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CHAPTER 1 – PRINCIPLES OF TAXATION

TRUE OR FALSE-SET A
1. FALSE 9. TRUE 17. FALSE 25. FALSE
2. TRUE 10. TRUE 18. FALSE 26. TRUE
3. TRUE 11. TRUE 19. FALSE 27. FALSE
4. TRUE 12. TRUE 20. TRUE 28. TRUE
5. TRUE 13. FALSE 21. TRUE 29. TRUE
6. FALSE 14. FALSE 22. TRUE 30. FALSE
7. TRUE 15. FALSE 23. TRUE
8. FALSE 16. FALSE 24. FALSE
MULTIPLE CHOICE
1. D* 21. D 41. D 61. C
2. C 22. D 42. A 62. C
3. B** 23. D 43. A 63. C
4. D 24. D 44. B 64. C
5. C 25. B 45. C 65. A
6. B 26. A 46. C
7. C 27. A 47. B
8. C 28. D 48. A
9. D 29. C 49. C
10. D*** 30. C 50. D
11. A 31. A 51. D
12. D 32. C 52. C
13. D 33. D 53. B
14. C 34. C 54. D
15. C 35. A 55. A
16. D 36. C 56. A
17. A 37. D 57. A
18. A 38. C 58. D
19. C 39. D 59. C
20. B 40. A 60. A
*Taxation may be imposed to raise revenue and in the exercised of police power, at the same time.
**Statement 1 – False; similarity of tax from license fee, not a distinction.
***Statement 1 – False; should be “jurisdiction” instead of “symbiotic relation”.
Statement 2 – False; should be “symbiotic relation” instead of “jurisdiction”

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
CHAPTER 2 - INDIVIDUAL TAXPAYERS

PROBLEMS
2-1
1. RC 4. NRA-NETB
2. RC 5. NRC
3. RC 6. RA

2-2
1. P125,000 = BPE + APE for Ana and PWD. The brother shall likewise qualify as PWD within 4th degree
2. P150,000 = BPE + APE for four dependents. Note: Not entitled for APE for his 20 years old recognized natural
child for being gainfully employed. Assume further that all the requirements to qualify for additional exemption
under the “Foster Child Act” were complied with.
3. P0 or none; Reciprocity clause applies to a nonresident alien engaged in trade or business. The taxpayer in the
problem is a nonresident alien not engage in trade or business. Dividend income from a domestic corporation is
not considered as income derived from trade or business.
4. P90,000 = BPE of P40,000 (lower than P50,000 allowed in the Philippines) + APE of P25,000 per dependent
(lower than the P30,000 allowed in U.S.A. as provided in the problem).
Total personal exemption = P50,000 BPE + P25,000 x 2 additional personal exemption = P90,000
5. P100,000 = BPE + APE for his 2 minor children.

2-3
TAX TYPE Tax RATE TAX TYPE Tax RATE
1 FWTx 20% 19 Exempt -
2 FWTx 7.5% 20 Exempt - *Prizes received from
3 BTx Tax Table 21 FWTx 25% Philippine sources
4 FWTx 20% 22 BTx Tax Table exceeding P10,000
5 Exempt - 23 Exempt - are subject to 20%
final tax rate. On the
6 BTx Tax Table 24 FWTx 20% other hand,
7 BTx Tax Table 25 FWTx 20% Other WINNINGS
8 BTx Tax Table 26 FWTx 10% (regardless of
9 BTx Tax Table 27 BTx Tax Table amount) are subject to
10 BTx Tax Table 28 BTx Tax Table 20% final tax rate.
11 FWTx 20% 29 FWTx 20%
12 FWTx 10% 30 FWTx 25%
13 FWTx 20% 31 FWTx 10%
14 BTx Tax Table 32 BTx Tax Table
15 BTx Tax Table 33 Exempt Sub.to OPT
16 FWTx 20% 34 BTx Tax Table
17 FWTx 20% 35 BTx Tax Table
18 BTx Tax Table

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
2-4
1. Taxpayer is a resident citizen
1.1 Taxable income = P1,000,000
1.2 Income tax payable = P160,000
1.3 Final tax on passive income = P14,500
1.4 Total income tax expense = P299,500

Gross business income, Philippines P1,000,000


Gross business income, USA 500,000
Business expenses, Philippines (700,000)
Business expenses, USA (430,000)
Compensation income, Philippines 600,000
Dividend income-foreign corp. 40,000
Interest income-bank deposit abroad 30,000
Raffle draw winnings 10,000
Basic personal exemption (50,000)
Taxable income P1,000,000

Tax Due [(P125,000)+(.5M x 32%)] P285,000


Creditable withholding tax on bus. income (125,000)
Income Tax Payable P160,000

Dividend income – DC (50k x 10%) P5,000


Interest income bank deposit-Phls.@20% 4,000
Interest income FCDS deposit @ 7.5% 3,000
Royalty income from composition @10% 2,500
PCSO winnings exempt
Final Tax on Passive Income P14,500

Basic income tax due P285,000 The question is tax expense; ignore
Final taxes on passive income 14,500 the income tax payable of P160,000.
Total income tax expense P299,500

2. Taxpayer is a nonresident citizen


2.1 Taxable income = P860,000
2.2 Income tax payable = P115,200
2.3 Final tax on passive income = P11,500
2.4 Total income tax expense = P251,700

Gross business income, Philippines P1,000,000


Business expenses, Philippines (700,000) ***Assume situs is without the Phls.; refer
Compensation income, Philippines 600,000 to page 300 for the determination of
Dividend income-foreign corp. *** the situs of dividend income.
Raffle draw winnings 10,000
Basic personal exemption (50,000)
Taxable income P860,000

Tax Due [(P125,000)+(360k x 32%)] P240,200


Creditable withholding tax on bus. Income (125,000) Assume the tax withheld pertain to
Income Tax Payable P115,200 Income derived in the Phls.

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
Dividend income – DC (50k x 10%) P5,000
Interest income bank deposit-Phls.@20% 4,000
Interest income FCDS deposit @ 7.5% exempt
Royalty income from composition @10% 2,500
PCSO winnings exempt
Final Tax on Passive Income P11,500

Basic income tax due P240,200 The question is tax expense; ignore
Final taxes on passive income 11,500 the income tax payable of P115,200.
Total income tax expense P251,700

3. Taxpayer is a resident alien


3.1 Taxable income = P860,000 (same answer with #2.1; nonresident citizen)
3.2 Income tax payable = P115,200 (same answer with #2.2; nonresident citizen)
3.3 Final tax on passive income = P14,500 (same answer with #1.3; resident citizen)
3.4 Total income tax expense = P254,700 computed as follows:
Basic income tax due P240,200 The question is tax expense; ignore
Final taxes on passive income 14,500 the income tax payable of P115,200.
Total income tax expense P254,700

4. Taxpayer is a nonresident alien engaged in trade or business


4.1 Taxable income = P910,000
4.2 Income tax payable = P131,200
4.3 Final tax on passive income = P16,500
4.3 Total income tax expense = P267,700

Gross business income, Philippines P1,000,000


Business expenses, Philippines (700,000) ***Assume situs is without the Phls.; refer
Compensation income, Philippines 600,000 to page 300 for the determination of
Dividend income-foreign corp. *** the situs of dividend income.
Raffle draw winnings 10,000
Basic personal exemption - The problem is silent as to “reciprocity”
Taxable income P910,000

Tax Due [(P125,000)+(410k x 32%)] P256,200


Creditable withholding tax on bus. Income (125,000) Assume the tax withheld pertain to
Income Tax Payable P131,200 Income derived in the Phls.

Dividend income – DC (50k x 20%) P10,000 Use 20% rate for DI from DC instead of 10%
Interest income bank deposit-Phls.@20% 4,000
Interest income FCDS deposit @ 7.5% exempt
Royalty income from composition @10% 2,500
PCSO winnings exempt
Final Tax on Passive Income P16,500

Basic income tax due P256,200 The question is tax expense; ignore
Final taxes on passive income 11,500 the income tax payable of P131,200.
Total income tax expense P267,700

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
5. Taxpayer is a nonresident alien not-engaged in trade or business

Compensation income, Philippines P600,000


Dividend income - DC 50,000
Dividend income from foreign corp. - Assume situs is without
Interest income bank deposit, Phls. 20,000
Interest income on FCDS deposit Exempt
Royalty income from composition 25,000
Raffle draw winnings 10,000
PCSO winnings 200,000 Not exempt under the tax code if the
Total GROSS Income P905,000 taxpayer is NRA-NETB.
x 25%
Income Tax Due/expense P226,250

2-5
1. Taxpayer is a resident citizen
a. Taxable net income = P1,026,100
b. Income tax payable = P293,352
c. Final tax on passive income = P38,030
d. Capital gains tax = P120,600

Solution:
From Phils. From
Abroad Total
Income from employment P180,000 P280,000 P460,000
Business income 850,000 960,000 1,810,000
Deductible business expenses (610,000) (730,000) (1,340,000)
Interest income on personal loans** 6,000 3,000 9,000
Dividend income from foreign corp. 6,800 2,000 8,800
Prizes from singing contest 5,600 - 5,600
Interest income on bank deposits 4,200 4,200
Interest income on money market placements 1,600 1,600
Royalty income 50,000 50,000
Winnings/ prizes from lotteries, raffles 16,900 16,900
Lotto winnings --- 50,000 50,000
Basic Personal exemption (50,000)
Additional exemption -
Taxable income P1,026,100
TAX DUE:
First P500,000 P125,000
Excess @ 32% 168,352
**All incomes regardless of source are taxable. However, personal expenses are not P293,352
allowed as deduction from the gross income

