Blt 134 chapter 2

TAXATION OF INDIVIDUALSChapter 2

CLASSIFICATION OF INDIVIDUALS

1. Citizena. Residentb. Non-Resident

2. Aliena. Residentb. Non-Resident

1. Engaged in trade or business in the Philippines2. Not engaged in trade or business in the Philippines3. Employed by

A. Regional or area headquarters and regional operating headquarters of multinational entities in the Philippines that are engaged in international trade with affiliates and subsidiary branch offices in the Asia-Pacific region

B. Offshore banking unitsC. Petroleum contractors and sub-contractors

end

CITIZEN

The following shall be considered citizens of the Philippines: Those who are citizens of the Philippines at the time of the adoption of

the February 2, 1987 Constitution; Those whose fates or mothers are citizens of the Philippines Those born before January 17, 1972, the date of the doption of the

1973 Constitution, of Filipino mothes, who elect Philippine citizenship upon reaching the age of majority; and

Those who are naturalized in accordance with law.

end

CITIZEN (CONT’D)

A. Resident Citizen is a Filipino citizen who permanently resides in the Philippines.

B. Non-Resident Citizen means: A citizen of the Philippines who establishes to the satisfaction of the

Commissioner the fact of his physical presence abroad with a definite intention to reside therein

A citizen of the Philippines who leaves the Philippines during the taxble year to reside abroad, either as an immigrant or for employment on a permanent basis

CITIZEN (CONT’D)

A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. “Most of the time” is interpreted to mean presence abroad for at least 183 days during the taxable year.

CITIZEN (CONT’D)

A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a non-resident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines.

The taxpayer shall submit proof to the Commissioner toshow his intention of leaving the Philippines to reside permenently abroad or return to and reside in the Philippines, as the case may be.

End

ALIEN

1. Resident Alien – means an individual whose residence is within the Philippines and who is not a citizen thereof. He is one who is actually present in the Philippines and who is not a mere transient or sojourner.

2. Non-resident Alien (NRA) – means an individual whose residence is not within the Philippines and who is not a citizen thereof.

ALIEN (CONT’D)

a. NRA engaged in trade or business (NRA-ETB)- means that the alien is carrying on a business in the Philippines. It connotes more than a single act or isolated transactions. It involves some continuity of action. The term trade, business or profession shall not include performance of services by the taxpayer as an employee but it includes the performance of the functions of a public office. A non-resident alient who has stayed in the Philippines for more than 180 days during any calendar year shall be deemed doing business in the Philippines.

b. NRA not doing business in the Philippines (NRA-NETB) is an alien who stayed in the Philippines 180 days or less.

end

OFFSHORE BANKING UNIT (OBU)

A branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the BSP to transact offshore banking business in the Philippines in accordance with the provisions of Presidential Decree No. 1034 as implemnted by Central Bank (now BSP) circular No. 1389, as amended.

end

TERMS TO CONSIDER IN THE RECOGNITION OF INCOME OF CITIZENS AND ALIENS

FOREIGN CURRENCY DEPOSIT SYSTEM(FCDS) shall refer to the conduct of banking transactions whereby any person, whether natural or juridical, may deposit foreign currencies forming part of the Philippine intenatinal reserves, in accordance with theprovisions of RA No. 6426 entitled “An Act Instituting a Foreign Currency Deposit System in the Philippines, and for Other Purposes”.

FOREIGN CURRENCY DEPOSIT (FCD) UNIT shall refer to the unit of a local bank or a local branch of a foreign bank authorized by the BSP to engage in foreign-denominated transactions, pursuant to the provisions of RA No. 6426 as amended.

TERMS TO CONSIDER IN THE RECOGNITION OF INCOME OF CITIZENS AND ALIENS (CONT’D)

LOCAL BANK shall refer to a thrift bank or a commercial bank organized under the laws of the Republic of the Philippines.

LOCAL BRANCH OF A FOREIGN BANK shall refer to a branch of a foreign bank doing business in the Philippines, pursuant to the provisions of RA No. 337, as amended.

DEPOSIT IN OBU – shall mean funds in foreign currencies which are accepted and held by an OBU or Foreign currency Deposit Unit in the regular course of business, with the obligation to return an equivalent amount to the owner thereof, with or without interest.

