7. P10,000.00 employees achievement award.

TAX RULES MAY APPLY TO ALL INCOME

It might not be in cash. RECEIVED BY AN EMPLOYEE

8. P5,000.00 Christmas gift or anniversary Income Tax Implications

gift. Salaries and Wages Income Tax Rate
9. Daily meal allowance for overtime work, and (Basic
night grave yard shift, not exceeding 25% of the Compensation)
basic minimum wage on a per region basis. De Minimis Benefits Exempt
Excess of De Minimis Exempt
10. Benefits received by an employee by virtue Benefits (Add with
of a CBA and Productivity Incentive Schemes 13th month pay
provided that the total monetary value received bonuses=90,000)
from both CBA and PIS combined do not exceed Benefits and Bonuses
10, 000 per employee per taxable year. in Excess of P90,000:
(RR1-2015) a.Rank-and-File a.Income tax rate
Employee
10. Flowers, fruits, books, or similar items b.Managerial and b. Fringe Benefit tax
given to employees under special Supervisory rate
circumstances. e.g., on account of
illness, marriage, birth of baby, etc. All other benefits Income tax rate
(DELETED)

TAX TREATMENT OF DE MINIMIS BENEFITS COMPENSATION INCOME (sec. 32A (1))

THAT EXCEEDS THE PRESCRIBED CEILING
*Deductions and Personal/Additional
 The excesses should be considered as Exemptions are now DELETED.
part of the other benefits to be added
to 13th month pay and bonuses, and the Computation of Taxable Income:
excess over P82, 000 (NOW, 90,000 -
TRAIN) shall become taxable. Gross Compensation Income
Less: Deductions
*13TH month pay 75,000 Mandatory Deductions
*Christmas Bonus 20,000 13th Month pay and other benefits
*Clothing Allowance 7,000 excess - 2,000 (Maximum of 90,000)
*Rice Allowance 2,500 excess 500 TAXABLE INCOME
*13th month pay 75,000
*Christmas Bonus 20,000
*Excess of Clothing Allowance 2,000
*Excess of rice allowance 500
TOTAL 97, 500
xxxThe excess P7,500 is TAXABLE.
 COMPUTATION OF TAXABLE INCOME FOR
ANNUAL (JANUARY 1, 2018 JANUARY 1, 2023 INDIVIDUAL TAXPAYER
TAXABLE – DECEMBER 31, - ONWARDS
INCOME 2022)
Gross Incme Pxxxx
Not over 0% 0%
P250,000
Less: Allwable Deductions Pxxxx
Over P250,000 20% of the 15% of the (Itemized or Optional=40%)
but not over excess over excess over Net Income Pxxxx
P400,000 250,000 P250,000 Less: Authorized Personal Exemption
Over P400,000 P30,000+25% of P22,500+20% of (Personal and Additional) Pxxxx
but not over the excess over the excess over Taxable Income Pxxxx
P800,000 400,000 400,000
Over P800,000 P130,000+30% P102,500+25%
but not over of the excess of the excess COMPUTATION OF TAXABLE INCOME FOR
P2M over 800,000 over 800,000 CORPORATE TAXPAYER
Over 2M but P490,000+32% P402,500+30%
not over 8M of the excess of the excess
Gross Income Pxxxx
over 2M over 2M
Over 8M P2,410,000+35% P2,202,500+35%
Less: Allowable Deductions Pxxxx
of the excess of the excess (Itemized or Optional=40%)
over 8M over 8M Taxable Income

Note: For NRFC 30% Final Tax based on GROSS

Gross Income from BUSINESS TRADE/
PROFESSIONAL INCOME Sec. 32A (2)
MANUFACTURING BUSINESS MECHANDISING or
TRADING, SERVICING,FARMING; and
LONG TERM CONTRACT
Gross Sales
Less: Sales Returns and AllowancesPxxx
Sales Discounts Pxxx
Net Sales
Less: Cost of Goods Sold/
Cost of Sales/Services
Gross Profit
INCOME
Gross Income from BUSINESS TRADE/
PROFESSIONAL INCOME Sec. 32A (2)
Sec. 74
Self Employment Income consists of income
derived from the conduct of trade or business,
Pxxx or from the exercise of profession.
Pxxx Self-employed – a sole proprietor or an
independent contractor who reports income
Pxxx earned from self-employment. He controls who
he works for, how the work is done and when it
Pxxx is done. It includes professionals whose income
is derived purely from the practice of profession
Pxxxx and not under an employer-employee
relationship.

