PLEASE

SHUTOFF
YOUR
CELL PHONES

OPENING PRAYERS
*
*
*

Our Father
Hail Mary
Glory Be

INTERNAL REVENUE
LAWS AND TAXES
o INTERNAL REVENUE
o NATURE OF I. R. LAWS
- Civil not political
- Not Criminal

INTERNAL REV. TAXES

- Income taxes
- Estate and donors taxes
- Value-added taxes
- Other percentage taxes
- Excise taxes
- Documentary stamp taxes
- Others

POWERS AND DUTIES

o

B. I. R.
- Assessment and collection
- Enforcement of forfeitures
- Execution of judgments
- Give effect to and administer
its supervisory and police
powers

Continuation..

INTERNAL REVENUE
OFFICERS
- Arrests and Seizures
- Administer Oaths
- Reports violations of law

POWERS OF C.I.R
o Obtains information
o Makes assessments
- Examines returns
- Penalizes Failure to
submit reports
- Conducts Inventory

taking

Continuation .

- Terminates taxable
period
- Prescribes Real estate
values
- Inquires into bank deposits
- Tax agents Accreditation

Continuation .

- Assignment of BIR
officers

BANK DEPOSITS

AUTHORITY
- Decedents

deposits
- Compromise

MAY BE DELEGATED

TAX AGENTS
ACCREDITED/
REGISTERED
BASIS
- Prof Competence
- Integrity
- Moral Fitness

TAX AGENTS
INDIVIDUALS

G. P. P
REPRSNTTVS
PREPARES &
FILES
APPEARS

INCOME

Income, legal definition

- Gains derived from
services, use of capital
or disposition of capital
assets
- No obligation to repay
- No restriction to dispose

CONCEPTUAL
DEFINITION
Material gain
Not excluded by law
Realized from closed
and completed trans.
Exchange of eco. value

INCOME TAXATION

Income tax

Global v. Schedular

Gross income taxation

Meaning
- Kinds: Pure, adjusted,
no deductions
-

TESTS WHEN
INCOME EARNED
Severance test
Ownership, command,
control
Proprietary method

Continuation........

Cash method =
actual method
Accrual method =
constructive method

Continuation........

Tax treatment
- Services paid by P/N
- Forgiveness of debt
- Installment sales

Income from whatever

source

Continuation........

Leases
- Equipment leasing not
installment sales
- FMV of improvements
completion
- Depr. Value at end
spread over lease life

Continuation........

a) Value of property
Life of property
= Annual depreciation
b) Annual depreciation
x Remaining lease
Depr. for lease life

c) Value of property less

Depr. For lease life
= Depr. Value of
property
d) Depr. Value
Lease life
= Yearly income

EXCLUSIONS

GROSS
INCOME
FINAL TAXES
Passive
income
Capital Gains
Trans. Tax

EXCLUSIONS
Concept
Types

- Substantive
- Temporary

The exclusions

EXCLUSIONS
L
A
G
I
C
I
Re
M

The
EXCLUSIONS
Life insurance proceeds
Amounts returned as
premiums
Gifts, bequest, devise
or descent
Exempt interest

Continuation .

Compensation for
injuries or sickness
Income exempt under
treaty
Retirement benefits, etc.
Miscellaneous income

LIFE INSURANCE
Proceeds of life policies
Paid to the heirs or
beneficiaries
Upon death of insured
Single sum or otherwise
Income from proceeds

PREMIUMS RETURNED
Return of premiums
Paid by insured
Under life insurance,
endowment or annuity
Either
- During term, or maturity

ANALYSIS
DEAD OR
ALIVE ?

EXEMPT INTEREST
Govt. securities
Specific provisions
Interest on principal
used to purchase taxexempt not deductible

COMPENSATION
Amounts received
- Accident or Health Ins.
- W.C. Acts

Compensation
- personal injuries
- sickness

Continuation .

Plus damages whether

- Suit or
- Agreement

EXEMPT UNDER
TREATY
Treaty obligation
Basis
- Comity
- Reciprocity

RETIREMENT
BENEFITS,
PENSIONS,
GRATUITIES

RETIREMENT
Qualified source
Qualified employee

QUALIFIED
SOURCE
Rep. Act No. 7641
Reasonable private
retirement plan

Continuation .

Reasonable private
retirement plan
- Pension, gratuity, stock
bonus, profit-sharing
- Maintained by employer
- For employee benefit

Continuation .

- Contributory or not
- For purpose of distributing
earnings and principal
- No part of the corpus or
income be diverted to
other purposes

QUALIFIED
EMPLOYEE

At least 10 years service

Not less than 50 years
of age
Availed of benefit only
once

SEPARATION PAY
Separation because of
- death, sickness, etc.

Beyond control
- retrenchment,
redundancy, cessation
of business

ANALYSIS
Pseudo retirement
- Beyond control
True retirement
- Qualified source
- Qualified employee

PENSIONS,GRATUITIES
Social security benefits,
retirement gratuities,
pensions
- Citizens, aliens p.r.
- Foreign govt, agencies
instns private or public

Continuation .

