TAXATION

FAR EASTERN UNIVERSITY – MANILA

GROSS INCOME-EXCLUSIONS AND INCLUSIONS (2101)

Exclusions from Gross Income

Except when otherwise provided in this “Title”

The term “exclusions” refer to items that are not included in the determination of gross income either because:
• They represent return of capital or are not income, gain or profit;
• They are subject to another kind of internal revenue tax; or
• They are income, gain or profit that are expressly exempt from income tax under the constitution, tax treaty, tax code, or a
general or special law.

Note:
Exclusions from gross income are not included in the amount of reportable gross income in the income tax return. The amount of
deductions is initially included in the amount of gross income but is separately presented as deduction against gross income in
the income tax return.

PROBLEM
Problem 1: (Return of capital and Return on capital)
Consideration For the loss of Return of capital Return on capital
1. P1,000,000 P300,000 building
2. P1,000,000 P1,200,000
4. P1,000,000 Income
3. P1,000,000 Life
3. P1,000,000 Health

ITEMS AND CONCEPT OF INCOME

Rents

1. Income of lessor under lease agreement

Payment Made Lessor Lessee
Rent Income Expense
Obligation of lessor to third person Income Expense
paid by lessee to third person
Advance rent Income in full in the year received Expense to be prorated over the period
regardless of accounting method used covered regardless of accounting method
Leasehold improvement Income reported under lump sum or Expense (depreciation) over the term of
annual method the lease or estimated life whichever is
shorter

2. Advance payment not representing rent

Loan Advance payment representing loan to the lessor is not taxable unless applied to
unpaid rent.
Security Deposit Advance payment representing deposit is not taxable unless violation in the lease
contract arises.

3. Leasehold Improvement
Additional income to the lessor
Recognition of income from leasehold
improvement
a. Lump sum or outright method
b. Annual or spread out method
1. Computation of annual income
Leasehold improvement is a source of additional income to the lessor if it shall become
his upon the expiration of the lease contract
Lessor may report as income, at the time when such buildings or improvements are
completed, the fair market value (FMV) of such buildings or improvements
subject to lease. (Depreciated value at the end of the lease term)
Cost of leasehold improvement xx
Less: Acc. Dep (remaining term of lease) (xx)
Book value, end of lease xx

Annual income:
Book value, end of lease xx
Remaining term of lease

2. Computation of income resulting FMV of improvement when lessor took possession xx

from premature termination of lease Less: Amount already reported as income (xx)
Income, year of termination xx
3. Computation of loss due to Amount already reported as income xx
destruction of leasehold improvement Less: Insurance recovery*** xx
before the term of the lease expires Salvage value xx (xx)

21. GROSS INCOME INCLUSIONS AND EXCLUSIONS Page 1 of 8

 Loss (xx)

***To the extent that such loss was not compensated for by insurance.

Bad Debt Recovery

Recovery of Bad Debt previously deducted (application of the tax benefit rule)
a. Taxable – if deduction of bad debt has reduced the tax liability of taxpayer (Tax Benefit Rule)
b. Not Taxable – if there is no reduction in the tax liability of the taxpayer

Tax Refunds

1. If the refunded tax is a deductible tax, the tax refund is taxable

2. If the refunded tax is not deductible tax, the tax refund is not taxable
Non-deductible taxes:
1. Philippine income tax (except fringe benefit tax)
2. Transfer taxes –Estate tax and Donors tax
3. Special assessment
4. Foreign income tax if claimed as tax credit
5. Value added tax
6. Stock transaction tax
a. ½ of 1%
b. % tax on public offerings

Gross income from farming

Cash method of accounting Accrual method of accounting

Revenue:
Livestock and farm product raised xxx Xxx
Livestock and farm product purchased xxx Xxx
Miscellaneous income xxx Xxx
Farm equipment sold Xxx
Less: Book value of equipment sold Xxx xxx Xxx
Cost:
Cost of lives stock purchased (xxx) (xxx)
Add: increase by inventory Xxx
Gross income Xxx Xxx
Less: Livestock and farm product expenses (xxx) (xxx)
Taxable income xxx Xxx

Gross income is the selling price less book value on:
o Sale of draft, breeding or dairy animals
o Sale of farm machinery and equipment

Proceeds of insurance on growing crop destroyed is included in gross income.

