Chapter 3 Flashcards
What are the tests in determining gain?
Severance/Realization
Tax Benefit Rule (Recovery of an Expense)
Economic Benefit
In this test, income is the separation of something from the capital that is of exchangeable value.
Severance/Realization
In this test, prior to the recovery of the expense, the expense was deducted from the income and the recognition of the expense as an allowable deduction resulted to the payment of lower taxes.
Tax Benefit Rule (Recovery of an Expense)
This doctrine applies to cash basis taxpayers who receive compensation for their services. It presupposes that taxpayer is taxed when a taxpayer receives an absolute right to receive property in the future.
Economic Benefit
This is the total amount earned from a sales transaction.
Gross sales
This represents the cost of capital. It is the business expenses directly incurred coproduce the merchandise or bring them to their present location.
Cost of Goods Sold
This is equivalent to gross sales less COGS less sales returns, discounts, and allowances
Gross income
This is regarded as the best measure of a taxpayer’s ability to pay tax.
Income
Under the NIRC, what is taxable income?
It is the gross income less deductions and personal exemptions by the law.
This is broadly defined as any inflow of wealth to the taxpayer from whatever source, legal or illegal, that increases net worth.
Gross income
Is income from illegal means taxable?
Yes
What are the requirements of taxable income?
There must be gain
Gain must be realized, received, and/or earned
Gain must not be excluded by law or treaty from taxation
This means any wealth or property.
Capital
Differentiate return on capital and return of capital
Return on capital increase net worth while return of capital is just returning the capital to the person. It merely maintain net worth.
What are capital items with infinite value?
Health
Life
Human reputation
This is the process of determining if a civil action is readily available of being valued in terms of cash or money.
Pecuniary valuation
Are capital items with infinite value capable of pecuniary valuation?
No since they have infinite and immeasurable value
Are the proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise taxable?
No, they are exempt
Are the proceeds of a life insurance contract collected by an employer as a beneficiary from the life insurance of an officer or any person directly interested with his trade taxable?
No, they are exempt
Is any excess amount received over premiums paid by the insured upon surrender or maturity of the policy taxable?
Yes
Is gain realized by the insured from the assignment or sale of his insurance policy taxable?
Yes
Is interest income from the unpaid balance of the proceeds of the policy taxable?
Yes
Is any excess of the proceeds received over the acquisition costs and premium payments by an assignee of a life insurance policy?
Yes
Are moral damages paid taxable?
No it is a return of capital
Is the recovery of lost profits taxable?
Yes
Is the recover of lost capital taxable?
No
Is the recovery of lost profits through insurance, indemnity contracts, or legal suits taxable?
Yes
Are proceeds of crop or livestock insurance taxable?
Yes
Are guarantee payments taxable?
Yes
Is receipt of a loan taxable?
No
Is discovery of lost properties taxable?
No
Is receipt of money or property to be held in trust for, or to be remitted to another person taxable?
No
What does the term realized mean?
It means earned.
What are the requisites of a realized benefit?
There must be an exchange transaction\
The transaction involves another entity
It increases the net worth of the recipient
Are bilateral transfers onerous or gratuitous? How about unilateral transfers?
Bilateral transfers - onerous
Unilateral transfers - gratuitous
This is the transfer of property upon death.
Succession
Are stock dividends paid subject to tax?
No because it is not realized
Are benefits derived from exchanges or bilateral transfers taxable?
Yes because they are earned or realized
Are benefits derived from transfers or unilateral transfers taxable?
Yes on transfer tax but not income tax.
These are transactions that are partly gratuitous and partly onerous.
Complex transactions
Are complex transactions taxable on income?
Yes on the portion that is onerous and taxable on transfer tax for the portions that is gratuitous
Are gains or income derived between relatives, corporations, and between a partner and a partnership taxable?
Yes since it is made between separate entities
Are the sales of a home office to its branch office taxable?
No because they are one and the same entity
Is increase in value of investments in equity and debt securities taxable?
No
Is increase in value of real properties held taxable?
NO
Is increase in foreign currencies held or receivable taxable?
No
Is birth of animal offspring or accrual of fruits in an orchard taxable?
No
Is increase in value of land due to the discovery of mineral reserves taxable?
No
This involves actual physical taking of the income in the form of cash or property.
Actual receipt/realization
This involves no actual physical taking of the income but the taxpayer is effectively benefitted.
Constructive receipt/realization
This is income dictated by law.
Presumptive realization
Is the income of qualified employee trust fund taxable?
NO
Are revenues of non-profit, non-stock educational institutions taxable?
No
Are SSS, GSIS, or PhilHealth benefits taxable?
No
Are salaries of minimum wage earners and qualified senior citizens taxable?
No
Is the regular income of Barangay Micro-business Enterprises taxable?
No
Is income o international missions and organizations with income tax immunity taxable?
No
Is the income of foreign governments and foreign government-owned controlled corporations taxable?
No
Citizens at the time of the adoption of the Constitution on ____________ are citizens of the Philippines.
February 2, 1987
Those born before _________ of Filipino mothers who elected Filipino citizenship upon reaching the age of majority are citizens of the Philippines.
January 17, 1973
This is a Filipino citizen residing in the Philippines.
Resident citizen
This is a citizen who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein.
or
A citizen who leaves the Philippines during the taxable year to reside abroad on a permanent basis.
or a citizen who is physically present abroad for most of the time during the taxable year.
Or his employment requires physical presence abroad for more than 183 days.
A non-resident citizen
How do you consider Filipinos working in Philippine embassies or are Philippine consulate officers?
Non-resident citizens
This is an individual who is reading in the Philippines but is not a citizen thereof.
Resident alien
This is an individual who is not residing in the Philippines and who is not a citizen thereof
Non-resident alien
These are aliens who stayed in the Philippines for an aggregate period of more than 180 days during the year.
Non-resident aliens engaged in trade or business
These are aliens who come to the Philippines for a purpose that may be promptly accomplished and those who stayed in the Philippines for not more than an aggregate period of 180 days.
Non-resident aliens not engaged in trade or business
This refers to the properties, rights, and obligations of a deceased person not extinguished by his death.
Estate
What kind of taxpayers are estates under judicial settlement?
Individual taxpayer
Are estates taxable on the income of the properties left by the decedent?
Yes
Are estates under extrajudicial settlement taxable on the income of properties left by a decendent?
It is taxacble to the heirs
This is an arrangement whereby one person transfers property to another person which will be under the management of a third party.
Trust
Is the income of the property held in trust taxable to the trust?
Yes
These are domestic or foreign corporations which are subject to special tax rules or preferential tax rates.
Special corporations
Who are taxable on income earned within the Philippines?
RC
NRC
RA
NRA
DC
RFC
NRFC
Who are taxable on income earned without the Philippines?
RC
DC
This is the place of taxation of income.
Situs
What is the situs of interest income?
Debtor’s residence
What is the situs of royalties?
Where the intangible is employed
Where the intangible is used
What is the situs of rent income?
Where the property is located
What is the situs of service income?
Where the service is rendered
What is the situs of sale of personal properties?
Domestic securities - presumed earned in the Philippines
Other personal properties - where it is sold
What is the situs of dividend income?
DC - presumed earned within
FC - depends on pre-dominance test
What is the pre-dominance test?
At least 50% of dividend corresponding to the Philippine gross income ratio that is earned within
Less than 50% of the entire dividends received is deemed earned abroad.
What is the situs of merchandising income?
Where the property is sold
What is the situs of manufacturing income?
Where the goods are manufactured and sold