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
Final Tax on Passive income:
Interest income on bank deposits 10,800
Interest income on money market placements 7,500
Royalty income 90,000
Winnings/ prizes from lotteries, raffle draws 45,000
Total P153,300
@ 20% P30,660
Dividend income from domestic corp. 5,700 -
Royalty income from sale of books 68,000 -
Total P73,700
@ 10% 7,370
TOTAL FINAL TAX ON PASSIVE INCOME P38,030

Capital Gains Tax:


Sale of lot (P1,060,000 x 6%) P63,600
Sale of house and lot (P950,000 x 6%) 57,000
Total P120,600

2. Taxpayer is a non-resident citizen


a. Taxable income = P388,400
b. Income tax payable = P91,520
c. Final tax on passive income = P38,030
d. Capital gains tax = P120,600

Solution:
From Phils.
Income from employment P180,000
Business income 850,000
Deductible business expenses (610,000)
Interest income on personal loans 6,000
Dividend income from foreign corp. 6,800
Prizes from singing contest 5,600
Basic Personal exemption (50,000)
Additional exemption -
Taxable income P388,400
TAX DUE:
First P250,000 P50,000
Excess @ 30% 41,520
P91,520
Final Tax on Passive income:
 As long as there is no interest income from foreign currency bank deposit under FCDS/FCDU, the final tax on
passive income of a nonresident citizen is the same with that of a resident citizen.

Capital Gains Tax:


 All individual taxpayers are subject to the same types of CGTs

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
3. Taxpayer is a nonresident alien engaged in trade
a. Taxable income = P388,400 (same with a non-resident citizen taxpayer)
b. Income tax payable = P91,520 (same with a non-resident citizen taxpayer)
c. Final tax on passive income = P38,600
d. Capital gains tax = P120,600 (all individual taxpayers are subject to the same types of CGTs)

Final Tax on Passive income:


Interest income on bank deposits 10,800
Interest income on money market placements 7,500
Royalty income 90,000
Dividend income from domestic corp 5,700 rate is 20%
Winnings/ prizes from lotteries, raffle draws 45,000
Total P159,000
@ 20% P31,800
Dividend income from domestic corp.@ 20% - -
Royalty income from sale of books 68,000 -
@ 10% 6,800
TOTAL FINAL TAX ON PASSIVE INCOME P38,600

2-6
a. Taxable income of the husband = P1,115,000
b. Taxable income of the wife = P840,000
c. Consolidated tax due of the husband and the wife = P555,600
Husband Wife
INCOME:
Compensation income P 850,000 P650,000
Income-Profession [P800,000/2)] 400,000 400,000
Income from trading business 250,000 -
LESS:
Expenses-practice of profession [ P320,000/2)] (160,000) (160,000)
Expenses – trading business (100,000) -
Basic Personal exemption (50,000) (50,000)
Additional exemption (75,000) -
TAXABLE INCOME P1,115,000 P840,000

Tax due:
First P500,000 P125,000 P125,000
In excess of P500,000 @ 32% 196,800 108,800
Total P321,800 P233,800
Consolidated Tax Due P555,600
Note: Personal expenses are not deductible. The Premium payments for health insurance are likewise nondeductible
because the total gross income of the family exceeded the threshold of P250,000.

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
2-7
a. Total capital gains taxes
Sale of shares of domestic corp. directly to a buyer (P100,000 x 5%) + P50,000 x 10% P10,000
Capital gain on sale of land in the Philippines classified as capital asset (P5M x 6%) 300,000
Total capital gains tax P310,000
Note: Sale of shares in the local stock exchange is subject to transaction tax of ½ of 1% of GSP
b.
Dividend income from domestic corp. @ 10% P4,000
Interest income on Philippine bank deposit (3,200 + 2,400 + 8,000)/80% x 20% 3,400
Interest income on Phl. bank deposit under FCDU (4,000 + 4,000 + 2,000) x 7.5% 750
Interest income on government bonds 2,000
Royalty - literary 1,000
Royalty other than literary 2,400
Total Final tax on passive income of Daniel and Kat P13,550
Note: Interest income on long-term deposit is tax exempt

c.
Business income P600,000
Rental income net of tax (P200,000/95%)/2 100,000
Dividend income from nonresident corp. (P10,000/2) 5,000
Interest income on notes receivable [P6,000 + (P2,000/2)] 7,000
Interest income on bank deposit abroad [P5,000 + (P5,000/2)] 7,500
Capital gain on sale of land abroad (P500,000/2) 250,000
Gain on sale of shares – New York Stock Exchange P30,000/2 15,000
Expenses [P350,000 +(75,000/2)] (387,500)
Personal exemption (50,000)
Taxable net income of Daniel P547,000

d.
Gross income from practice of profession (P360,000/90%) P400,000
Rental income net of tax (P190,000/95%)/2 100,000
Dividend income from resident corp. 20,000
Dividend income from nonresident corp. (P10,000/2) 5,000
Interest income on notes receivable [P4,000 + (P2,000/2)] 5,000
Interest income on bank deposit abroad [P5,000 + (P5,000/2)] 7,500
Capital gain on sale of land abroad (P500,000/2) 250,000
Gain on sale of shares – New York Stock Exchange P30,000/2 15,000
Expenses [P200,000 +(75,000/2)] (237,500)
Personal exemption (50,000)
Taxable net income of Kat P515,000

2-8
a. Income tax payable, first quarter = P32,500
b. Income tax payable, second quarter = P14,500
c. Income tax payable, third quarter = P19,233
d. Income tax payable, fourth quarter = P59,823
e. Final tax on passive income = P15,800

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
f. Capital gains tax = P600,000 x 6% = P36,000

Solution:
1st Q 2nd Q 3rd Q Q4/Year
Gross Profit from Sales P300,000 P500,000 P710,000 P980,000
Business expenses (120,000) (262,000) (405,890) (426,700)
Personal exemption (50,000)
Taxable income P180,000 P238,000 P304,110 P503,300

Tax Due (Tax Table) P32,500 P47,000 P66,233 P126,056


Less: Tax Paid
Q1 - (32,500) (32,500) (32,500)
Q2 - (14,500) (14,500)
Q3 - (19,233)
Income Tax Payable P32,500 P14,500 P19,233 P59,823
Note: The amounts shown above are cumulative.

(Amounts are cumulative) Amount % Tax


Dividend received from domestic corp. 30,000 10 P3,000
Interest income from
BPI 16,000 20 3,200
UCPB 18,000 20 3,600
Metro Bank 30,000 20 6,000
Total final tax on passive income P15,800

2-9
Gross compensation income P230,000
SSS premium contributions (3,600)
Philhealth contributions (2,400) Note: SSS loan is nondeductible
Pag-ibig contributions (1,800)
Union dues (2,200)
Basic exemption (50,000)
Premium payment on health insurance (2,400)
Taxable income P167,600

2-10
Gross compensation income P450,000
SSS premium contributions (3,600)
Philhealth contributions (2,400)
Pag-ibig contributions (2,000)
Union dues (1,000)
Basic exemption (50,000)
Additional exemption (100,000)
Premium payment on health insurance -
Taxable income P291,000

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
2-11
a. Special Alien employed by ROHQ = P170,000 computed as follows:
On Compensation income:
P850,000 x 15% P127,500

On other Income (Apply rules on NRA-NETB)


Dividend Income from a dom. corp. P50,000
Int. Inc. Phil. bank deposit 20,000
Int. Inc. fr. Bank dep. under FCDS exempt
PCSO winnings 100,000
Total Other Income P170,000
Tax rate @ 25% 42,500
TOTAL INCOME TAX EXPENSE P170,000
 Being a nonresident alien-not engaged in trade or business for income taxation purposes, a
Special Alien is not entitled to personal exemptions and subject to 25% final tax on other
income including PCSO winnings.

b. Filipino Citizen employed by ROHQ = P218,500 computed as follows:


Compensation income (Subject to basic tax):**
Gross Compensation P850,000
Less: Personal exemption (50k + 50k) (100,000)
Net Taxable Income P750,000

First P500,000 P125,000


Excess of P250,000 @ 32% 80,000 P205,000
Passive Income, Phls. (Subject to Final Tax)
Dividend Income from a dom. corp. @ 10% P5,000
Int. Inc. Phil. bank deposit @ 20% 4,000
Int. Inc. fr. Bank dep. under FCDS @ 7.5 4,500
PCSO winnings exempt 13,500
TOTAL INCOME TAX EXPENSE P218,500
 **Filipinos employed by ROHQs/RHQs holding managerial or technical position shall have the option to
be taxed either at 15% on their gross compensation income or based on Section 24(A) of the tax code.
However, Filipinos exercising the option to be taxed at 15% preferential rate must meet all the three (3)
requirements as discussed in page 98. In the problem provided, the Filipino counterpart failed to meet
the “compensation threshold test” of at least P975,000. Consequently, the taxpayer shall be subject to
basic income tax on its “compensation income” under Section 24(A) of the tax code.

c. Filipino Citizen employed by an OBU = P141,000 computed as follows:


Compensation income (Subject to 15% F.Tax)***
P850,000 x 15% P127,500

Passive Income, Phls. (Subject to Final Tax)