PROBLEMS

Problem 1: (Rent) Ria leased a facility from Cathy Company. Part of the lease agreement is for Ria to improve facility. Details of
the improvement were as follows:
Cost of construction (Improvements) P10,000,000
Estimated useful life of improvements 20 years
Remaining terms of the lease 10 years

What amount, if any, should Cathy Company repoft as income from leasehold improvements under the following independent
assumptions?
a. The income from the improvements is to be reported in one lump sum amount_____
b. The income from the improvements is to be reported annually_____

Problem 2: In connection from Problem A: Assume the income from the improvements is to be reported annually. However, at
the beginning of the 6th year, both parties agreed to terminate the lease agreement. Consequently, Cathy took possession of the
improvements. The fair value of the improvements at that time was P3,500,000. What amount should Cathy report as income from
improvements on the 6th year of the lease agreement?

Problem 3: (Bad Debt Recovery) ABC Company has the following data:

20x4 Case 1 Case 2 Case 3 Case 4

Net income before
write off of bad debt P70,000 P70,000 P70,000 P70,000
Less: Bad debt written off 40,000 80,000 55,000 85,000
Net income after bad debt 30,000 (10,000) 15,000 (15,000)

21. GROSS INCOME INCLUSIONS AND EXCLUSIONS Page 2 of 8

 20x5
Amount recovered 40,000 30,000 40,000 85,000

The taxable amount on recovery of bad debt previously deducted is ______________

Problem 4: (Tax Refund) The taxes paid and tax refunds by XYZ in 20x1 and 20x2, respectively, are itemized below:

20x1 tax payment 20x2 tax refund

Philippine income tax P13,000 P3,000
Special assessment 20,000 6,000
Value added tax 135,000 -
Donor's tax 10,000 600
Amusement tax 80,000 80,000
Local business tax 40,000 8,500
Stock transaction tax 15,000 -
For tax purposes, how much income should be declared by XYZ on the tax refund?

I. Components of Gross Income

1. Compensation Income
All remunerations paid to the employee arising from an employer-employee relationship which include, but not limited
to:
a. Salaries and wages
b. Bonuses and allowances
c. Holiday pay, Overtime pay, Night shift differential, and Hazard Pay received by persons other than an MWE.
d. De minimis and other fringe benefits not subjected to fringe benefit tax (given to rank-and-file), subject to
P90,000 limit
e. Separation Pay, Retirement pay, and similar remunerations which do not meet the requirements.
f. De Minimis and other Fringe Benefits (See discussions on Fringe Benefits)
g. Fees, honoraria, emoluments, commissions, etc.

Remember:
Every income is generally taxable, unless, specifically exempted by the law and the requirements to be
exempted are met.

Situs of Compensation Income: place where the services are rendered regardless of the residence of payor (Sec.
155, RR 02-40)

Compensation for personal services

1) Gross compensation income,
defined
2) Director’s fee
Note: Directors may not be an
employee, director’s fees, per diem and
allowances are not derived in an
economic or commercial activity or
rendering of services to clients for a fee.
Hence, not subject to business tax.
3) Compensation income in the
absence of employer employee
relationship
4) Examples of compensation for
services rendered
5) Forms of compensation
If the services are paid in a medium
other than money, the FMV of the
thing consideration received is the
amount of compensation.
Gross compensation income means all remuneration for services performed by an
employee by his employer whether paid in cash or in kind, unless specifically excluded
under the Tax Code (e.g. salaries, wages, emoluments, honoraria, bonuses, allowances,
director’s fee)
Director’s fee is part of the gross compensation income if the director is at the
same time an employee of the employer/corporation.
If the director is not an employee, the director’s fee is subject to 10% creditable
withholding tax if the current year’s gross income is P720,000 and below (15%
if current year’s gross income exceeds P720,000)
In the absence of employer-employee relationship, compensation for personal
services shall be considered as gross professional fee (e.g. audit fee received by CPA
from his client, lawyer’s fee)
All kinds of compensation for services rendered constitute gross income. They include:
a. Salaries, wages and fees
b. Commission paid to salesman
c. Compensation for services on the basis of a percentage of profits
d. Commission on insurance premiums
e. Tips
f. Pensions or retiring allowances paid by private pensions or by the government (except
pension exempt from tax) and
g. Marriage fees, baptismal offering sum paid for saying masses for the dead, and other
contributions received by a clergyman, evangelist, or religious worker for services
rendered
Forms of compensation Taxable amount
a) Payment made in cash The full amount received
b) Service paid for with something other The fair market value (FMV) of the
than money consideration received
c) Services rendered at a stipulated price In the absence of evidence to the