MIND BOGGLERS – RESIDENT ALIEN?ANSWER DESCRIPTION

1. A British computer expert was hired by a Philipppine corporation to assist in its computer system installation for which he had to stay in the Philippines for 6 months.

2. A British cultural performer was engaged to perform in the Philippines for two weeks after which he returned to his country.

3. An alien owns shares of stock in the Philippines. Is he considered NRA-ETB in the Philippines?

4. An alien temporarily serves as executive manager of an airline in Manila. Is he considered NRA-ETB in the Philippines?

MIND BOGGLERS – RESIDENT ALIEN? (CONT’D)ANSWER DESCRIPTION

5. A resident alien left the Philippines and abandoned his residency thereof without any intention of returning. May he still be considered a resident alien?

6. A resident alien left the Philippines with a re-entry permit. Is he still a resident alient?

7. A non-resident citizen went to Manila under the Balikbayan Program. Does his return to Manila interrupt his residence abroad?

SOURCES OF INCOME

Source of income is not a place but the property, activity or service that produced the income. In the case ofincome derived from labor, it is the place where the labor is performed; in the case of income derived from the use of capital, it is the place where capital is employed; and in the case of profits from the sale or exchange of capital assets, it is the place where the sale or transaction occurs.

RULES TO BE CONSIDERED WHETHER THE INCOME OF THE INDIVIDUAL IS TAXABLE

It is important to know the source of income of an individual taxpayer – whether from within the Philippines or without – because not all individual taxpayers are taxed on all their income. The following rules apply:

1. Resident citizens are taxable on all income derived from sources within and without.

2. Non-resident citizens and alien individuals – resident and non-resident – are taxable on income derived from sources within the Philippines. An oveseas contract worker is taxable only on his income from sources within.

RULES TO BE CONSIDERED WHETHER THE INCOME OF THE INDIVIDUAL IS TAXABLE

IndividualSource of Income

Within the Phil. Without the Phil.

1. Resident Citizen2. Non-Resident Citizen3. Resident Alien4. Non-Resident Alien

√√√√

√

CATEGORIES OF INCOME AND TAX RATESCategories of Income Tax Rate

Compensation income. All remuneration for services performed by an employee for his employerr under an employer-employee relationship, unless specifically excluded by the Code.

Taxed at graduated rates from 5% to 32% (revised Section 24(A) per RA 9504)

Business Income – it arises from self-employment of practice of profession. This shall not include income from performance of services by the taxpayer as an employer.

Taxed at graduated rates from 5% to 32% (revised Section 24(A) per RA 9504)

TAX TABLE FOR INDIVIDUALS

If Taxable Income is: Tax Due is: If Taxable Income is: Tax Due is: Not over P10,000 5% Over P10,000 but not over P30,000

P500+10% of the excess over P10,000

Over P140,000 but not over P250,000

P22,500+25% of the excess over P140,000






P8,500+20% of the excess over P70,000 Over 500,000 P125,000+34% of the

excess over P500,000

end

ALLOWABLE DEDUCTIONS

Allowable deductions are items or amounts, which the law allows to be deducted from gross income in order to arrive at the taxable income.

1. From compensation incomea. Basic personal and/or additional exemptions; andb. Premium payments on health and/or hospitalization insurance.

ALLOWABLE DEDUCTIONS (CONT’D)

2. From business incomea. Basic personal and/or additional exemptions; andb. Premium payments on health and/or hospitalization insurance.c. Itemized deductions under the Tax Code (Items A-J, Section 34); andd. Optional standard deduction. In place of the itemized deductins, the

individual taxpayer may opt for the optional standard deduction (OSD) not to exceed 40% (before RA 9504, OSD was 10% only) of his gross sales or gross receipts, as the case may be.

PERSONAL EXEMPTIONS

Personal Exemptions are arbitrary amounts allowed as deductions from gross income of the individual taxpayer from compensation, business (self-employment) or practice of profession. Personal exemptions in a sense represent the pesonal, living or family expenses of the taxpayer.