Dividend Income from a dom. corp. @ 10% P5,000
Int. Inc. Phil. bank deposit @ 20% 4,000
Int. Inc. fr. Bank dep. under FCDS @ 7.5% 4,500
PCSO winnings exempt 13,500
TOTAL ICNOME TAX EXPENSE P141,000

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
 ***Filipinos employed by OBUs as well as Petroleum Contractors/Subcontractors shall be
subject to 15% Final Tax on their “compensation income”.
 The 15% tax rate is a final tax on “gross compensation” income. Hence, personal exemptions
shall not be deducted from such income.

d. Filipino Citizen employed by a Petroleum Contractor = P141,000


(refer to computations in assumption “c”)

e. Filipino Citizen employed by ROHQ with gross compensation income of P1,250,000 = P346,500
OR P201,000 computed as follows:
Compensation income (Subject to basic tax):****
Gross Compensation P1,250,000
Less: Personal exemption (50k + 50k) (100,000)
Net Taxable Income P1,150,000

First P500,000 P125,000


Excess of P650,000 @ 32% 208,000 P333,000
Passive Income, Phls. (Subject to Final Tax)
Dividend Income from a dom. corp. @ 10% P5,000
Int. Inc. Phil. bank deposit @ 20% 4,000
Int. Inc. fr. Bank dep. under FCDS @ 7.5% 4,500 13,500
TOTAL INCOME TAX EXPENSE P346,500
OR
Compensation income (Subject to final tax):****
Gross Compensation P1,250,000
Tax rate 15% P187,500

Passive Income, Phls. (Subject to Final Tax)


Dividend Income from a dom. corp. @ P5,000
10%
Int. Inc. Phil. bank deposit @ 20% 4,000
Int. Inc. fr. Bank dep. under FCDS @ 7.5% 4,500 13,500
TOTAL TAXES P201,000
 ****Filipinos employed by ROHQs/RHQs holding managerial or technical position shall have the
option to be taxed either at 15% on their gross compensation income or based on Section 24(A)
of the tax code, provided, however, that Filipinos exercising the option to be taxed at 15%
preferential rate must meet all the three (3) requirements as discussed in page 79.

2-12
1. P6M x 6% = P360,000
2. ZV P2.2M vs. SP of P2.5M**; CGT = P2.5M x 6% = P150,000; **SP = Cost + Gain
3. Unutilized Proceeds = none; the proceeds were fully utilized; CGT = P0
4. Unutilized Proceeds = P5M x 20% = P1M; CGT = 1/5 x 6M x 6% = P72,000
2-13
a. P15M x 6% = P900,000
b. P20M x 6% = P1,200,000
c. P0

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
2-14 C.G. Tax = none; the transaction resulted to a loss
2-15 C.G. Tax = P100,000 x 5% = P5,000
2-16 C.G. Tax = (P100,000 x 5%) + (P50,000 x 10%) = P10,000
2-17 C.G. Tax = none

TRUE OR FALSE
1. TRUE 11. TRUE 21. FALSE
2. TRUE 12. TRUE 22. TRUE
3. TRUE 13. FALSE 23. TRUE
4. TRUE 14. TRUE 24. FALSE
5. TRUE 15. FALSE 25. TRUE
6. FALSE 16. FALSE 26. TRUE
7. TRUE 17. TRUE 27. FALSE
8. TRUE 18. TRUE 28. FALSE
9. FALSE 19. FALSE 29. TRUE
10. FALSE 20. TRUE 30. FALSE
MULTIPLE CHOICE
1. D 16. B 31. A 46. A
2. C 17. D 32. B 47. B
3. D 18. B 33. D 48. B
4. D 19. C 34. D 49. D
5. B 20. D 35. B 50. B
6. A 21. D 36. D 51. A
7. B 22. B 37. A 52. B
8. B 23. D 38. D 53. C
9. D 24. B 39. A
10. B 25. A 40. B
11. B 26. D 41. D
12. B 27. D 42. B
13. A 28. C 43. D
14. C 29. B 44. D
15. D 30. A 45. D

Supporting Computations (Multiple Choice):


(9)
Gross income, Philippines P800,000
Gross income, USA 600,000
Expenses, Philippines (400,000)
Expenses, USA (300,000)
Basic personal exemption (50,000)
Taxable income P650,000

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
(10 and 11)
Gross income, Philippines P800,000
Expenses, Philippines (400,000)
Basic personal exemption (50,000)
Taxable income P350,000

(12)
Gross income, Philippines P800,000
Expenses, Philippines (400,000)
Basic personal exemption (40,000)
Taxable income P360,000

(16 and 18) Income Tax Due = P1,200,000 x 15% = P180,000


NOTE: Only SFEs employed in RHQs/ROHQs have the option to be taxed at either 15% Final Tax or Basic Tax
(19) Basic Tax Due = P125,000 + (600,000 x 32%) = P317,000; Taxable Income = P1.2M-Personal exemptions = P1.1M
(32)
Copyright (11,250/90%)x10% P1,250
Royalty (12,000/80%) x 20% 3,000
Share from Trade Partnership 30,000
(treated as dividend income)
(270,000/90%) x10%
Taxable income P34,250

(34)
Gross business income, Philippines P1,000,000
Business expenses, Philippines (300,000)
Basic personal exemption (50,000)
Taxable income P650,000
(42) CGT = P1.5M/P4M x P4M x 6% = P90,000
(47)
Professional income (gross) P175,000
Rental income (gross); 2 years 50,000
Wagering gains 50,000
Kickbacks received 40,000
Facilitation fee ND
Insurance expense (1/2 year) (1,000)
Car expense (50%) (15,000)
Professional expenses (40,000))
Premium pay’t on health insurance (2,400)
Basic and APE (75,000)
Taxable income P181,600

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
(48)
Subject to preferential tax rate = P750,000 x 15% P112,500
Subject to 15% FBT = P170,000/85% x 15% 30,000
CGT (refer to computation below) 160,000
Income subject to 25% FWT:
Dividend income from DC P40,000
Interest income from peso bank deposit 50,000
Interest income - FCDS exempt
PCSO winnings 1,000,000
Raffle draw winnings 80,000
Total P1,170,000
Tax Rate 25% 292,500
TOTAL INCOME TAX EXPENSE P595,000

On shares of stock = P100,000 x 5% + (50,000 x 10%) P10,000


On real property = P2.5M x 6% 150,000
TOTAL CGT P160,000

 De minimis benefits are tax exempt


 Interest income from bank deposit under FCDS is exempt. SAEs are treated as NRAs-NETB with respect
to their other income. Consequently, such interest income is tax exempt.

(49)
CGT (as computed in #48) P160,000
FBT (P170,000/85% x 15%***) 30,000
FWT on Passive incomes:
Dividend income from DC @ 10% P4,000
Interest income from peso bank deposit @ 20% 10,000
Interest income-FCDS @ 7.5% 1,500
PCSO winnings exempt
Raffle draw winnings @ 20% 16,000 31,500
BASIC INCOME TAX:
Salaries, allowances, honoraria P750,000
Basic Personal exemption (50,000)
Taxable Net Income P700,000
Basic Tax under Section 24(A) 189,000
TOTAL INCOME TAX EXPENSE P410,500

 ***The SFE is not qualified for the 15% preferential tax rate. However, the fringe benefits received shall
still be subject to 15% FBT because under RR 11-2010, the option to be subject to 15% preferential tax
rate and the coverage of fringe benefit tax are independent to each other. Thus, as provided in the
aforementioned RR, there would be instances where a Filipino employee shall enjoy 15% preferential tax
rate but may not be covered by fringe benefit tax for not being a supervisory/managerial employee.
Likewise, there would be instances where such SFE may not be subject to 15% preferential tax rate due
to failure to meet any of the three (3) tests discussed earlier but may be subject to 15% FBT for being a
“managerial” employee. The taxpayer in this particular case is occupying a managerial position.

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CHAPTER 3 – FRINGE BENEFITS

PROBLEM SOLVING
P3.1
Subject to FBT Subject to Basic Tax Exempt
1. P120,000 - -
2. - - P80,000
3. 50,000 - -
4. - - 5,000/ yr. (RR 8-2012)
5. - - 360,000
6. 250,000 - -
7. - - 45,000
8. - - 15,000
9. 60,000 - -
10. - - 1,500

P3.2
a) Yes
b) GUMV = P330,000/68%=P485,294
c) No. FBT is a final tax, hence, nonreturnable
d) FBT = P485,294 x 32% = P155,294
e) Within 10th day of the month following the end of the calendar quarter in which the fringe benefits were granted to
the recipient.
f) No. It is subject to basic tax instead of FBT.

