0

100,00
0
169,00
0


PROBLEM 6-5.4

1. ANSWER:

C

Gross compensation income (7,000 + 300)
x 12
Less: Personal exemption
Basic personal
Additional exemption
Taxation income
2. ANSWER:


87,600
50,000
25,000

75,000
12,600

C

Gross business income
Less: Optional deduction (150,000 x 40%)
Net
Less: Personal exemptions
Taxable income

150,00
0
60,000
90,000
50,000
40,000

EXERCISES 6-6.1: PERSONAL
EXEMPTIONS
1.

ANSWER:

B


Personal exemptions are arbitrary amounts allowed in the nature of
a deduction from the amount of gross compensation income and/or net
business and/or professional income, as the case may be, for personal,
living or family expenses of an individual (Sec. 9, Regs.).
2.

ANSWER:

A

Nonresident aliens not engaged in trade or business in the
Philippines are not allowed to claim personal exemptions. They are
subject to final tax based on the entire gross income derived from
sources within the Philippines.
3.

ANSWER:

C

An illegitimate child is now considered as a qualified dependent for
purposes of claiming the status as head of family.
4.

ANSWER:

B

The amount of basic personal exemption allowed to NRA ETB must
not exceed the amount of exemption being allowed in the Philippines.

5.

ANSWER:

C