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If compensation is paid in kind such as
stocks of employer, the FMV at the
time the services were rendered is the
measure of compensation.
6) Examples of payments in kind
Tips and Gratuities
Stock Option (SOP)
There are three important events in
SOP -- the grant date, the vesting
period and the exercise date
The grant date is the date on which
the employee is given a stock option by
the employer.
The vesting period is the time that an
employee must wait in order to be able
to exercise employee stock options.
The exercise date is when the
employee/option holder notifies the
company that he or she would like to
buy the stock at the strike price/option
price indicated in the SOP.
Tax Treatment (RMC NO. 79-2014)
Reportorial Requirements:
The issuing corporation shall submit
to the Revenue District Office where it is
registered a statement under oath
within 30 days from the grant of the
option indicating the following:
1. Terms and condition of the stock
option
2. Names, TINs, positions of the
grantees
3. Book value, fair market value, par
value of the shares subject of the option
at the grant date
4. Exercise price, exercise date and/or
period
5. Taxes paid on the grant, if any
6. Amount paid for the grant, if any
During the exercise period, the issuing
corporation shall file a report on or
before the 10th day of the month
following the month of exercise stating
therein the following:
1. Exercise date
2. Names, TINs, positions of those who
21. GROSS INCOME INCLUSIONS AND EXCLUSIONS
contrary, the stipulated price shall be
presumed to be the fair market value
(FMV)
Payment in kind Taxable amount
a) Compensation paid to an employee of a Fair market value of the stock at the time
corporation in its stock the services were rendered by the
employee
b) Promissory note and other evidence of a. Promissory note is not interest
indebtedness in payment of services, and bearing
not merely as security for such payment Year received – Fair discounted value
Year collected - Face value less fair
discounted valued
b. Promissory note is interest
bearing
Year received – face value
Year collected – Maturity value less face
value
.
Tips or gratuities paid directly to an employee by a customer of the employer that are not
accounted for by the employee to the employer are considered as taxable income
subject to basic tax. However, the same shall not be subject to withholding for
the reason that tips are not accounted for by the employee to the employer (RR 2-98)
A stock option is a privilege granted to some key employees of a corporation or either
entities to avail of the said corporation’s share of stock in the future for a certain price.
Stock-based compensation has been acknowledged as an effective means of rewarding
and motivating employees, attracting and retaining the best talent, and enhancing
employee commitment and performance.
In an SOP, the employee is given the option to purchase a specific number of shares on
specified dates at a specified price which is lower than the market value of the stocks.
Under RMC No. 79-2014, stock options can either be:
1. Equity settlement option – is a stock option granted by a person, natural or
juridical, to a person or entity entitling said person or entity to purchase shares of stocks
of a corporation, which may or may not be the shares of stock of the grantor corporation.
2. Cash settlement option – entitles the holder to receive cash, equivalent to the
difference between the actual fair market value of the share and the fixed nominal value
of the shares of stock set in the grant of the option, at a specific date or period.
1. Grant of Option
If the option was granted by The grantor/employer cannot claim a deduction
the employer to its on grant date. The actual benefit of the employees
employees and no cannot be determined yet until the employee exercises
payment was received for the option. Therefore, no actual expense is incurred yet
the grant of the said option by the employer upon grant of the option.
If the option was granted for The full price of the option shall be considered capital
a price gains, and shall be subjected to capital gains tax.
Upon issuance of the Option, the same is subject to a Documentary Stamp Tax:
Stock with par value amounting to P1.5 on each P200, or fractional part thereof,
of the par value of the stock subject of the option.
Stock without par value the amount equivalent to 50% of the Documentary Stamp
Tax paid upon the original issue of the stock subject of the option, as provided for in
the Section 175 of the NIRC of 1997, as amended.
2. Sale or Transfer of Option
a. If transferred for a consideration:
The sale, barter, or exchange of stock option by the grantee is treated sale, barter
or exchange of the stock option is subject to capital gains tax (shares of stock
not listed on the stock exchange). The cost base of the option for purposes of
computing the capital gains shall be zero.
Page 4 of 8
exercised the option b. If the option was granted without any consideration:
The same shall be treated as a donation subject to donor’s tax. The basis shall be the
3. Book value, fair market value, par fair value of the option at the time of the donation.
value of the shares subject of the option
3. Exercise of Option
at the exercise date/s
4. Mode of settlement (i.e. cash, The benefits (i.e., the difference between the book value or fair market value, whichever
equity) is higher, at the time of the exercise of the option and the price fixed on the grant date)
shall be taxed depending on the grantee, as follows:
5. Taxes withheld on the exercise, if
any Equity – Settlement Option:
• Rank and file employee : subject to income tax and withholding tax on
6. Fringe Benefits Tax paid, if any
compensation.
• Supervisory or managerial position: subject to fringe benefit tax.