P3.3 P466,000 computed as follows:


Compensation income P480,000
Monthly transportation allowance** 36,000
De Minimis Taxable
Benefits Benefits
13th month pay - P40,000
Christmas bonus (P5,000 is de minimis) P5,000 -
Christmas bonus (in excess of P5,000) 20,000
Productivity incentive pay (de minimis under RR 1-2015) 10,000 -
Uniform allowance (15,000-5,000) 5,000 10,000
Medical allowance (entire amount is de minimis) 10,000 -
Rice subsidy [24,000-(1,500 x 12)] 18,000 6,000
Total (known as 13 Month Pay & Other Benefits)
th 76,000
Tax Exempt 13th Month Pay & Other Benefits (82,000) -
Personal exemption (50,000)
Taxable income P466,000
**Fixed Allowances received regularly shall be treated as part of basic compensation income

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P3.4 P130,000 computed as follows:
Compensation income P180,000
De Minimis Taxable
Benefits Benefits
13th month pay and mid-year bonus P30,000
Christmas bonus 5,000 2,500
Uniform allowance (7,500-5,000) 5,000 2,500
Actual Medical allowance (P12,000-10,000) 10,000 2,000
Medical allowance to dependents (P2,000-1,500) 1,500 500
Rice subsidy [entire amount is de minimis] 18,000 -
Monetized vacation leave [7,500-(500x 10)] 5,000 2,500
Total (known as 13th Month Pay & Other Benefits) 40,000
Tax Exempt 13th Month Pay & Other Benefits (40,000) -
Personal exemption (50,000)
Taxable income P130,000

P3.5
1. 4.
a) P165,000 x 50% = P82,500 a. P1,200,000
b) P82,500/68% x 32% = P38,824 b. P1,200,000/68% x 32% = P564,705
5.
2. a. P800,000
a. P4.5M x 5% /4 x 50% = P28,125 b. P800,000/68% x 32% = P376,470
b. P28,125/68% x 32% = P13,235 6.
3. a. P1,200,000/5 = P240,000
a. P4.5M b. P240,000/68% x 32% = P112,941
b. P4.5M/68% x 32% = P2,117,647

TRUE OR FALSE
1. TRUE 6. FALSE 11. FALSE
2. FALSE 7. TRUE 12. TRUE
3. TRUE 8. TRUE 13. TRUE
4. TRUE 9. TRUE 14. TRUE
5. TRUE 10. TRUE 15. TRUE
MODIFIED IDENTIFICATION
1. B 6. B 11. B 16. B
2. B 7. B 12. B 17. B
3. B 8. B 13. B 18. B
4. B 9. B 14. B 19. B
5. B 10. B 15. B 20. B

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MULTIPLE CHOICE
1. C 11. C 21. D 31. 41.
2. A 12. A 22. A 32. 42.
3. D 13. A 23. D 33. 43.
4. D 14. B 24. C 34. 44.
5. D 15. B 25. D 35. 45.
6. D 16. D 26. A 36. 46.
7. B 17. C 27. D 37. 47.
8. A 18. B 28. B 38. 48.
9. D 19. C 29. D 39. 49.
10. D 20. D 30. A 40. 50.
51.
52.
53.

Supporting Computations (Multiple Choice):


(* #13)
The journal entry in letter “a” is the journal entry provided in related revenue regulations. Nonetheless, the authors believe that
the journal entry should have been:
Compensation expense (@ GUMV) Pxx
Cash Pxx
Consequently, from the journal entry shown above, the account debited as “fringe benefit tax expense” in revenue regulations
should not form part of the employer’s “Taxes Expense” but as a component of the employer’s “Compensation expense”.

(23)
To managerial – fringe benefit expense P1,360,000
Fringe benefit tax expense 640,000
Rank and File 5,000,000
Total P7,000,000

(24)
Expenditure attributable to Managerial employees
(P1M x 20%) P200,000
Divide by GUMVF 68%
Grossed-up monetary value P294,118
x FBT rate 32%
Fringe Benefit Tax P94,118

(25) Total deductible expense = P1,000,000 + 94,118 = P1,094,118


(26)
Salaries and wages gross of CWT P380,000
Fixed monthly allowance** 60,000
Total compensation income subject to graduated rate P440,000
*Fixed Allowances received regularly per payroll are considered part of regular compensation subject to
graduated rate (RR 10-2008)

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(27)
Allowance not subject to liquidation P48,000
Divide by GUMVF 68%
GUMV P70,588
x FB rate 32%
FBT P22,588

(29)
Annual rental P637,500
x 50%
Monetary value of housing benefit P318,750
Divide by GUMVF 68%
GUMVF P468,750
X FBT rate 32%
FBT P150,000
Add: Annual Rental 637,500
Total Deductible Expense P787,500

(30) (33)
 P2,000,000 x 5% x 50% / 12 = P4,1667.67  (P5,000,000-2,000,000) / 12 = P250,000
 P4,1667.67 / 68% x 32% = P1,960.78  P250,000/ 68% x 32% = P117,647.05

(31) (35)
 P3,000,000 x 5% x 50% / 12 = P6,250  P1,000,000 / 68% = P1,470,588
 P6,250/ 68% x 32% = P2,941.18  P1,470,588 x 32% = P470,588
(32) (36)
 P5,000,000 / 12* = P416,667  P800,000 / 68% = P1,176,471
 P416,667/ 68% x 32% = P196,078.42  P1,176,471 x 32% = P376,471
Monthly monetary value (37)
 (P1,000,000/5) / 68% = P294,118
 P294,118 x 32% = P94,118

(52) Pedro is not treated as minimum wage earner


Salaries P144,000
Other Benefits (Excess de minimis + bonuses 142,000
Tax exempt other benefits (82,000)
Basic exemption (50,000)
Taxable income P154,000

(53) Pedro is a minimum wage earner but his business income is taxable
Business income P200,000
Basic exemption (50,000)
Taxable income P150,000

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CHAPTER 4 – INCOME TAX FOR CORPORATIONS

PROBLEM SOLVING:
(P4.1)
CASE A (Domestic Corporation):
1. P1,636,500
2. P81,250
3. P550,000
Solution
Philippines Abroad Total
Gross sales P10,000,000 P5,000,000 P15,000,000
Sales returns 200,000 (200,000)
Cost of goods sold 3,500,000 2,250,000 (5,750,000)
Operating expenses 2,800,000 1,100,000 (3,900,000)
Interest income from trade receivable 100,000 50,000 150,000
Interest income from BPI deposits-USA - 80,000 80,000
Dividend income-resident foreign corp. 45,000 - 45,000
Dividend income-nonresident foreign corp. - 30,000 30,000
Taxable income P5,455,000
Tax rate 30%
Normal Corporate Income Tax Due P1,636,500

Philippines Final Tax


Interest income from BPI deposits-Phils. @ 20% 100,000 P20,000
Interest income from FCDS @ 7.5% 150,000 11,250
Income from money market placement @ 20% 200,000 40,000
Royalty income @ 20% 50,000 10,000
Final tax on passive income P81,250
Capital Gains Tax
Gain on sale of shares sold directly to a buyer P10,000
[(100,000x 5%) + (50,000 x 10%)]
Sale of real property in the Philippines 540,000
(SP of P9M** x 6%)
Total Capital Gains Tax P550,000
**SP = Cost + Gain = P4M + 5M = P9M; SP is higher than FMV

CASE B (Resident Foreign Corporation):


4. P1,093,500
5. P81,250 (Same with Case A)
6. P550,000 (Same with Case A)

Solution:
Gross sales P10,000,000
Sales returns (200,000)
Cost of goods sold (3,500,000)
Operating expenses (2,800,000)
Interest income from trade receivable 100,000
Dividend income-resident foreign corp. 45,000
Taxable income P3,645,000
Tax rate 30%
Normal Corporate Income Tax Due P1,093,500

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CASE C (Non-Resident Foreign Corporation):
7. P2,038,500 computed as follows:
Gross sales P10,000,000
Sales returns (200,000)
Cost of goods sold (3,500,000)
GROSS INCOME P6,300,000
ADD:
Interest income from trade receivable 100,000
Dividend income-resident foreign corp. 45,000
Interest income from BPI deposits-Phils. 100,000
Income from money market placement 200,000
Royalty income 50,000
Total “Gross” Income P6,795,000
Tax rate 30%
Final Tax Due (Basis: Gross income) P2,038,500

(P4.2) P0. A foreign corporation is taxable only on its income derived from sources within the Philippines. The incomes
provided in the problem were all derived in U.S.

(P4.3)

Current account, BDO @ 20% P120,000


Savings deposit, BPI @ 20% 100,000
Interest income from government bonds @ 20% 40,000
Royalty income from various domestic corporations @ 20% 20,000
US dollar deposit, FCDU @ 7.5% 60,000
Total final taxes on passive income P340,000

(P4.4)
Q1 Q2 Q3 Q4
Gross profit from sales P1,600,000 P3,200,000 P4,800,000 P6,200,000
Business expenses (1,200,000) (2,400,000) (3,400,000) (4,200,000)
Taxable income 400,000 800,000 1,400,000 P2,000,000
NCIT 120,000 240,000 420,000 600,000
MCIT (Gross Profit x 2%) 32,000 64,000 96,000 124,000

TAX DUE (Higher) P120,000 P240,000 P420,000 P600,000


Less: Income tax withheld (30,000) (70,000) (130,000) (230,000)
Tax Paid Q1 - (90,000) (90,000) (90,000)
Tax Paid Q2 (80,000) (80,000)
Tax Paid Q3 - (120,000)
Income Tax Payable P90,000 P80,000 P120,000 P80,000

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(P4.5)

Year 4 Year 5 Year 6 Year 7 Year 8


MCIT 100,000 60,000 50,000 40,000 20,000
NCIT 30,000 70,000 60,000 30,000 90,000
TAX DUE (Higher) P100,000 P70,000 P60,000 P40,000 P90,000
Excess MCIT
Year 4 - (70,000) - - -
Year 7 (10,000)
Income Tax Payable P100,000 P0 P60,000 P40,000 P80,000