Kinds of Personal Exemptions

1. Basic personal exemption

2. Additional exemption. This exemption is further alloed to the taxpayer by reason of his qualified dependent children.

PERSONAL EXEMPTIONS (CONT’D)

Republic Act 9504, which amended Republic Act 8424 (NIRC) was signed into law on June 17, 2008. The law allows for a basic personal exemption of FIFTY THOUSAND PESOS (P50,000) for each individual taxpayer regadless of status. In the case of married individuals where only one of the spouses is derivng gross income, only such spouse shall be allowed the personal exemption.

ADDITIONAL EXEMPTION

TWENTY-FIVE THOUSAND PESOS (P25,000) shall be allowed an additional exemption for each dependent child not exceeding four (4) children. The additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals.

A dependent means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than 21 years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of meantl or physical defect.

In the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children. The total amount of additional exemptions that may be claimed by both shall not exceed the maximum four (4) children.

The husband shall be deemed the proper claimant of the additional exemption unless he waives his right in favor of his wife. But if the spouse of the employee is unemployed or is a non-resident citizen deriving income from foreign sources, the employed spouse within the Philippines shall be automaticaly entitled to claim the additional exemptions.

In the case of married individuals where only one of the spouses is derivng gross income, only such spouse shall be allowed the basic and additional exemptions.

RULES ON CHANGE OF STATUS

1. If the employee should have additional dependents during the taxable year, he may claim the corresponding additional exemption in full for such year.

2. If the taxpayer dies during the taxable year, his death shall not affect the amount of personal and additional exemptions his estate may claim. It is as if he died at the end of such year.

3. If the spouse dies or any of the dependent dies or if any such dependent marries, becomes twenty-one years of age, or gets gainfully employed during the taxable year, the taxpayer may still claim the same exemtpion as if the change occurred at the end of the year.

HEAD OF THE FAMILY

- Is an individual who actually supports and maintains in one household one or more individuals, who are closely connected with him by blood relationship, relationship by mariage, or by adoption, and whose right to exercise family control and provide for these dependent individuals is based upon some moral or legal obligation.

- Head of family means an unmarried or legally searated man or woman with:

1. one or both parents, or

2. One or more brothers or sisters whether of the whole or half blood, or

3. One or more legitimate or illegitimate, recognized natural or legally adopted children

Who meet the following qualifications:

HEAD OF THE FAMILY (CONT’D)

Parent/s Brother/s or Sister/s

Child/ ren

a. Living with the taxpayer √ √ √

b. Depending upon the taxpayer for chief support √ √ √

c. Not more than 21 years old √ √

d. Unmarried √ √

e. Not gainfully employed √ √

g. Mentally or physically defective regardless of age

√ √

HEAD OF THE FAMILY (CONT’D)

Living with the person giving support does not necessarily mean actual and physical dwelling together at all times and under all circumstances. Thus, the the additional exemption applies even if a child or other dependent is away at school or on a visit. If, however, without necessity the dependent continuously makes his home elsewhere, his benefactor is not the head of a family irrespective of the question of support.

Chief support means principal or main support (such as paying for the rent and spending for the food of the dependent). It is more than one half (50%) of the support required by the dependent.

BASIC AND PERSONAL EXEMPTION RATE BEFORE JULY 6, 2008

CIVIL STATUS AMOUNT

For single individuals or married individual judicialy decreed as legally separated with no qualified dependent

P 20,000

For head of the family 25,000

For each married individuals 32,000

Additional exemption for each dependent child not exceeding four (4) children

8,000

TRANSITORY BASIC PERSONAL AND ADDITIONAL EXEMPTIONS

The implementing Revenue Regulations 10-2008 was made effective on July 6, 2008 so the basic personal and additional exemptions for calendar year 2008 shall be as follows:

Civil status Jan. 1 to July 5, 2008

July 6 to Dec. 31, 2008

2008 Total

Basic Personal Exemption

Single P 10,000 P 25,000 P 35,000

Head of the Family 12,500 25,000 37,500

Married 16,000 25,000 41,000

Additional Exemption for Every Qualified Dependent Child 4,000 12,500 16,500

INDIVIDUAL TAXPAYERS ALLOWED PERSONAL EXEMPTIONS

1. Citizens2. Resident Alien3. Non-Resident Alien4. Estate and trusts, which are, for

purposes of personal exemptions, treated as single individual.