Professional – person formally certified by a

professional body belonging to a specific
profession by virtue of having completed a
required course of studies and/or practice,
whose competence can usually be measured
against an established set of standards. It also
refers to a person who engages in some art or
sport for money, as a means of livelihood,
rather than as a hobby. It includes but is not
limited to professional entertainers,
professional athletes, directors, producers,
insurance agents, insurance adjusters,
management and technical consultants,
bookkeeping agents, and other recipients of
professional, promotional and talent fees.
Gross Sales – refers to the total of all sale
transaction reported in a period, without any
deduction. However, for purposes of these
regulations, the following shall be allowed as
deductions:
1. Sales returns and allowances for which
a proper credit or refund was made
during the month or quarter to the
buyer for sales previously recorded as
taxable sales.
2. Discounts determined and granted at
the time of sale, which are expressly
indicated in the invoice, the amount
thereof forming part of the gross sales
duly recorded in the books of accounts.
Sales discount indicated in the invoice
at the time of sale, the grant of which is
not dependent upon the happening of a
future event, may be excluded from the
gross sales within the same
month/quarter it was given.
Gross Receipts – refers to the total amount of
money or its equivalent representing the
contract price, compensation, service fee,
rental or royalty, including the amount charged
for materials supplied with the services, and
deposits and advance payments actually or
constructively received during the taxable
period for the services performed or to be
performed for another person. In the case of
VAT taxpayer, this shall exclude the VAT
component.
RA 10963
SELF-EMPLOYED AND PROFESSIONAL
TAXPAYERS
A. GROSS SALES AND RECEIPTS BELOW P3
MILLION
-Have the option of using the TRAIN’s new tax
table or going for an 8% flat rate on gross sales
and receipts.
B. GROSS SALES AND RECEIPTS P250,000
AND BELOW
-Will be exempt from Income tax
Unless the taxpayer signifies in the 1st quarter
return of the taxable year the intention to elect
the 8% income tax, the taxpayer shall be
considered as having availed of the graduated
rates under Section 24A, and such election shall
be irrevocable.
Self-employed and professional taxpayers
Illustration:
Ms EBQ operates a convenience store while she
offers bookkeeping services to her clients. In
2018, her gross sales amounted to P800,000, in
addition to her receipts from bookkeeping
services of P300,000. She already signified her
intention to be taxed at 8% income tax rate in
her 1st quarter return.
Her income tax liability for the year will be
computed as follows:
Gross Sales – Convenience Store P800,000
Gross Receipts – Bookkeeping P300,000
Total Sales/Receipts P 1,100,000
Less: Amount allowed as deduction P250, 000
Taxable Income P850,000
Tax Due: 8% of P850,000 P68,000
The total gross sales and gross receipts is below
the VAT threshold of P3,000,000.
Income tax imposed herein is based on the total
of gross sales and gross receipts.
Income tax payment is in lieu of the graduated
income tax rates under subsection (A) hereof
and percentage tax due, by express provision of
law.
Illustration: Mixed Income Earners
Ms. EBQ above, failed to signify her intention to  Income from compensation – Train’s new tax
table
be taxed at 8% income tax rate on gross sales in  All income from business or practice of
her 1st quarter income tax return, and she profession (below 3M) – Have the option of
incurred cost of sales and operating expenses using the train’s new tax table or going for an 8%
amounting to P600,000 and P200, 000, flat rate on gross sales and receipts.
respectively, or a total of P800,000.
DEADLINES FOR THE FILING OF INCOME TAX RETURN
Gross sales/receipts P1,100,000
Less: Cost of sales P600,000 First Quarter - May 15 of the current year
Second Quarter - August 15 of the current year
Gross income P500,000
Third Quarter - November 15 of the current year
Less: Operating expenses 200,000 Annual ITR - April 15 of the following year
Taxable Income 300,000
Tax Due:
GAINS DERIVED FROM DEALINGS IN PROPERTY (Sec.32A3
On Excess(300k-250k) x 20% 10,000
Disposal through SALE or EXCHANGE of ASSETS
**Aside from income tax, Ms. EBQ is likewise 1. ORDINARY ASSETS
liable to pay business tax. 2. CAPITAL ASSETS