(P4.6)
1. P120,000
2. P690,000
3. P210,000
4. P495,000
Q1 Q2 Q3 Q4
Tax Due NCIT P300,000 MCIT P990,000 NCIT P1,410,000 NCIT P2,010,000
Excess MCIT Prior Yr (90,000) - (90,000) (90,000)
W/holding tax-Prior Yr (30,000) (30,000) (30,000) (30,00)
W/holding -During the Yr (60,000) (150,00) (270,000) (375,000)
Tax Paid Previous Qtr(s) (120,000) (810,000) (1,020,000)
Tax Payable P120,000 P690,000 P210,000 P495,000

(P4.7)
Case A (Taxable Joint Venture)
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6M
3. Taxable income of ABC Company = P10M
4. Tax due of ABC Company = P3M
5. Taxable income DEF Company = P5M
6. Tax due of DEF Company = P1.5M
Joint Venture ABC Co. DEF Co.
Gross income P50,000,000 P30,000,000 P20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Taxable income P20,000,000 P10,000,000 P5,000,000
Tax Rate (NCIT) 30% 30% 30%
Tax Due P6,000,000 P3,000,000 P1,500,000

Case B (Tax Exempt Joint Venture)


7. Taxable income of the joint venture = P0 (tax exempt)
8. Tax due of the joint venture = P0
9. Taxable income of ABC Company = P24M
10. Tax due of ABC Company = P7.2M
11. Taxable income DEF Company = P11M
12. Tax due of DEF Company = P3.3M

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Joint Venture ABC Co. DEF Co.
Gross income P50,000,000 P30,000,000 P20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Share in the income of the - 14,000,000 6,000,000
joint venture
Net/ Taxable income P20,000,000 P24,000,000 P11,000,000
Tax Rate (NCIT) 30% 30%
Tax Due P0 P7,200,000 P3,300,000

(P4.8)
Case A:
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6,000,000
3. Taxable income of Rico = P10M
4. Taxable income Earl = P5M
5. Final tax due of Rico (10%) = P980,000
6. Final tax due of Earl (10%) = P420,000
Joint Venture Rico Earl
Gross income P50,000,000 30,000,000 20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Taxable income P20,000,000 P10,000,000 P5,000,000
Less: Tax Due @ 30% (6,000,000)
Distributable income P14,000,000
Share in income
Rico @ 70% P9,800,000
Earl @ 30% 4,200,000

Case B:
7. Taxable income of the joint venture = P0 (tax exempt)
8. Tax due of the joint venture = P0
9. Taxable income of Rico = P24,000,000
10. Taxable income Earl = P11,000,000
11. Final tax due of Rico = P0 ; subject to basic and creditable withholding tax
12. Final tax due of Earl = P0 ; subject to basic and creditable withholding tax

Joint Venture Rico Earl


Gross income P50,000,000 30,000,000 20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Net income P20,000,000 P10,000,000 P5,000,000

Distributable income P20,000,000


Share in income
Rico @ 70% P14,000,000 14,000,000
Earl @ 30% 6,000,000 6,000,000
Taxable income P24,000,000 P11,000,000

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(P4.9)
1. [(P6M-4M) + (($50,000-$20,000)x45)] = P3,350,000 x 30% = P1,005,000
2. (P6M-4M) x 30% = P600,000
3. P6M x 30% = P1,800,000
4. P6M x 2.5% = P150,000
5. P6M x 1.5% = P90,000
6. P6M x 25% = P1,500,000
7. P6M x 4.5% = P270,000
8. P6M x 7.5% = P450,000
9. *P3,350,000 x 10% = P335,000; * from #1
10. P1,005,000; same computation with #1
11. P0; exempt

(P4.10)
1. [5M + 3M] x 2.5% = P200,000
2. [5M x 2.5%) + (3M x 1%)] = P155,000
3. [5M + 3M] x 2.5% = P200,000; No GPB on Gross receipts from USA to Russia

(P4.11)
1.Related 4.Related
2.Related 5.Related
3.Related 6.Unrelated

(P4.12)
Gross income, related activities P5,000,000
Gross income, unrelated activities (excluding rental income) 5,000,000
Rental income from commercial spaces (gross of 5% WT) 2,000,000
Expenses, related activities (2,000,000)
Expenses, unrelated activities (3,000,000)
Taxable income P7,000,000
Tax Rate (NCIT); Unrelated income  Related income 30%
Tax Due 2,100,000
Less: Quarterly tax payments for the first 3 quarters (500,000)
Income Tax Payable P1,600,000

(P4.13)
Question 1:
Tuition fees P9,500,000
Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Depreciation expense-classrooms (75,000)
Depreciation expense-furniture and equipment (50,000)
Taxable income P2,105,000
x Tax Rate 10%
Tax Due P210,500

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Question 2:
Tuition fees P9,500,000
Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Construction of additional classrooms (1,300,000)
Acquisition of furniture and equipment (400,000)
Taxable income P530,000
x Tax Rate 10%
Tax Due P53,000

(P4.14)
1. Income Tax Due (Payable) = P249,000 – CWT 15,000 = P234,000
2. Improperly accumulated earnings tax = P46,425
Solution:
Gross income (gross of 1% WT) P1,500,000
Business expenses (600,000)
Gain on sale of business asset 60,000
NOLCO in 2011 (130,000)
Taxable income P830,000
ADD:
2011 NOLCO 130,000
Interest on peso bank deposit (P5,000/80%) 6,250
Dividends from a domestic corporation 35,000
Gain on sales of shares, not listed and traded subjected to
capital gains tax (P150,000-115,000) 35,000 206,250
DEDUCT:
NCIT (P830,000 x 30%; higher than MCIT) 249,000
Final Tax on Passive income (6,250 x 20%) 1,250
Capital gains tax on shares (35,000 x 5%) 1,750
Dividends paid during the year 120,000 (372,000)
BALANCE P664,250
RE Jan. 1 200,000
RE Dec. 31, 2015 P864,250
LESS: Amount that may be retained (Par of Outs. Sh.) (400,000)
IMPROPERLY ACCUMULATED EARNINGS P464,250
x IAET RATE 10%
IMPROPERLY ACCUMULATED EARNINGS TAX P46,425

(P4.15) P1.5M x 6% = P90,000

(P4.16) (Sale 3 = P14,000) + (Sale 4 = P2,500) = P16,500

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TRUE OR FALSE
1. TRUE 11. TRUE 21. FALSE
2. FALSE 12. TRUE 22. TRUE
3. TRUE 13. FALSE 23. FALSE
4. TRUE 14. TRUE 24. FALSE
5. FALSE 15. FALSE 25. TRUE
6. TRUE 16. TRUE 26. TRUE
7. TRUE 17. FALSE 27. TRUE
8. TRUE 18. FALSE 28. TRUE
9. TRUE 19. TRUE 29. TRUE
10. FALSE 20. TRUE 30. FALSE
(10) it shall be “prolonged labor dispute” resulting from temporary closure of the business
(15) treated as inter-corporate dividend, hence, nontaxable
(17) should be from “within and without”
(17) shall be ROHQ
(21) shall be IAET
(24) only if the taxpayer is a financial institution
(30) passive incomes are not subject to branch remittance tax
MULTIPLE CHOICE
1. D 21. D 41. C 61. D
2. B 22. B 42. A 62. A
3. C 23. A 43. D 63. A
4. B 24. C 44. D 64. A
5. D 25. D 45. B 65. A
6. C 26. B 46. B 66. B
7. D 27. D 47. C 67. C
8. B 28. D 48. C 68. C
9. B 29. A 49. A 69. B
10. B 30. C 50. D 70. A
11. A 31. B 51. D 71. A
12. D 32. C 52. D 72. A
13. B 33. A 53. A 73. D
14. D 34. D 54. B 74. A
15. C 35. C 55. B 75. A
16. B 36. D 56. D
17. C 37. C 57. C
18. B 38. - 58. B
19. A 39. B 59. C
20. D 40. B 60. B
Supporting Computations (Multiple Choice):
(4).
Domestic RFC NRFC
Gross Income, Philippines P975,000 P975,000 P975,000
Expenses, Philippines (750,000) (750,000)
Gross Income, Malaysia 770,000
Expenses, Malaysia (630,000)
Interest on bank deposit - - 25,000
Taxable income 365,000 225,000 P1,000,000
Tax Rate 30% 30% 30%
Tax Due P109,500 67,500 300,000

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(5).
Gross profit from sales P3,000,000
Business expenses (1,800,000)
Dividend income from a resident corporation 50,000
Dividend income from a nonresident corporation 40,000
Capital gain on sale of land in China 200,000
Interest income from notes receivable 20,000
Taxable income P1,510,000
Tax Due @ 30% P453,000

(6).
Sale of land-Phils. P2M x 6% P120,000
Sale of shares of domestic corp.
[(P100,000 x 5%)+(P20,000 x 10%)] 7,000
Capital gains tax P127,000
(7).
Interest income on peso bank deposit @ 20% P6,000
Interest income on foreign currency bank deposit 1,875
Interest income on treasury bills @ 20% 2,000
Total final taxes on passive income P9,875
(8).
To Louie @ 10% P10,000
To Floyd @ 10% 10,000
To Zeus @ 10% 10,000
To JJ @ 20% 20,000
To Francis @ 25% 25,000
To Chen, a domestic corporation Exempt
To a resident foreign corporation Exempt
To a nonresident foreign corporation @ 15% 15,000
Total withholding taxes P90,000