PREMIUM PAYMENT ON HEALTH AND/OR HOSPITALIZATION INSURANCE

The following conditions must be met:

1. The insurance shall be taken by the individual taxpayer himself for his family;

2. The amount being claimed shall not exceed P2,400 a year or P200 a month per family;

3. The family has gross income of P250,000 or less for the taxable year.

Total family income includes primary income and other income from sources received by all members of the nuclear family, ie. Father, mother, unmarried children living together as one household, or a single parent with children. A single person living alone is considered as a nuclear family. For married taxpayers, only the spouse entitled to claim for additional exemption is allowed this deduction.

TAXABLE INCOME AND TAX DUE

Taxable Income is defined as the pertinent items of gross income less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws. The taxable income is the amount or tax base upon which tax rate is applied to arrive at the tax due.

1. Net Compensation Income – the compensation income arrived at after subtracting from gross compensation income derived by resident citizens or resident aliens, basic personal and additional exemptions; and premium payments, if any, on health and hospitalization insurance under certain conditions.

TAXABLE INCOME AND TAX DUE (CONT’D)

For resident citizen and resident alien earning purely compensation income:

Gross compensation income xxx

Less: Exemptions and Premium Payment

Basic Personal Exemption xxx

Add: Additional Exemptions xxx

Total Exemptions xxx

Add: Premium Paid on

Health and/or

Hospitalization Ins. xxx

Total Exemptions and Premium Payment xxx

Net Compensation Income (Taxable Compensation Income) xxx

Tax Due (Sec. 24(A)) xxx


2. Gross compensation income. The gross compensation income derived by aliens including Filipinos employed by regional and area headquarters and regional operating headquarters of multinational companies, by offshore banking units, or by foreign petroleum service contractors and sub-contractors.

For non-resident alien employed by such firms earning purely compensation income:

Gross compensation income xxx

Multiply by tax rate 15%

Tax Due xxx


3. Net Income. The income arrived at after subtractng from the gross income (from business or professional including compensation income) of a citizen, resident alien, and non-resident alien if the latter is engaged in trade or business in the Philippines the deductions of the taxpayer, including the basic personal and additional exemptions, if any.


For citizen, resident alien and non-resident alien engaged in trade or business in the Philippines:

a. Earning purely business or professional income

Gross Business income xxx

Less: Allowable Deductions

Itemized Deductions or 40% OSD xxx


Add: Additional Exemption xxx


Premium Paid on Health and/or

Hospitalization Insurance xxx

Total Allowable Deductions xxx

Net Income Subject to Tax xxx



b. Earning both business/professional and compensation income

Gross Business income xxx

Gross Compensation Income xxx

Total Gross Income xxx

Less: Allowable Deductions

Itemized Deductions or 40% OSD xxx


Add: Additional Exemption xxx


Premium Paid on Health and/or

Hospitalization Insurance xxx

Total Allowable Deductions xxx

Net Income Subject to Tax xxx



4. Entire or Gross Income. The entire or gross income (from business or profession including compensation income) without any deduction with respect to non-resident aliens not engaged in trade or business in the Philippines.

For non-resident alien not engaged in trade or business (NRANETB) in the Philippines earning business or professional income, compensation income or combination of both:

Gross income xxx

Multiply by final tax rate 25%

Tax Due xxx


NOTES IN THE COMPUTATION

1. For married individuals, the husband and wife shall compute separately the tax due on their respective taxable income. If any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally btween the spouses for the purpose of determining their respective taxable income.

2. In computing for the taxable income, fraction of a pesos is disregarded. For the tax due, a fraction amounting to fifty centavos or more is rounded off to a pesos while a fractiion amounting to less than fifty centavos is disregarded.

3. Creditable withholding tax withheld from income and/or tax credit is deducted from the tax due; penalties, if any, shall be added to the tax due.

ILLUSTRATIVE PROBLEM 1

Liza, a single taxpayer earned a basic compensation income of P224,010.60 in year 2009. Compute her tax due as per records for year 2009 her employer had already withheld and remitted a tax in the amount of P15,725.85.

Guide in computation:

Step 1. Identify the taxpaying party or “entity” to which the tax computation formula applies.

Taxpaying party : Liza (natural person)

Civil Status : Single

ILLUSTRATIVE PROBLEM 1 (CONT’D)

Step 2. Determine the taxpayer’s “gross income”.

