First Preboards (General)

Question 1

Keyrand Inc., a Philippine corporation, sold through the local stock exchange 10,000 shares of PLDT that it bought 2 years ago. Keyrand sold the shares for P2M and realized a net gain of 200T. How much tax shall it pay on the transaction?

Answer 1

1/2 of 1% of the P2M gross sales

Question 2

(T/F) Proprietary educational institutions and hospitals shall pay a tax of 10% on their taxable income if the gross income from unrelated TBA is less than 50% of its total gross income.

Answer 2

False. If unrelated TBA is 50% OR LESS of total gross income, proprietary educational institution is still taxable at 10%.

Question 3

(T/F) All corporations, agencies, or instrumentalities owned or controlled by the Government shall pay such rate of tax upon their taxable income as are imposed upon corporations or associations engaged in a similar business, industry, or activity.

Answer 3

False.

Exceptions (i.e. Not taxable):

• Government Service Insurance System (GSIS)
• Social Security System (SSS)
• Philippine Health Insurance Corporation (PHIC)
• the local water districts (LWDs)
• Philippine Charity Sweepstakes Office (PCSO)

Question 4

(T/F) Dividends received by a domestic corporation from another corporation shall not be subject to tax.

Answer 4

False. Dividends received by a corporation FROM ANOTHER DOMESTIC CORPORATION shall not be subject to tax.

Question 5

(T/F) Any income of nonresidents, whether individuals or corporations, from transactions with depository banks under the expanded foreign currency deposit system shall be exempt from income tax.

Answer 5

True.

Question 6

(T/F) Any excess of the minimum corporate income tax over the normal income tax shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years.

Answer 6

True.

Question 7

(T/F) The Secretary of Finance is authorized to suspend the imposition of the minimum corporate income tax on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses.

Answer 7

True.

Question 8

(T/F) A minimum corporate income tax of two percent (2%) of the gross income is imposed on a corporation beginning on the fourth taxable year immediately following the year in which such corporation was incorporated, when the minimum income tax is greater than the normal income tax.

Answer 8

False. 4th taxable year following the year in which such corporation COMMENCED ITS BUSINESS OPERATIONS

Question 9

(T/F) The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, the necessary rules and regulation that shall define the terms and conditions under which he may suspend the imposition of the minimum corporate income tax in a meritorious case.

Answer 9

True.

Question 10

In 2016, a final withholding tax at the rate of fifteen percent (15%) is imposed on the amount of cash and/or property dividends received from a domestic corporation, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to…

Answer 10

Fifteen (15)%

Question 11

The fact that any corporation is a _________ shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members.

Answer 11

Mere holding or investment company

Question 12

(T/F) Non-profit hospitals shall not be taxed in respect to income received by them as such.

Answer 12

False.

Question 13

Analyze:

The following are exclusions from gross income:

I - All prizes and awards granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their national sports associations.

II - Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof.

Answer 13

Both statements are correct.

Question 14

Which of the following fringe benefit if given to managerial employee is exempt from FBT?

A. Household personnel, such as driver, maid, and others
B. Expenses for foreign travel
C. Educational assistance to employee or daughter
D. Contribution of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plan.

Answer 14

D.

Question 15

A resident alien received a prize of P40,000 from SM Department Store. How shall the final tax be imposed?

Answer 15

The whole amount of P40,000 shall be subject to 20% final tax.

Question 16

Analyze:

I - A co-ownership is taxable because although the activities of the co-owners are limited to the preservation of the property, they derived income therefrom

II - Is the share of a co-owner taxable? Yes, because each co-owner is taxed individually on his distributive share in the net income of the co-ownership

Answer 16

I - False.

II - Correct

Question 17

What is wrong with this statement?

“If the taxpayer should have additional dependents during the taxable year, he can claim exemptions for such dependents on full for the year.”

Answer 17

Maximum 4 qualified dependents for purposes of additional exemption

Question 18

Which of the following items is an income of a resident alien subject to the basic tax (schedular)?

A. Dividend received from a domestic corporation
B. Prizes from USA lotto
C. Interest income from Philippine lotto winnings
D. Share in net income of ordinary partnership

Answer 18

A. 10% final tax
B. Income without, not taxable in PH
C. Correct answer
D. 10% final tax

Question 19

This income is part of taxable income subject to the basic tax (schedular).