(10).
Final W. Tax = $3,000 x P45 x 10% = 13,500

(11).
Interest income from loans P10,000,000
OPEX (P12M x 10/15) (8,000,000)
Taxable income P2,000,000
Income Tax Rate 30%
Income Tax Due P600,000

(12 and 13)


Solution:
Joint Venture ABC Co. DEF Co.
G Income P5,000,000 P3,000,000 P2,000,000
Expenses (3,000,000) (2,000,000) (1,500,000)
TNI P2,000,000 P1,000,000 P500,000
NCIT 30% 30% 30%
Tax Due P600,000 P300,000 P150,000

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(14).
Joint Venture ABC Co. DEF Co.
G Income P5,000,000 P3,000,000 P2,000,000
Sh. in Inc. 1,400,000 600,000
Expenses (3,000,000) (2,000,000) (1,500,000)
TNI P2,000,000 P2,400,000 P1,100,000
NCIT - 30% 30%
Tax Due - P720,000 P330,000

(17). Income Tax Due = (P10M-P4M) x 30% = P1,800,000

(18). Income Tax Due = P10M x 2.5% = P250,000

(20). Income Tax Payable = [5M + 3M] x 2.5% = P200,000


(21). Tax Expense (Income & CCT = ([5M + 3M] x 2.5% )) + CCT = P200,000 + 60,000 = P260,000
(22). Branch Remittance Tax = P2M x 15% = P300,000
(27).
Gross income, related activities P5,000,000
Gross income, unrelated activities (except rental income) 5,000,000
Rental income from commercial spaces (gross of 5% WT) 2,000,000 P12,000,000

Expenses, related activities 2,000,000


Expenses, unrelated activities 3,000,000 (5,000,000)
Taxable income P7,000,000
Tax rate (unrelated income>related income) 30%
Tax due P2,100,000
Less: Quarterly tax payments P500,000
Withholding tax on rental income 100,000 (600,000)
Tax payable P1,500,000

(28).
Income from tuition fees P3,500,000
Miscellaneous school fees 1,500,000
Dividend income from foreign corp. 2,000,000
Rental income (gross of 5% WT) 2,000,000 P9,000,000
OPEX (4,000,000)
Taxable income P,000,000
Tax rate (related income>unrelated income) 10%
Tax due P500,000
Less: Withholding tax on rental income (100,000)
Tax payable P400,000

(29).
Tuition and other fees P5,000,000
Rental income (gross of 5% WT) 50,000
OPEX (1,500,000)
CAPEX (2,000,000)
Taxable income P1,550,000
Tax rate (related income>unrelated income) 10%
Tax due P155,000
Less: Withholding tax on rental income (2,500)
Tax payable P152,500

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(30).
Gross Receipts P8,500,000
Rental income (gross of 5% WT) 1,500,000
OPEX (8,200,000)
Taxable income P1,800,000
Tax rate (not a non-profit hospital) 30%
Tax due P540,000
Less: Withholding tax on rental income (75,000)
Tax payable P465,000

(30).
Tuition fees P4,800,000
Rental income (gross of 5% WT) 5,200,000
OPEX (9,450,000)
Taxable income P550,000
Tax rate (unrelated income is higher) 30%
Tax due P165,000
Less: Withholding tax on rental income (260,000)
Tax payable (P95,000)

(#s 39 TO 46). ERRATUM: Change year of commencement of operations to 2003


‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15

NCIT P25,000 P130,000 P200,000 P0 P100,000 P150,000 P8,000 P1,000


MCIT 100,000 150,000 190,000 300,000 50,000 60,000 40,000 50,000
DUE (Higher) 100,000 150,000 200,000 300,000 100,000 150,000 40,000 50,000
EXCESS MCIT 75,000 20,000 - 300,000 - - 32,000 49,000
TAX DUE P100,000 P150,000 P200,000 P300,000 P100,000 P150,000 P40,000 P50,000
MCITCO -
‘08 (75,000)
‘09 (20,000)
‘11 (100,000) (150,000) -
TAX PAYABLE P100,000 P150,000 P105,000 P300,000 P0 P0 P40,000 P50,000

CHAPTER 5 – PARTNERSHIPS, ESTATES AND TRUSTS

PROBLEM SOLVING
P5.1
1. Income tax due of the partnership = P0 (tax exempt)
2. Income tax due of LJ = P397,000
LJ
LJ’s gross income from his trading business P1,000,000
LJ’s expenses from his trading business (600,000)
Share from the net income of a GPP 400,000
Royalty, books published in USA 150,000
Salaries, gross of withholding tax 450,000
Basic exemption (50,000)
Taxable income P1,350,000
Tax Due (Tax Table) P397,000

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
P5.2
Case A (Ordinary Partnership):
1. Tax due of the partnership = P240,000
2. Tax due of Rivera = P0
3. Tax due of Reyes = P50,000
RR Partnership Rivera Reyes
Gross Income P2,000,000 P800,000 P1,000,000
Allowed Deductions (1,200,000) (900,000) (700,000)
Basic exemption - (50,000) (50,000)
Taxable income P800,000 (P150,000) P250,000
Tax Rate 30% Tax Table Tax Table
Tax Due P240,000 P0 P50,000
Note: The partners’ share in the net income of the partnership is treated as dividend income subject to a final tax rate of 10%.

Case B (General Professional Partnership):


3. Tax due of the partnership
4. Tax due of Rivera
5. Tax due of Reyes
RR Partnership Rivera Reyes
Gross Income P2,000,000 P800,000 P1,000,000
Allowed Deductions (1,200,000) (900,000) (700,000)
Basic exemption - (50,000) (50,000)
Share in partnership income - 320,000 480,000
Taxable income P800,000 P170,000 P730,000
Tax Rate EXEMPT Tax Table Tax Table
Tax Due P0 P14,500 P198,600

P5.3
1. Income tax payable/(refundable) of the partnership = P352,500
2. Income tax payable/(refundable) of Villamin = P40,150
3. Income tax payable/(refundable) of Francis = P0
4. Final tax on passive income of the partnership = P7,750
5. Final tax on passive income of Villamin = P40,908
6. Final tax on passive income of Francis = P97,317
7. Capital gains tax of the partnership = P150,000
8. Capital gains tax of Villamin = P0
9. Capital gains tax of Francis = P7,000
Partnership:
Gross profit from sale of services P3,500,000
Direct cost of services (1,500,000)
Business Expenses (700,000)
Rental Income in business assets (gross) 150,000
(P142,500/95%)
Taxable income P1,450,000
X tax rate 30%
Tax due P435,000
Quarterly tax payments (75,000)
Withholding tax on rent (7,500)
Income tax payable P352,500

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Interest Income on peso bank deposits @ 20% P4,000
Interest income-FCDS @ 7.5% 3,750
Final Tax on passive income of the partnership P7,750
Capital gains tax on real property (2.5M x 6%) 150,000
DISTRIBUTABLE INCOME:
Taxable income P1,450,000
Total income subject to final tax 70,000
Capital gain 300,000
Less:
Basic tax due (435,000)
Final tax due (7,750)
Capital gains tax (150,000)
DISTRIBUTABLE INCOME P1,227,250

Villamin:
Gross income from sole-proprietorship business 925,000
Allowable business expenses (670,000)
Dividend Income-resident foreign corp. 120,500
Basic exemption (50,000)
Taxable income P325,500
Tax due (tax table) P72,650
Quarterly tax payments (32,500)
Income tax payable P40,150
Final Tax – (P1,227,250/3 X 10%) P40,908
Capital gains tax - Villamin P0

Francis:
Income Tax payable P0
(No income subject to basic tax)

Dividend Income @ 10% P8,500


Royalty Income @ 20% 7,000
Share in the distributive share of the partnership income
(P1,227,250/3 X 2 x 10%) 81,817
Total final tax on passive income P97,317

Capital gains tax on shares of stock 7,000


[(P100,000 x 5%) + (20,000 x 10%)]

P5.4
1. Income tax payable of the business partnership = P114,000
2. Income tax payable of the GPP = P0
3. Income tax payable of Louie = P26,875
4. Income tax payable of Floyd = P44,563

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
Business
Partnership GPP
Gross income P800,000 P500,000
Deductible expenses (420,000) (375,000)
Net or Taxable income P380,000 P125,000
Tax rate 30%
Income tax due/payable P114,000 EXEMPT

Louie and Floyd Louie Floyd


Gross Income P 325,000 P 380,000
Deductible expenses (117,000) (205,000)
Dividend from foreign corporation 12,000 8,250
Prize, supermarket raffle - 7,500
Share in income of GPP 37,500 87,500
Basic exemption (50,000) (50,000)
Additional exemption (50,000) -
Taxable income P157,500 P228,250
Income tax payable (tax table) P26,875 P44,563

NOTE:
 The share in the net income of the business partnership, the dividend income from a domestic corporation and
royalty from books are subject to a final tax rate of 10%.
 The prize in a supermarket raffle by Louie (more than P10,000) is subject to 20% final tax

P5.5
1. Income tax payable of the estate = P43,000
2. Income tax payable of Louie = P2,250
3. Income tax payable of Floyd = P3,688
Louie Floyd Estate
Gross income (gross of 5% tax) P 325,000 P 380,000 P800,000
Deductible expenses (117,000) (205,000) (420,000)
Dividend from foreign corporation 12,000 8,250
Prize, supermarket raffle 7,500
Basic exemption (50,000) (50,000) (20,000)
Additional exemption (50,000) - -
Taxable income P120,000 P140,750 P360,000