GROSS INCOME: P224,010.60

Step 3. Determine the expenses and certain other items that can be “deducted” in computing the taxpayer’s “taxable income”.

PERSONAL EXEMPTION: P50,000.00

OTHER DEDUCCTIONS?

HEALTH/HOSPITALIZATION INSURANCE: 2,400.00

TOTAL EXEMPTIONS P52,400.00

TAXABLE INCOME

GROSS INCOME P224,010.60

LESS: TOTAL EXEMPTIONS 52,400.00

TAXABLE INCOME P171,610.60

NOTE: APPLY THE RULES P171,611.00


Step 4. Apply appropriate “tax rate” to the taxpayer’s taxable income to find the “tax due”.

FOR INDIVIDUAL TAXPAYER:

USE THE NIRC(Sec. 24(A))


TAX DUE

FIRST P140,000 P22,500.00

EXCESS OVER P140,000

P31,611 X 25% 7,902.75

TOTAL TAX DUE P30,402.75

APPLY THE RULE (ADD P1) P30,403.00

LESS: TAX WITHHELD 15,725.85

AMOUNT STILL DUE P14,677.15


Step 5. Subtract any applicable “tax credits/payments” from the taxpayer’s tax due in finding the “tax payable”.

TAX DUE P31,003.00


AMOUNT STILL PAYABLE P15,276.65

Step 6. Increase the tax by “penalties and interests” to obtain the “total amount payable”.

NOTE: NOT APPLICABLE IF THE AMOUNT DUE IS TO BE PAID ON OR BEFORE APRIL 15 OR JULY 15.


GROSS INCOME P224,010.60

LESS: TOTAL EXEMPTIONS 52,400.00


NOTE: APPLY THE RULES P174,010.00

TAX DUE

FIRST P140,000 P22,500.00

EXCESS OVER P140,000

P34,010 X 25% 8,502.50

TOTAL TAX DUE P31,002.50

APPLY THE RULE (ADD P1) P31,003.00


AMOUNT STILL DUE P15,276.65

ILLUSTRATIVE PROBLEM 2 (ACTIVITY)

Ronaldo, married, earning a pure compensation income with three (3) qualified dependent has a gross income of P275,000. His wife is a full-time housewife. During the year, his employer withheld from his income the amount of P14,725.50. Compute for the tax still payable.

ILLUSTRATIVE PROBLEM 2 (SOLUTION)

Taxpayer : Ronaldo (individual, married)

Applicable Tax: NIRC Sec. 24(A)

Gross Income: P275,000

Less: Personal/Additional

Exemptions

Personal P50,000

Basic 75,000 125,000

Taxable Income P150,000

Tax Due:

First P140,000 P22,500.00

Excess P10,000 x 25% 2,500.00

Tax Due P25,000.00

Less: Tax withheld 14,725.50

Amount of Tax Payable P 10,274.50


Sam, a non-resident alien, employed by China Bank, an OBU has a gross compensation of P750,000. How much is his tax payable assuming his employer withheld from him a tax amounting to P90,000?

Tax Computation

Taxpayer : Sam (employed by OBU)

Applicable Tax Rate: NIRC for NRANETB (15%)

Gross Compensation Income P750,000

X Tax Rate 15%

Tax Due P112,500

Less: Tax withheld 90,000

Tax still due P 22,500


Melvin, a resident alien, employed by China Bank, an OBU has a gross compensation of P750,000. He is married with three qualified dependents. How much is his tax payable assuming his employer withheld from him a tax amounting to P90,000?

ILLUSTRATIVE PROBLEM 4 (SOLUTION)

Tax Computation

Taxpayer : Melvin (employed by OBU)

Applicable Tax Rate: NIRC for Resident Alien

Gross Compensation Income P750,000

Less: Personal and Basic Exemptions

Personal P 50,000

Additional 75,000 125,000

Taxable Income P625,000

125,000

40,000

Tax Due P165,000

Less: Tax Withheld 90,000

Amount Still Payable P 75,000


Edward, a non-resident alien not engaged in trade or business in the Philippines earns an income of P325,000. How much is his taxable income based from his income?

Taxpayer : Edward (NRANETB)

Applicable Tax: 25%

Computation of Tax

Gross Income P325,000

X rate of tax 25%

Tax Due P 81,250


Marlon, a businessman, has a gross income of P782,925 with allowable itemized deductions of P485,920. For the last three quarters of the year, he remitted tax in the amount of P20,000. Compute his tax due assuming there are four qualified dependent children.