A. FB to RF employees
B. FB to managerial employees
C. Compensation for personal injuries and sickness
D. Proceeds of life insurance

Answer 19

A. Correct
B. FBT
C. Exclusion
D. Exclusion

Question 20

When are dividends from foreign corporations considered income within?

Answer 20

If 50% or more of the gross income of the foreign corporation for the preceding three (3) years (or part thereof) was derived from sources within the PH

PH gross inc / total gross inc x dividend = income within

Question 21

Prizes amounting to ________ shall be subject to graduated rates as opposed to 20% final tax.

Answer 21

10,000 or less.

Question 22

Congress passed a law imposing taxes on income earned out of a particular activity that was not previously taxed. The law, however, taxed incomes already earned within the fiscal year when the law took effect. Is the law valid?

Answer 22

Yes, tax laws are an exception, they can be given retroactive effect.

Question 23

The payor of passive income subject to final tax is required to withhold the tax from the payment due to the recipient. The withholding of the tax has the effect of…

Answer 23

A final settlement of the tax liability on the income.

Question 24

What are the inherent limitations of the power to tax?

Answer 24

[KEY: PENIT]

1. Public purpose
2. Exemption of government
3. Non-delegability
4. International comity
5. Territorial jurisdiction

Question 25

(T/F) The consent of the owner of the private property to sell the same to the government is necessary for the exercise of eminent domain.

Answer 25

False

Question 26

A acquired his residential land in 2000 at a cost of P1M. A sold the property on Jan. 2, 2016, for a selling price of 4M where the FMV is 5M. Within 18 months, A purchased his new principal residence at a cost of 7M. How much is the capital gains tax?

Answer 26

5M * 6% = 300,000.

A “residential land” is not “principal residence”.

Question 27

(T/F) The power of taxation may be exercised by the government, its political subdivisions, and public utilities

Answer 27

False.

Question 28

Define a semi-global tax system

Answer 28

All incomes subject to FWT - schedular tax system

All ordinary income - global tax system

Question 29

Situs of income from performance of service

Answer 29

Where the service is actually performed

Question 30

Interest income of a domestic commercial bank derived from a peso loan to a domestic corporation in 2010 is subject to…

Answer 30

30% income tax based on its taxable net income

Question 31

Rental income claimed by a corporation was not subjected to expanded withholding tax. Accordingly, the claim rental expense…

Answer 31

Is not deductible from gross income due to non-withholding of tax

Question 32

Appropriate method of accounting for a contractor on his long term construction contract

Answer 32

Percentage of completion

Question 33

Define GPP.

Answer 33

“General professional partnerships” are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.

It is therefore the individual partners who shall be subject to income tax and consequently, to the withholding tax, in their separate and individual capacities.`

Question 34

(T/F) Separation pay received under a voluntary retirement program is included in gross income.

Answer 34

True.

Question 35

A non-stock, non-profit charitable association that sells its idle agricultural property is required to pay 6% CGT

Answer 35

True.

Question 36

(T/F) It is not the function of Congress to collect the tax levied under the law.

Answer 36

True.

Question 37

Income is considered realized for tax purposes when

Answer 37

The earning process is complete or virtually complete and an exchange has taken place.

Question 38

Income from dealings in property is the gain or loss derived…

Answer 38

ONLY FROM THE SALE OF PROPERTY

Question 39

Liquidating dividends are treated as capital gains, and therefore…

Answer 39

The gains from this investment should be declared and ordinary income tax paid

Question 40

MGC secured an income tax holiday for 5 years as a pioneer industry. On the fourth year of the tax holiday, MGC declared and paid cash dividends to its stockholders, all of whom are individuals. Are the dividends taxable?

Answer 40

Yes. The tax exemption of MGC does not extend to its stockholders.

Question 41

(T/F) Income is income regardless of the sources.

Answer 41

True.

Question 42

The municipality of San Isidro passed an ordinance imposing a tax on installation managers. At the time, there was only one installation manager in the municipality, thus, only he would be liable for the tax. Is the law constitutional?

Answer 42

Yes. It applies to all persons in that class.

Question 43

Aleta sued Boboy for breach of promise to marry. Boboy lost the case and duly paid the court’s award that included 100,000 as moral damages for the mental anguish Aleta suffered. Did Aleta earn taxable income?

Answer 43

No. Moral damages are compensatory.