Tax Due (Tax Table) P18,500 P22,688 P83,000


Less CWTax (5%) (16,250) (19,000) (40,000)
Income Tax Payable P2,250 P3,688 P43,000

P5.6
1. Income tax payable of the estate = P49,000
2. Income tax payable of Louie = P42,500
3. Income tax payable of Floyd = P35,188

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Estate
Rental income of the estate (gross 5% tax) P1,000,000
Deductible operating expenses (estate) (500,000
Income distributed to Louie (50,000)
Income distributed to Floyd (50,000)
Basic exemption (20,000)
Taxable income P380,000
Tax due (tax table) P89,000
Less: CWtx (50,000)
Income Tax Payable P49,000

Louie Floyd
Gross Income P 325,000 P 380,000
Deductible expenses (117,000) (205,000)
Dividend from foreign corporation 12,000 8,250
Prize, supermarket raffle 7,500
Amount received from the Income of the estate 50,000 50,000
Basic exemption (50,000) (50,000)
Taxable income P220,000 P190,750
Tax Due P42,500 P35,188

P5.7
1. Income tax payable of the trust = P310,600
2. Income tax payable of Pedro = P131,640
Gross income of the trust P3,000,000
Deductible business expenses of the trust (1,800,000)
Income distributed to EDT during the year (200,000)
Dividend income from resident foreign corporation 100,000
Basic exemption (20,000)
Taxable income P1,080,000
Income Tax payable (tax table) P310,600

Compensation income P800,000


Rental income (gross) 500,000
Rental expenses (80,000)
Dividend from foreign corporation 8,250
Basic exemption (20,000)
Taxable income P1,208,250
Tax Due P351,640
Tax payments (Quarter 1-3) (120,000)
CWTx on rent (100,000)
Income Tax Payable-Pedro P131,640

P5.8
1. Taxable income of Trust 1 = P780,000
2. Taxable income of Trust 2 = P1,280,000
3. Consolidated taxable income of the Trust 1 and 2 = P2,080,000
4. Income tax payable of Trust 1 = P14,860
5. Income tax payable of Trust 2 = P26,540
6. Taxable income of Juan = P1,950,000

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7. Taxable income of Pedro = P1,350,000
Trust 1 Trust 2 Consolidated
Gross income of the trust P3,000,000 P3,000,000 P6,000,000
Deductible business expenses of the trust (1,800,000) (1,800,000) (3,600,000)
Income distributed to Rico during the year (500,000) (500,000)
Dividend income-resident corporation 100,000 100,000 200,000
Basic exemption (20,000) (20,000) (20,000)
Taxable income P780,000 P1,280,000
TAX DUE (PAID) P214,600 P374,600

Total consolidated income P2,080,000


TAX DUE (Allocated Income Tax Due) P229,460 P401,140 P630,600
Trust #1=214,600/589,200 x P630,600
Trust #1=374,600/589,200 x P630,600
Less: Tax Paid P214,600 P374,600
INCOME TAX PAYABLE P14,860 P26,540

Juan Pedro
Compensation income P1,000,000 1,200,000
Gross business income 1,000,000 600,000
Business expenses (550,000) (400,000)
Dividend from foreign corporation 50,000
Amount received from the income of the trust 500,000
Basic exemption (50,000) (50,000)
Taxable income P1,950,000 P1,350,000

MULTIPLE CHOICE
1. A 21. D 41. B 61. C
2. C 22. A 42. B 62. B
3. B 23. D 43. D 63. C
4. B 24. D 44. C 64. D
5. B 25. D 45. D 65. D
6. A 26. A 46. C
7. A 27. D 47. D
8. D 28. C 48. D
9. B 29. A 49. D
10. C 30. A 50. D
11. B 31. D 51. B
12. A 32. B 52. D
13. B 33. A 53. D
14. C 34. D 54. C
15. B 35. A 55. C
16. A 36. D 56. D
17. D 37. C 57. B
18. B 38. C 58. D
19. C 39. D 59. D
20. B 40. D 60. C

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Supporting Computations (Multiple Choice):
15. (P2M-1M) x 30% = P300,000
16. Subject to 10% final tax

17.
Partnership net profit (net of 30% tax) P560,000
(P800,000 x 70%)
Other Income:
Interest income, net 8,000
Dividend income (tax exempt) 20,000
Total distributive income P588,000

Share of T (50%) P294,000


Applicable tax (10% final tax) P29,400

18. P600,000 – P350,000 x 50% = P125,000

19.
Share in GPP’s income P125,000
Own income (P150,000-70,000) 80,000
Basic exemption (50,000)
Taxable income of Ramos P155,000
20.
Gross income P750,000
Expenses (200,000)
x 70%
Net income after corporate tax 385,000
Add:
Dividend received from a domestic corp. (tax exempt) 20,000
Bank interest income, Metrobank (net of final tax) 80,000
Distributable net income P485,000

Tita: P485,000 x 55% x 10% P26,675


Ghore: P485,000 x 45% x 10% P21,285

32. Statement IV – subject to creditable withholding tax, not final tax


40.
Income of the estate P600,000
Expenses (150,000)
Distribution of income to Francis (120,000)
Basic exemption (50,000)
Taxable income of Ramos P280,000
41.
Francis’ own income P500,000
Income of the estate received by Francis 120,000
Basic exemption (50,000)
Taxable income of Ramos P570,000

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60.
Compensation income P1,500,000
Business income 1,000,000
Basic exemption (50,000)
Taxable income of Ramos P2,450,000

61.
Trust’s income P40,000,000
Income distributed to Atty. Lo Yer (Gross) (P8.5M / 85%) (10,000,000)
Business expenses (10,000,000)
Basic exemption (50,000)
Taxable income of Ramos P19,980,000

62.
Compensation income (Gross amount) P3,000,000
Income of the trust received by Niah (Gross) 10,000,000
Basic exemption (50,000)
Taxable income of Ramos P12,950,000

63 – 65.
# 64 TRUST 1 # 65 TRUST 2
Net income P4,000,000 Net income P6,000,000
Personal exemption (20,000) Personal exemption (20,000)
Taxable income P3,980,000 Taxable income P5,980,000
Tax due: Tax due:
1st P500,000 P125,000 1st P500,000 P125,000
Excess @ 32% 1,113,600 Excess @ 32% 1,753,600
Tax due/paid 1,238,600 Tax due/paid 1,878,600
Versus Share 1,262,171* Versus Share 1,896,429**
Tax Payable P23,571*** Tax Payable P17,829****

# 63
Consolidated:
Net income P10,000,000
Personal exemption (20,000)
Taxable income P9,980,000
Tax Due (Consolidated):
1st P500,000 P125,000
Excess @ 32% 3,033,600
Total P3,158,600
Less Paid:
Trust 1 (1,238,600)
Trust 2 (1,878,600)
Income Tax Payable 41,400

Share in the Tax due:


Trust 1 41,400 x 3,980/9,960*****
(3,980/9,960***) x P1,238,600 1,262,171* =23,571***

Trust 2
(5,980/9,960) 1,896,429** 41,400 x 5,980/9,960
=17,829****
3,980+5,980 = 9,960*****

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CHAPTER 6 – CONCEPT OF INCOME
MULTIPLE CHOICE
1. B 13. C 25. D 37. C
2. D 14. D 26. B 38. D
3. B 15. A 27. B 39. D
4. A 16. B 28. A 40. C
5. D 17. D 29. D 41. C
6. D 18. A 30. A 42. C
7. A 19. C 31. D 43. D
8. D 20. C 32. D 44. -
9. B 21. A 33. B 45. A
10. D 22. D 34. B
11. C 23. D 35. B
12. A 24. D 36. B

Supporting Computations:
32. P300,000 4/12 = P100,000
23.
Gain on sale of personal property purchased in the Philippines P-
and sold in Hongkong
Compensation received for personal services in the Philippines 200,000
Rent income from real property in Malaysia -
Gain from sale in the Philippines of shares of a foreign corporation 100,000
Deductions identified with:
Philippine income (80,000)
Foreign income -
Deductions unidentified with any particular income (P30,000 x 300,000/1,000,000) (9,000)
Philippine Net Income P211,000

34.
Gross Receipts P600,000
Rental expenses (120,000)
Salaries expense (100,000)
Basic exemption (50,000)
Taxable income P330,000

35. (Resident Alien)


Gross Income P2,000,000
Business expenses (1,200,000)
Dividend income from foreign corp. (50,000 x 60%) 30,000
Basic exemption (50,000)
Taxable income P780,000

36. Final Tax Withheld on dividend income from domestic corp. = (P90,000 + 72,000)/ 90% x 10% = P18,000

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37. (Domestic Corp = Taxable on income within and without
Gross Income P10,000,000
Allowable deductions (4,000,000)
Dividend income from domestic corp. exempt
Dividend income foreign corp. (95% from R.P.) 1,000,000
Dividend income foreign corp. (60% from R.P.) 800,000
Dividend income foreign corp. (25% from R.P.) 400,000
Taxable income P8,200,000

38. (Resident Foreign Corp = Taxable on income from Philippine sources only
Gross Income P10,000,000
Allowable deductions (4,000,000)
Dividend income from domestic corp. exempt
Dividend income foreign corp. (80% from R.P.) 800,000
(P1M X 80%=considered from Phil. sources)
Dividend income foreign corp. (60% from R.P.) 480,000
(P800,000 x 60%)
Dividend income foreign corp. (25% from R.P.) -
(entire amount is considered income from sources
outside of the Phils.)
Taxable income P7,280,000