Cash –Settlement Option:

• Supplier of goods or services: subject to the relevant withholding tax at source
and other taxes applicable.
• Person, natural or juridical, who is not an employee or supplier: subject to
donor’s tax.

2. Business and/or Professional Income

a. Arise from selling goods or services.
b. Whether individual or corporate taxpayer, may include:
- Sale of goods and properties (real or personal)
- Sale of services (professional services, lease of properties, etc.)
Note: Withholding taxes from professional incomes and other sale of services which are subject to CWT must
be correctly withheld.

3. Passive Income
General Rule: Passive income earned within the Philippines are taxable unless specifically exempted by law.
Exception: If the passive income is not subjected to final tax, such is added to the gross income subject to normal tax.

a. Subject to Final Withholding Tax

INDIVIDUALS
i. Interest on currency bank deposits, yield and other monetary benefit from deposit substitute, trust and
similar arrangement within the Philippines; Royalty from patents and franchises, prizes exceeding
P10,000 and winnings regardless of the amount: 20% final tax
ii. Royalty from books, literary works and musical compositions, and cash and property dividend from
domestic corporation: 10% final tax
iii. Interest on FCD under the expanded FCDS: 15%, except non-residents (NRC and NRAs)

CORPORATION
i. Interest on currency bank deposits, yield and other monetary benefit from deposit substitute, trust and
similar arrangement; Royalty from (all kinds): 20% final tax.
ii. Dividend from domestic corporation: exempt, intercorporate principle
iii. Interest on FCD under the expanded FCDS: 15%, except non-resident foreign corporation

b. Not Subject to Final Withholding Tax – those which are not subjected to final tax like those which are earned abroad,
prizes not exceeding P10,000 (applicable to individuals), and interest from loans, trade and accounts receivables and
those which are earned outside the Philippines shall be included in the computation of gross income.

4. Capital Gains
Capital gains arising from the sale of capital assets (real or personal assets) are taxable as follows:
a. If REAL property not used in business, subject to capital gains tax of 6% of the selling price, or FMV, or Zonal
Value, whichever is the highest.
b. If shares of stocks not traded in the local stock exchange, subject to 15% capital gains tax.
c. All other capital gains, which are not subject to CGT, are subject to normal tax (5-32%), subject to the pertinent
rules in property.

II. Exclusions from Gross Income

1. Holiday pay, Overtime pay, Night shift differential, and Hazard pay (HONsHa) earned by MWE (non-taxable).
2. 13th Month Pay, productivity incentives, Christmas bonus and other bonuses and benefits (de minimis) not exceeding PhP
90,000.
3. Gifts, bequests and devises (subject to transfer taxes) are not subject to income tax, but income derived from the use of
such gifts, bequests and devises are subject to income tax.
4. Income derived by foreign government
5. Income derived by the Philippine government or its political subdivisions.
6. De Minimis not exceeding their statutory limits.

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 7. Proceeds of life insurance paid to the heirs upon death of the insured or whoever the beneficiary is (also not subject to
estate tax if the beneficiary is the third person irrevocably designated as heir; subject to estate tax if the
beneficiary is the estate, administrator or executor or if the designation to third persons is revocable).
8. Retirement benefits under:
**Retirement benefits pursuant to RA 4917 (Private Retirement Benefit Plan)
a. Retiring employee must not be less than 50 years old.
b. Must have been in the service for at least 10 years of the same employer.
c. Exemption must be availed only once.
d. The private benefit plan must be approved by the BIR. (Reasonable private pension plan.)

**Retirement benefits under RA 7641 (In the Absence of Retirement Plan)

a. The retiring employee is 60 years old. (The compulsory retirement age of an employee under the Mandatory
Retirement is 65 years old.)
b. He must have served the company for at least 5 years in said establishment.

6. Separation pay paid to the employee for causes beyond the control of said employee (involuntary). If the cause of
separation is voluntary, such payment shall be taxable.
7. Mandated contributions such as SSS, GSIS, PHIC and HDMF contributions and union dues.
8. Amounts received as a return of premiums paid.
9. Prizes and awards in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement as well
as awards in authorized sports competitions.
10.Gains from sale of bonds, debentures or other certificates of indebtedness with a maturity of longer than five years.