Benefits due or to be
- RP resident
- U.S. laws
- USVA administered

SSS Benefits
GSIS benefits

MISCELLANEOUS
Income
- Foreign govt.
- Govt, and political
subdivisions
- Financing institutions
owned, controlled
or enjoying refinancing

Continuation

- Intl or regnl financing instns estab.by

govts

Prizes and awards

religious, charitable,
scientific, educational,

Continuation

artistic, literary, civic

achievement
- No action to enter
- No substantial future
service

Continuation

Prizes and awards

- Granted to athletes
- Local and intl sports
tournaments
- Whether RP or abroad
- Sanctioned by natl
sports association

Continuation

13th month and others

- Not exceeding P30K

GSIS, SSS, medicare

Sale of bonds, debentures and other C.I.
- Maturity exceeds 5 yrs

Continuation

Gains from redemption

of shares in mutual
funds

EXCLUSIONS

GROSS
INCOME

TAXABLE
INCOME

EXCLUSIONS

DEDUCTIONS

EXEMPTIONS

FINAL TAXES
Passive income
Capital gains
Trans. tax

TAXABLE INCOME

Pertinent items of gross

income
Less: Deductions and
prsonl/addnl exemptns
Taxable income

GROSS
INCOME

EXCLUSIONS

Co
G
G
I
R
Ro
D
A
P
Pe
P

GROSS INCOME
Compensation
Gains from trade
Gains from dealings
in real property
Interest
Rents

Continuation .

Royalties
Dividends
Annuities
Prizes and other
winnings
Taxable pensions
Partnership shares

COMPENSATION
INCOME
Salaries
Wages
Emoluments and
honoraria

Continuation ..

Bonuses
Allowances
Fringe benefits
Fees including directors
fees

Continuation ..

Taxable pensions and

retirement
Other income of similar
nature

FRINGE BENEFIT
Any good, service or
other benefit
In cash or in kind
Granted an employee
except rank and file

RECEIPTS NOT
COMPENSATION

Facilities and privileges

(de minimis)
RATA of govt employees
Not integrated ACA of
govt employees

Continuation .

Reimbursement of
advances for travelling,
representation, etc.
- Incurred in performance
- Employers business
- Subject to liquidation

Continuation .

Monetary value of leave

or terminal leave credits

FRINGE BENEFITS
Housing
Expense account
Vehicle of any kind
Household personnel,
maid, driver

Continuation

Concessional interests
Membership fees
Foreign travel
Holiday and vacation
Educational assistance

Continuation

Health and hospitalization exceeding the

legal limits

NON-TAXABLE
BENEFITS
Exempt under law
Contributions to
retirement, insurance,
hospitalization

EXEMPT FRINGE
BENEFITS
Required by the
business or trade of
the employer

Continuation ...

Convenience or
advantage of the
rule
Rank and file
De minimis

employer

RANK AND FILE

EMPLOYEES
Not managerial
Not supervisory

MANAGERIAL
EMPLOYEE
Vested with powers or
prerogatives to
Lay down and execute
management policies

Continuation .

and/or to hire, transfer,

suspend, lay-off, recall,
discharge, assign or
discipline employees

SUPERVISORY
EMPLOYEE
In the interest of the
employer
Effectively recommend
such managerial actions

Continuation .

If the exercise of such

authority
Is not merely routinary
or clerical in nature

Continuation .

But requires use of

independent judgment

DE MINIMIS BENEFITS
Facilities or privileges
Furnished or offered by
employer to employee
Relatively small value
Promote health, goodwill,
contentment, efficiency

EXAMPLES:
Monetized unused V/L credits
of private employees not
exceeding ten (10) days per
year
Monetized value of leave credits
paid to govt employees

Continuation

Medical cash allowance

to dependents of employees
not exceeding P750.00/
employee per semester or
P125.00/ month

Continuation.

Rice subsidy of P1,000 or

one sk of 50 kg rice per
month amounting to not more
than P1,0000
Uniform and clothing allow.
not exceeding P3k per annum

Continuation

Actual medical yearly

benefits not exceeding
P10k per annum
Laundry allowance not
exceeding P300.00 per
month

Continuation...

Employee achievement award

- Tangible personal property
not cash or gift certificate
- Not exceeding P10,000.00
- Established written plan not
discriminative in favor of
highly paid
employees

Continuation.

Flowers, fruits, books, or items given on

illness, marriage, births
Gifts during Christmas and major anniversary
celebrations not exceeding P5,000.00 per
employee per annum
Daily meal allowance for O.T. not exceeding
25% of basic

HOUSING EXEMPT
FROM FRINGE
BENEFITS TAX
Housing required by nature
of or necessary to the
employers trade, business
or profession

Continuation .

For convenience or advantage

of the employer
Housing of AFP military officials
Housing unit inside or adjacent,
maximum of 50 meters from
perimeter

Continuation .

Temporary housing, stay

for three (3) months or
less

EMPLOYER
PAYS THE TAX

NEXT TOPIC
GROSS
INCOME