Taxpayer : Individual (self-employed)

Applicable Tax: NIRC Sec. 24 (A)

Tax Computation

Gross income P782,925.00

Less: Allowable Dedeductions

Itemized Deductions P485,920.00

Personal and Basic 150,000.00

Total Deductions 635,920.00

Taxable Income P 147,005.00


Taxable Income P 147,005.00

Tax Due

For the 1st P140,000 P 22,500.00

Excess of P7,005 x 25% 1,751.25

Total Tax Due P 24,251.25

APPLY THE RULE P 24,251.00

Less: Tax remitted 20,000.00

Amount of tax payable P 4,251.00

OPTIONAL STANDARD DEDUCTIONS

Tax Computation

Gross income P782,925.00

Less: Allowable Dedeductions

OSD (40%) P 313,170.00

Personal and Basic 150,000.00

Total Deductions 463,170.00

Taxable Income P319,755.00

Tax Due:

First P250,000 P50,000.00

Excess of P69,755 x 30% 22,321.60

Tax Due P72,321.60

APPLY THE RULE P72,322.00

Less: Tax Paid 20,000.00

AMOUNT OF TAX STILL DUE P52,322.00

CATEGORIES OF INCOME AND TAX RATESCategories of Income Tax Rate

3. PASSIVE INCOME – these are subject to separate and final tax. These are taxed at fixed rates ranging from 5% to 25%. Examples of passive income are interests, royalties, prizes, winnings and dividends. FINAL TAX imposed on income or gain shall no longer be included as taxable income subject to the graduated rates. The final tax is imposed witout any deduction and is withheld at source. The amount received by passive income earner is net of the final tax. The final tax on passive income is remitted by the payor who serves as the withholding agent to the BIR.

5% to 25%

CATEGORIES OF INCOME AND TAX RATES

4. CAPITAL GAINS FROM SALE OF SHARES OF STOCK, NOT TRADED THROUGH THE LOCAL STOCK EXCHANGE. Taxed at 5% and 10% final taxes on a per transaction basis.

On the Net Capital Gains:

Not over P100,000 5%

Amount in Excess of P100,000 10%

Illustration: For resident citizen

Selling Price P160,000

Less: Cost 40,000

Capital Gains P120,000

On P100,000 x 5% P 5,000

On P20,000 x 10% 2,000

Capital Gains Tax P 7,000

CATEGORIES OF INCOME AND TAX RATES

5. Capital gains from sale of real propety. Taxed at 6% final tax on the gross selling price or current fair market value at the time of sale, whichever is higher.

Selling Price P2,500,000

Tax Rate 6%

Final Tax P 150,000

6. Fringe Benefits. Means any good, service, or other benefit furnished or granted by an employer in cash or in kind in addition to basic salaries, to an individual employee (except rank-and-file employee) under an employer-employee relationship.

Tax Rate: 32% of gross-up monetary value

Illustration:

Monetary Value of the FB P198,000

Divide by 68%

Grossed-up Monetary Value P291,176

Mulltiply by 32%

Fringe Benefit Tax P 96,088

DECLARATION OF INCOME TAX FOR INDIVIDUALS

Business income and professionals

Installment Date

First April 15

Second August 15

Third November 15

Fourth April 15

INDIVIDUALS EXEMPT FROM INCOME TAX

A. Non-resident citizen who:

1. physically presence abroad and has

intention to reside in other country

2. leaves the Phils. during the taxable year

to reside abroad as immigrant or

employment on permanent basis

3. employed abroad and derives income

therein and requires him to be there

most of the time.

4. a non-resident citizen who arrives during

the taxable year, however, will reside

permanently in the Phils. will still be

considered non-resident citizen on that

particular taxable year with respect to

his income derived from abroad.

INDIVIDUALS EXEMPT FROM INCOME TAX

B. Overseas Contract Worker, Including Overseas Seaman

Exempted from income derived from abroad, however, for income sourced from the Philippines, it is already taxable.