PROBLEMS
Problem 1: Determining the Taxability of an Item

Indicate whether the item is taxable or nontaxable with income tax

Taxable Non-taxable
1. Nobel prize received for achievement civic achievements.
2. Prizes and awards in sports competition, not sanctioned by their respective national association
accredited by POSC.
3. World Bank’s income earned in the Philippines.
4. Cost of Living Allowance.
5. Union due Contribution.
6. Mandatory SSS Contribution.
7. Excess Mandatory SSS Contribution.
8. Income tax paid by employer.
9. Winnings from Philippine Sweepstakes or Lotto.
10. Interest on Winnings from Philippine Sweepstakes or Lotto.
11. Proceeds of from life insurance policy, revocable designation of beneficiary.
12. Pensions, in general.
13. Income of PAGCOR.
14. Proceeds from the sale of land (capital asset) P100,000: costs P120,000
15. Income of government from holders of public utility franchise.
16. Interest income.
17. Board of director’s fee.
18. Mandatory retirement pay
19. Professional athlete’s salary.
20. 13th month pay P82,000
21. Income derived from smuggling.
22. Interest received from life insurance’s annuity.
23. Annual clothing allowance of P4,000.00
24. Hazard pay received by MWE.
25. Gains from redemption of shares in mutual fund.
26. Magsaysay awards.
27. GSIS Retirement benefits.
28. Cash surrender value received from insurance in excess of premium paid.
29. Proceeds from life insurance of a deceased employee received by the employer.
30. Dividend income derived in the Philippines by the Taiwan Government.
31. Gains from the sale of bond with a maturity of four years.
32. Gains from the sale of certificate of indebtedness with a maturity of six years.
33. Cancellation of debt in lieu to services rendered.
34. Shares of stock received due to professional service rendered.
35. Accumulated vacation and sick leave credits for government employees converted into cash
at the end of employment contract.

Problem 2: (Determining the Taxability of an Item) Indicate whether the item is taxable or nontaxable with income tax
1. Monetized sick leave credits of private employees.
2. Overtime pay of a minimum wage earner.
3. Statutory minimum wage of MWE who has other reportable income.
4. Amount received in payment of moral damages due to physical injuries.
5. Interest income in bank deposit earned by the duly registered cooperative.

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 6. Maternity benefits.
7. Tuition fees collected by nonprofit educational institution.
8. Interest income from savings deposit earned by nontaxable senior citizen.
9. Interest income derived from Philippine National Red Cross.
10. Shelter within the employer’s home provided by the employer to the maid.
11. Thirteenth month pay in excess of P90,000.00
12. Separation pays due to voluntary resignation.
13. Money received as donation.
14. Money acquired through illegal means.
15. Philippine lotto winnings.
16. Separation pay received resulting from business merger.
17. Income derived by Baguio City Government in leasing Burnham Park.
18. Availed vacation leave with pay.
19. Exemplary damages due to breach of contract.
20. Damages for unrealized profits.
21. Novel prize received due to civic achievement contributions.
22. Prizes and awards in sports competition not sanctioned by Philippine Olympic Sport Committee.
23. Income earned within the Philippines by the World Bank.
24. Cost of Living Allowance.
25. Employees Union due contribution.
Problem 3: (Exclusion from Gross Income) Mr. Jose Velarde received the following items for the taxable year 200x
Winning from charity horse race sweepstakes from PCSO P500,000
Winnings from gambling, net of P700,000 loss from gambling 800,000
Interest on government debt securities 100,000
Damages awarded by the court for breach of contract (of which 40% is damages for unrealized profits) 1,000,000
Gains from redemption of shares in mutual fund 300,000
Gain from sale of bonds with maturity of more than five years 60,000
Gifts from friends 200,000
Required compute the total amount of exclusion from gross income

Problem 4: (Exclusion from Gross Income ) Mr. Erasto Fuentes received the following:
Return of his life insurance premium paid for 25 years with annual premium of P15,000 P2,000,000
Proceeds his mother’s life insurance, paid premium for 30 years with annual premium of P5,000 1,000,000
Cash gift from his missionary friend 50,000
House and lot inherited from his mother 3,000,000
Rent income from house and lot inherited 100,000
Required: Compute for the following
1. Amount to be excluded from gross income.
2. Amount to be included as gross income

Problem 5: ( Income Subject to normal Tax) Cristiflor Buduhan received the following items for the taxable year 200x:
Proceeds of life insurance of his decedent husband with premiums paid amounting to P200,000. Mrs. P1,500,000
Buduhan is an irrevocable beneficiary
Donation from friends and relatives 10,000
Compensation for actual damages for injuries suffered by her husband 200,000
Dividends income 50,000
Interest on bank deposits 2,000
Prizes for winnings as Mrs. Beautiful of Tawi-Tawi 25,000
SSS death benefits of his husband 20,000

Required: Compute for his income subject to tax.