Value Received by the taxpayer (TP)

- Value of property disposed of arising from the
________sale or exchange of assets__________
Effective January 1, 2018 until Dec. 31, 2022 GAINS AND LOSSES FROM DEALINGS OF PROPERTY

Range of TAX DUE =

Taxable a + (b x c)
Income BAR Distinguish a "capital asset" from an "ordinary
Over Not over Basic Additional Of excess asset".
Amount Rate (b) over (c) SUGGESTED ANSWER:
(a) (a) The term "capital asset" regards all properties not
- 250,000 - - specifically excluded in the statutory definition of
250,000 400,000 - 20% 250,000 capital assets, the profits or loss on the sale or the
400,000 800,000 30,000 25% 400,000 exchange of which are treated as capital gains or
800,000 2M 130,000 30% 800,000
capital losses. Conversely, all those properties
2M 8M 490,00 32% 2M
specifically excluded are considered as ordinary
8M - 2,410,000 35% 8M
assets and the profits or losses realized must have to
be treated as ordinary gains or ordinary losses.
*The gross receipts exceeded the VAT threshold of P3M. Accordingly, "Capital Assets" includes property held
Taxpayer shall be liable to pay income tax under graduated by the taxpayer whether or not connected with his
rates pursuant to Section 24(A)2a. trade or business, but the term does not include any
*Taxpayer shall be allowed an income tax credit of of the following, which are consequently considered
quarterly payments initially made under the 8% income "ordinary assets": (SOUR)
tax option. (1) stock in trade of the taxpayer or other
property of a kind which would properly be
*Taxpayer is likewise liable for business tax(es), in addition
included in the inventory of the taxpayer if on
to income tax. A percentage tax pursuant to Section 116,
shall be imposed on the first P3M. The excess of the hand at the close of the taxable year;
threshold shall be subject to VAT. (2) property held by the taxpayer primarily for
sale to customers in the ordinary course of
Percentage tax due on the P3M shall be collected without trade or business;
penalty, if timely paid on the due date immediately (3) property used in the trade or business of a
following the month the threshold was breached.. character which is subject to the allowance for
 depreciation provided in Section 34 (F) of the
Tax Code; or
(4) real property used in trade or business of
the taxpayer.
The statutory definition of "capital assets"
practically excludes from its scope, it will be
noted, all property held by the taxpayer if used
in connection with his trade or business.
What is a capital asset?
-Sec. 39A1
-Property held by the TP whether or not connected
with his trade or business
CAPITAL LOSS LIMITATION RULE
(SEC. 39 C)
-Applies to both corporation and individual
XPN: Trust Corporations and Banks
-Net Capital Gain is added to ordinary gain BUT Net capital
loss (Excess of Capital Loss over capital gain) is NOT
DEDUCTIBLE from ordinary gain.
-Capital Loss deductible to the extent of Capital Gain,
cannot be deductible from Ordinary Gain
-Net Ordinary loss is DEDUCTIBLE from Net Capital Gain
Rationale

NET CAPITAL GAIN NET CAPITAL LOSS Net Capital Gain is added To preserve Sec. 34
To Ordinary gain BUT that only ORDINARY
Net Capital Loss is NOT and NECESSRY
SECTION 39 (A) (2) (3) DEDUCTIBLE EXPENSES will be
From ordinary gain. allowed to be
deducted from the
Capital Loss deductible Gross Income.
to the Extent of Capital
ORDINARY GAIN ORDINARY LOSS Capital loss is not a
Gain, Can not be deductible business connected
From ordinary gain. expense, not
FOR CAPITAL ASSETS: ordinary expense.
3 Specific Rules:

Section 39(B)of the NIRC ---- Holding period Rule

NET CAPITAL LOSS CARRY OVER (NCLCO)
(SEC. 39 (D) )
Section 39(C)of the NIRC----- Capital Loss Limitation Rule
-Applies only to Individual TP and NEVER to a Corporate TP
NET OPERATING LOSS CARRY OVER (NOLCO)
Section 39(D)of the NIRC ----- Net Capital Loss Carry Over
-Applies to both Individual and Corporate TP