39.
DI-Microsoft -
DI-Intel (P400,000 x 60% x 30%) P72,000
DI - IBM -
Interest income – BDO @ 20% 120,000
FCDS deposit @ 7.5% 60,000
Royalty income @ 20% 20,000
Total final taxes on passive income P272,000

40.
DI-Microsoft & Intel @ 30% basic tax P270,000
DI - IBM -
Interest income – BDO @ 20% 120,000
FCDS deposit @ 7.5% 60,000
Royalty income @ 20% 20,000
Total final taxes on passive income P470,000

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CHAPTER 7 – INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME
PROBLEM SOLVING:
P7.1
INCOME SUBJECT TO BASIC TAX:
Basic salary (P900,000+P300,000) P1,200,000
Director’s fee 200,000
Business income:
Retail business 250,000
Apartment rental (P190,000/95%) 200,000
Dividend income from a resident corporation 50,000
13th, Xmas and MidYear Bonus (net of P82,000 98,000
exclusions)
Gross Income subject to basic tax (Q#1) P1,998,000
LESS:
Business expenses (125,000)
Basic exemption (50,000)
Net Taxable income (Q#4) P1,823,000
Income tax due (Q#5) P548,360

INCOME SUBJECT TO FINAL TAX:


Cash dividend from a domestic corporation P50,000
Interest from savings deposit 20,000
Royalties from book publications 50,000
Prizes from contest won 50,000
Winnings town lottery 50,000
Total Income subject to final tax (Q2) P220,000

INCOME EXEMPT FROM TAX:


Stock dividend from a domestic corporation P25,000
Damages received from injuries and sickness 85,000
Proceeds-life insurance coverage of his father 300,000
Total income exempt from tax (Q3) P410,000

P7.2
1) P10,000
2) P15,000
3) P715,000 computed as follows:

Gross profit from sales P1,000,000


Taxable recovery-receivables 10,000
Taxable tax refunds 15,000
Rent income excluding security deposit 250,000
Operating expenses (500,000)
Write-off during the year (60,000)
Taxable income P715,000

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P7.3
1) P240,000 + 24,000 = P264,000
2) P240,000 + 24,000 = P264,000
3) P1,000,000
Income from improvement (Remaining BV after lease term) P1,000,000
(P3M x 5/15)
Remaining Lease Term after completion = 10 years
Remaining life after lease term = 5 years

4) P100,000
Income from improvement (Remaining BV after lease term) P1,000,000
(P3M x 5/15) /10 years
Remaining Term after completion = 10 years =P100,000
Remaining life after lease term = 5 years

P7.4
Ramon Magsaysay award P50,000
Athlete of the year award 100,000
Prize for winning an Olympic Medal 500,000
Winnings – Philippine lotto 100,000
Total Winnings and Awards exempt from income tax P750,000

If the Question was total amount exempt from income tax, the answer would have been:
Total Winnings and Awards exempt from income tax P750,000
Gift from Mayor Alfredo Lim 250,000
Car from Honda as a gift 1,000,000
Total Amount exempt from income tax P2,000,000

P7.5 P0; The P800,000 should be exempt from income tax


P7.6 P1,000,000; The interest income from expanded foreign currency deposit
P7.7 Taxable Proceeds = P1,000,000 – P600,000 = P400,000
P7.8 Income within = None. The ratio of income without over total income for the past 3 years < 50%.

P7.9
Salary for the first quarter P180,000
Honorarium as speaker in one of ABC’s team building activities 10,000
Retirement pay Exempt
Commissions 30,000
Fee as a member of ABC’s board of directors 50,000
10 days monetized vacation leave Exempt
Interest income from time deposit F. Tax
Productivity incentive pay and 13th month pay Exempt
(Productivity pay=P10,000 de minimis under RR 1-2015)
(Total of excess of productivity of P10,000 + 60,000 bonus is not
more than P82,000, hence tax exempt)
Total compensation income subject to tax P270,000

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P7.10
INCOME Q#1 Q#2 Q#3 Q#4
Income Income Taxable income Taxable income
within without (Resident Citizen) (Nonresident Citizen)
A. Rental income (gross)
 From an apartment unit in USA, - P240,000 P240,000
 From a parcel of land in Makati P180,000 180,000 P180,000

B. Royalties from book


 Published in the Philippines 30,000 - -
 Published in USA 20,000 20,000

C. Interest income earned on notes receivable


 From a debtor who resides in USA 15,000 15,000
 From a debtor who resides in Manila 25,000 25,000 25,000

D. Net profit from sales, merchandising business


 From Philippine outlet 300,000 300,000 -
 From USA outlet 200,000 200,000 200,000

E. Dividend income from two domestic corporations.


Gross income from the Phils. for the past 3 years
 60% of its world income 60,000 - - -
 85% of its world income 80,000 - - -

F. Dividend income from two resident foreign


corporations. Gross income from the Philippines for
the past 3 years was equivalent to:
 40% of its world income - 40,000 40,000 -
 60% of its world income 12,000 8,000 20,000 12,000
G. Prizes received from Supermarket raffle:
From the Philippines:
 ABC Supermarket 8,000 - 8,000 8,000
 DEF Superstore 12,000 - - -
From USA:
 UVW Supermarket - 6,000 6,000 -
 XYZ Supersavers - 14,000 14,000 -
H. Prizes and winnings from lotto
 Philippine lotto 200,000 - - -
 USA lotto 100,000 - -

BASIC EXEMPTION (50,000) (50,000)


TOTAL P907,000 P643,000 P1,018,000 P375,000

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P7.11
DIVIDEND INJURIES/DAMAGES PRIZES/AWARDS
1. 10% F.Tax 8. Exempt 15. Basic
2. 10% F.Tax 9. Exempt 16. Exempt
3. Basic Tax 10. Basic Tax 17. Exempt
4. Exempt 11. Exempt 18. Exempt
5. Basic Tax 12. Basic Tax 19. Exempt
6. Exempt 13. Exempt 20. Basic Tax
7. N.taxable 14. Basic 21. Basic Tax
22. Exempt
23. Basic Tax
24. 20% final tax (individual taxpayer)
25. Basic Tax

VARIOUS PROCEEDS/INCOME
26. Final Tax
27. Exempt
28. Exempt
29. Exempt
30. Exempt

TRUE OR FALSE
1. TRUE 8. TRUE 15. FALSE 22. FALSE
2. FALSE 9. TRUE 16. FALSE 23. FALSE
3. TRUE 10. TRUE 17. TRUE 24. TRUE
4. FALSE 11. TRUE 18. FALSE 25. TRUE
5. FALSE 12. TRUE 19. FALSE
6. TRUE 13. TRUE 20. FALSE
7. FALSE 14. FALSE 21. FALSE

MULTIPLE CHOICE
1. C 16. A 31. C 46. D
2. B 17. A 32. C 47. D
3. D 18. C 33. D 48. D
4. D 19. B 34. D 49. B
5. B 20. D 35. C 50. C
6. B 21. D 36. C 51. B
7. B 22. C 37. D 52. C
8. B 23. A 38. B&D 53. D
9. C 24. C 39. D 54. D
10. A 25. C 40. D 55. D
11. C 26. A 41. D 56. C
12. C 27. D 42. D 57. A
13. B 28. C 43. D 58. B
14. C 29. D 44. D 59. B
15. B 30. D 45. A 60. C

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
Supporting Computations (Multiple Choice):
No. 13.
Write-off 2013 Income (Loss) 2014 2014 TAXABLE
2013 before write off Recovery RECOVERY
P50,000 P350,000 P20,000 P20,000
10,000 (50,000) 10,000 -
30,000 20,000 30,000 20,000
P40,000
No. 14.
Case A Case B Case C
2013 Income(loss) before write-off P120,000 P60,000 (P40,000)
Write-off 40,000 40,000 50,000
2014 Recovery P40,000 P10,000 P50,000
TAXABLE RECOVERY P40,000 P10,000 P0

No. 17.
Interest from Philippine Currency Certificate = subject to 20% final tax; non-returnable income
Refund of income tax = not an income

No. 25.
Rent for 2015 and 2016 (prepaid rent is taxable P3,600,000
yr. of receipt regardless of accounting method)
Annual real property tax 30,000
Total annual income P3,630,000

No. 26.
Rent for 2016 (already reported in 2015) P0
Annual real property tax 30,000
Income from improvement 600,000
[(P36M x **3/15) / 12]
Total annual income P630,000

Lease Term: 12.5 years


Remaining Lease term after completion of the improvement: 12 years
Useful life of the improvement: 15 years
Remaining useful life of the improvement after termination of the lease: 3 years**

No. 27.
Royalty – as an author @ 10% P10,000
Other royalties P800,000
x 20% 160,000
Total final tax on royalty income P170,000

No. 38. Letter “B” is subject to 20% final withholding tax while letter “C” is subject to CGT.

No. 39. Exclude lotto winnings

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia
No. 46.
Proceeds from the taxpayers life insurance P2,000,000
Less premiums paid (P15,000 x 25) (375,000) P1,625,000
Rent income from inherited properties 200,000
Taxable income P1,825,000

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Solutions Manual-Income Taxation(2016 Edition) by Tabag & Garcia