Problem 6: (Prize and awards) Anthony, an amateur boxer, represented the Philippine team in Beijing Olympics. He received
the following income: P200,000 cash prize from the Olympic association; P500,000 cash award donated by Rubberworld Philippines;
P400,000 talent fee as model of Nike Shoes and P1,000,000, professional fee as an actor.

On the other hand, Pacman a professional boxer won in a non-titled bout between him and El Terrible held at Mandalya Bay, Las
Vegas, Nevada. Pacman received the following: P25 million as cash prize in the fight; P30 million from Pay per view; P12 million
talent fee as commercial of San Miguel Beer.

1. How much is gross income inclusion to Anthony?

2. How much is gross income inclusion to Pacman?

21. GROSS INCOME INCLUSIONS AND EXCLUSIONS Page 7 of 8

Problem 7: (Promissory note) In 20x4, Alonte received from his employer a promissory note with a face value of P50,000 for
services rendered. The note will mature in 2015.However, it can be sold to a bank at a discount of 25%, The employer paid the
promissory note in 20x5.

a. How much taxable income is to be declared by Alonte on the promissory note in 20x4 and 20x5?
b. Using the same data, except that 50% of the face value of the note payable in 20x4 while the remaining 50% is payable in 20x5.
How much income is taxable to Alonte in 20x4, 20x5 and in 20x6?

Problem 8: (Taxability of Transfer Received) Miss Aurma Tandana served as a nurse for Judge Maximo Laxa for thirty years.
Since she has been serving for a long period of time, the judge transfer cash P1,500,000 her account.

Question: Is the transfer excluded from income taxation if received by Miss Tandana upon the death of Judge Laxa?

Problem 9: (Retirement Benefits) Mr. Mario Matiyaga, 50 year old, rendered service as a security guard of Anscor Corporation.
He had a monthly salary of P5,000 before retirement in October 31, 200x. During the same taxable year he received P500,000
retirement benefits in accordance with reasonable private benefit plan maintained by Anscor Co.

Required: Compute for the amount to be included in the gross income of Mr. Matiyaga for 200x based on the following independent
assumptions:
1. He received the retirement benefit for the first time after serving for 10 years
2. He received the retirement benefit for the second time
3. He has served the company for 10 non continuous years.

Problem 10: (Separation pay) Nilo, a known latecomer in the company was dismissed from employment due to inefficiency
service. He reasoned out that the frequent cause of his tardiness is the daily heavy traffic in Metro Manila. However, the
explanation was not considered by his employer as a valid excuse. He received a separation pay P80,000. Is this amount taxable to
him?

Problem 11: (Compensation and De Minimis) Mr. C, a resident Filipino citizen, shows his income and expenses during a
calendar year:
Gross compensation income P109,200
13th Month pay 9,100
SSS premium contribution 2,400
Philhealth premium contribution 3,000
De minimis:
Rice subsidy 24,000
Actual hospitalization payments 15,000
Clothing allowance 5,000
Temporary housing for 3 months 6,000
Required: Compute the taxable compensation during the year assuming that Mr. C is a
1. Minimum wage earner
2. Not a minimum wage earner

Problem 12: ( Cooperative) The following are the transaction of Baguio – Benguet Cooperative during the year:
Total purchases from Vat registered business, inclusive of VAT P1,120,000
Sales to members 1,500,000
Interest income, time deposit 60,000
Interest income loan to members 40,000
Interest income foreign currency deposit (converted to peso) 10,000

The cooperative statement of surplus reported the following:

Sales P1,500,000
Less:
Purchases P1,000,000
Input VAT 120,000 (1,120,000)
Gross income P380,000
Add: Interest income
Time deposit P60,000
Loan to members 40,000
Foreign currency deposit 10,000 110,000
Total surplus P490,000
Required: Compute the cooperative income subject to
1. Final Tax
2. Normal Tax

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