Chapter 3 Flashcards
Regarded as the best measure of taxpayers’ ability to pay tax.
Income
The tax concept of income is simply referred to as _________ under the NIRC.
Gross Income
The tax concept of income is simply referred to as _________ under the NIRC.
Gross Income
A taxable item of income is referred to as an _______ or ________.
- Item of gross income
- inclusion in gross income
Define Gross Income
It is broadly defined as any inflow of wealth to the taxpayer from whatever source, legal or illegal, that increases net worth.
Enumerate the elements of gross income:
- It is a return on capital that increases net worth.
- It is a realized benefit.
- It is not exempted by law, contract, or treaty.
One of the elements of gross income, where gross income is a return on wealth that increases the taxpayer’s net worth.
Return on Capital
Increases net worth is income subject to income tax
Return on capital
It merely maintains net worth; hence, it is not taxable.
Return of capital
It merely maintains net worth; hence, it is not taxable.
Return of capital
An improvement in net worth indicates an ability to pay tax.
Return of capital
These are incapable of pecuniary valuation.
Capital items deemed with infinite value
It is anything received as a compensation for the loss on capital items deemed with infinite value.
Return of Capital
Examples of Capital Items deemed with infinite value:
- Life
- Health
- Human Reputation
(True or False)
The proceeds of life insurance policies collected by an employer as a beneficiary from the life insurance of an officer or any person directly interested with his trade are not exempted in taxation
False, life insurance is exempted in taxation
(True or False)
Any excess amount received over premiums paid by the insured upon surrender or maturity of the policy are taxable.
True (kay excess siya mo, meaning may gain. So, ang gain is subject to income tax.)
(True or False)
Any compensation received in consideration for the loss of health, such as compensation for personal injuries or tortuous acts, is deemed a return of capital and is not exempted to tax.
False, it is subject to tax
Return on capital is exempted from income tax, whereas return of capital is not.
False (baliskadanay)
Examples that include moral damages:
- Oral defamation or slander
- Alienation of affection
- Breach of promise to marry
(True or False)
SSS law states that your retirement benefits should be taxable.
False, it should be exempted from taxes.
(True or False)
SSS law states that your retirement benefits should be taxable.
False, it should be exempted from taxes.
(True or False)
Individual taxpayers w/ annual taxable income amounting to P250k or below are still exempt from paying income tax.
True
(True or False)
A taxpayer can make ammendmens if the income tax return is deficit but can only do so after 3 years.
True
(True or False)
Minimum wage earner is still subject to tax
False
(True or False)
Loss of profits results in decrease in net worth
False, Loss of capital
(True or False)
The recovery of lost capital merely maintains net worth while the recovery of lost profits increases net worth.
True
(True or False)
The recovery of lost capital merely maintains net worth while the recovery of lost profits increases net worth.
True
(True or False)
Donations not exceeding P250,000 are exempt from donor’s tax.
True
Under this element of gross income, there is a benefit when there is an increase in the net worth of the taxpayer.
Realized Benefit
________ means any form of advantage derived by the taxpayer.
Benefit
The term _____ means earned. Requires that there is a degree of undertaking or sacrifice from the taxpayer to be entitled of the benefit.
realized
Requisites of a realized benefit:
- There must be an exchange transaction
- The transaction involves another entity
- It increases the net worth of the recipient
Types of transfers:
- Bilateral transfers or exchanges
- Unilateral transfers
- Complex transactions
These are referred to as a onerous transactions
Bilateral transfers or exchanges
These are also referred to as “gratuitous transactions”
Unilateral transfers
These are also referred to as “gratuitous transactions”
Unilateral transfers
Partly gratuitous and partly onerous.
Complex transactions
These are commonly referred to as “transfers for less than full and adequate consideration.”
Complex transactions
(True or False)
The gratuitous portion of the transaction is subject to transfer tax while the benefit from the onerous portio is subject to income tax.
True
Entity which are living persons
Natural persons
Entity created by law such as partnerships and corporations
Juridical persons
(True or False)
The increase in wealth of the taxpayer in the form of appreciation or increase in the value of his properties or decrease in the value of his obligations in the absence of a sale or barter transaction is not taxable
True
This referred to as appreciation in value of property but not yet materialized in an exchange transaction
Unrealized gains or holding gains
(True or False)
The forgiveness of debt out of affection or mere generosity of the creditor is a gratuitous transfer, and it is exempt from tax.
False, it is subject to transfer tax
(True or False)
The loan received from the bank constitutes a transfer but not a benefit
True
Enumerate the mode of receipt or realization benefits
- Actual Receipt
- Constructive Receipt
It involves actual physical taking of the income in the form of cash or property
Actual Receipt
It involves no actual physical taking of the income but the taxpayer is effectively benefited
Constructive Receipt
(True or False)
The inflow of wealth to a person that does not increase his net worth is not income due to the total absence of benefit.
True
(True or False)
In law, the proceeds of embezzlement or swindling where money is taken without an original intention ot return are considered as income becaus eof the increase of net worth of the swindler.
True
Types of Income Taxpayers
- Individuals
- Corporations
Enumerate different kinds of individuals
- Citizen
- Alien
- Corporations
(True or False)
A person is considered a citizen of the Philippines at the time of adoption of the Constitution on February 2, 1987
True
(True or False)
A person is considered a resident citizen if he leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for an employment on a permanent basis.
False, he is considered as a non-resident citizen
(True or False)
Filipinos workng in Philippine embassies or Philippine consulat offices are considered resident citizen.
False, non-resident because Philippine embassies are extention of territory of the state.
An individual residing in the Philippines but is not a citizen thereof
Resident alien
An individual who is not residing in the Philippines who is not a citizen thereof
Non-resident alien
aliens who stays in the Philippines for an aggregate period of more than 180 days during the year.
Non -resident aliens engaged in business
Aliens who shall come to the Philippines and stay therein for an aggregate period of not more than 180 days
Non-resident aliens not engaged in business
(True or False)
Citizens staying abroad for a period of at least 183 days are considered non-resident.
True
(True or False)
aliens who are staying in the Philippines for not more than 1 year but more than 180 days are deemed non-resident aliens not engaged in business
False, NRA- engaged in business
Refers to the properties, rights, obligations of a deceased person not extinguished by his death.
Estate
Arrangement whereby one person transfers property to another person which wull be held under the management of a third party.
Trust
(True or False)
If a trust is irrevocably designated by the grantor is treated in taxation as an individual taxpayer
True
(True or False)
Trusts that are designated as revocable by the grantor are not taxable entties adn are not considered as an individual taxpayers. It is taxable to grantors
True
corporation organized in accordance with Philippine laws
domestic corporation
corporation that is organized under a foreign law
foreign corporation
(True or False)
A corporation that incorporates in the Philippines and the incorporators are foreigners is a foreign corporation under the Incorp. test
False, it is a domestic corporation even if it is controlled by foreigners