HOLDING PERIOD RULE (HPR)

NOTE !!!!
(SEC. 39 B)
THERE ARE CAPITAL TRANSACTIONS NOT GOVERNED BY
Corporate TP  HPR is not applicable
THE 3 SPECIFIC RULES
-So, always 100% taxable on their Capital Gain
a. Sale of real property classified as capital assets
Individual TP  HPR is applicable
which is not used in trade or business
-Refer to reportable percentages of capital gain
-Sec. 24 D1 – RULE: CAPITAL GAINS TAX equivalent to 6%
or loss (Sec. 39 B (1) (2) )
based on GROSS PRICE or ZONAL VALUE whichever is
higher.
Reportable percentages of capital gain or loss
a) Capital Assets have been held for NOT MORE
*if in the transaction, you incurred a loss, capital loss, are
THAN 12 months (12 months and below) 
you liable to pay the 6% CGT?
100%
-YES, based on the doctrine of presumptive gain.
b) Capital Assets have been held for MORE THAN
XPN to the Rule: Sec. 24 D2
12 months  50%
-Tax avoidance conditions that must concur in order that
the 6% CGT will not be paid, which are as follows:

1. Proceeds of sale must be used to

purchase/construct new principal residence
 2. Complying with the 18 months period from the HLURB or the HUDCC or other satisfactory evidence (for
sale or disposition, the purchase or construction example, he/it consummated during the preceding year at
must be done.
a) with a selling price of 1.5%
3. 30 Days notice from sale or disposition – inform
500, 000 or less
the BIR about the sale.
4. 10 year limitation – can be availed of once every B) with a selling price of 3%
10 years. more than 500, 000 but
not more than 2 million
C) with a selling price of 5%
CAPITAL GAIN ON REAL ESTATE TRANSACTION more than 2 million

-Option of individual transferring Real properties to GOCCs least six taxable real estate transactions, regardless of
-Normal income tax amount):
-CGT of 6%

Tax treatment on the sale, transfer or exchange of Real
Property – Revenue Regulation No. 8-98:
The Capital Gains Tax (CGT) Return will be filed by the
seller within 30 days following each sale or disposition of
real property. Payment of the CGT will be made to an
Authorized Agent Bank (AAB) located within the Revenue
District Office (RDO) having jurisdiction over the place
where the property being transferred is located.
Creditable withholding taxes, on the other hand,
deducted and withheld by the withholding agent/buyer
on the sale, transfer or exchange or real property
classified as ordinary asset will be paid by the
withholding agent/buyer upon filing of the return with
the AAB located within the RDO having jurisdiction over
the place where the property being transferred is
located. Payment will have to be done within 10 days
following the end of the month in which the transaction
occurred, provided, however, that taxes withheld in
December will be filed on or before January 25 of the
following year.
B.Where the seller/transferor is not habitually
engaged in the real estate business (but the real estate
sold is an ordinary asset)  6%
C. Where the seller/transferor is exempt from
creditable withholding tax in accordance with
Section 2.57.5 of RR No. 2-98 (When the seller is
exempt from income taxes. As earlier noted, the
creditable taxes exempt withheld serve as
advance payment of income taxes. So when a
seller is tax-exempt, it follows that no tax should
be withheld from his income.)
Please note that the sale of foreclosed properties by
banks is subject to creditable withholding tax of 6%
because banks are not considered as habitually engaged
in the real estate business, and properties acquired by
banks through foreclosure sales are considered as
ordinary assets pursuant to Revenue Regulations No. 7-
2003.

ORDINARY ASSETS EXPANDED WT

-this only applies to the sale of real estate which are

ordinary assets of the seller.
-Thus, when the real estate sold is a capital asset to the
seller, his income from the sale of real estate will be
subject to capital gains tax, and no creditable withholding
tax shall be imposed on the transaction.

-the withholding agent/buyer is required to withhold a

creditable withholding tax based on the higher of the
following:
a) gross selling price/total amount of consideration, or
b) the fair market value determined in accordance with
Section 6(E) of the Code.

A. Upon the following values of real property

where the seller /transferor is habitually engaged in the
real estate business as per proof of registration with the