C. Barangay Micro Business Enterprises (RA 9178 or BMBE Law)

D. Expanded Senior Citizen Act of 2010 (RA 9504)

TRUE OR FALSE (PAGE 2-29)

1 TRUE 11 TRUE 21 TRUE2 TRUE 12 FALSE 22 TRUE3 TRUE 13 TRUE 23 TRUE4 FALSE 14 FALSE 24 FALSE5 TRUE 15 FALSE 25 FALSE6 TRUE 16 TRUE 26 TRUE7 TRUE 17 FALSE 27 FALSE8 FALSE 18 FALSE 28 TRUE9 FALSE 19 TRUE 29 FALSE

10 TRUE 20 TRUE 30 FALSE

TRUE OR FALSE PAGE 2-31

1 TRUE 11 FALSE 21 TRUE2 TRUE 12 TRUE 22 TRUE3 TRUE 13 FALSE 23 TRUE4 TRUE 14 TRUE 24 TRUE5 TRUE 15 FALSE 25 FALSE6 TRUE 16 TRUE7 TRUE 17 TRUE8 TRUE 18 FALSE9 FALSE 19 TRUE

10 TRUE 20 TRUE

MULTIPLE CHOICE - THEORY (PAGE 2-33)

1 B 11 C 21 A 31 A2 C 12 B 22 D 32 C3 A 13 D 23 D 33 B4 B 14 C 24 C 34 A5 D 15 C 25 D6 D 16 D 26 A7 B 17 D 27 C8 A 18 C 28 D9 A 19 D 29 B

10 A 20 D 30 D

MULTIPLE CHOICE - CLASSIFICATION OF INDIVIDUAL TAXPAYERS (PAGE 2-40)

1 B 6 A OR B2 C 7 A3 B 8 D4 B 9 D5 B 10 C

BASIC PERSONAL AND ADDITIONAL EXEMPTIONS (2-41)

1 142 153 164 175 186 197 208 219 22

10 2311 2412 2513

BASIC ADDITIONAL

50,000 - 50,000 50,000 50,000 -

50,000 100,000 50,000 - 50,000 -

50,000 75,000 50,000 - 50,000 50,000

50,000 75,000 50,000 100,000

50,000 - 50,000 - 50,000 25,000

50,000 25,000 50,000 25,000 50,000 -

50,000 75,000 50,000 25,000 50,000 25,000

50,000

50,000 - - - -

BASIC ADDITIONAL50,000 50,000

- 50,000

ESSAY (PAGE 2-44)

1. The husband should be the one to take the health insurance for his family. For married taxpayers, the spouse entitled to claim for additional exemptions, who is generally the husband, is allowed the health and/or hospitalization premium payment deduction.Assuming that it is the husband who take the health insurance, he is still

not qualified as because the family gross income which is P780,000 (wife P180,000, husband P600,000) far exceeded the P250,000 limit.

2. Sela’s annual gross income of P72,000 qualifies her for the premium payment deduction she being the sole bread winner. But she can only deduct the maximum amount of P2,400.00.

3. The hospitalization insurance was not intended for Jamie’s family, hence it cannot be deducted. Assuming the amount is intended for her family, she could only claim for P2,200 premium payment.

PASSIVE INCOME (PAGE 2-45)

1 62 73 84 95 10

ExemptExempt

Exempt20% 15,000

20% 10,000

TAX RATE TAX DUESec 24(A) 5% 400

20% 1M10% 2,000

10% 20,000

TAX RATE TAX DUE20% 30,000

PROBLEMS (PAGE 2-46)

1 50,000 11 91,053 21 37,500 31 50,000 2 25,000 12 426,250 22 1,132,500 32 2,226,013 3 375,000 13 75,000 23 327,400 33 106,445 4 50,000 14 148,000 24 8,800 34 - 5 75,000 15 24,500 25 2,500,000 35 556,503 6 525,000 16 - 26 720,000 7 87,500 17 - 27 150,000 8 133,000 18 - 28 - 9 167,500 19 450,000 29 1,630,000

10 91,053 20 67,500 30 486,600

COMPREHENSIVE PROBLEM (PAGE 2-49)

1 100,000 62 - 73 - 84 20,000 95 84,500

365,000 981,000 415,000

3,175,000

MC - THEORY (PAGE 2-50)

1 C2 B3 C4 B

THANK YOU VERY MUCH, MERRY CHRISTMAS