Gross Income - Inclusions and Exclusions

Question 1

Characteristics of Income Tax (SEND)

Answer 1

• Semi-Global or Semi-Schedular
  Schedular → different rates
  Global → applying only 1 rate
• Excise
• National
• Direct

Question 2

Situs of Income
- Interest = Debtor’s Residence
- Service = Place of Performance
- Rent = Location of Property
- Intangible = Place of Use
- Sale of Real Property = Location of Property
- Sale of Personal Property = Place of Sale

What if sale of shares?

Answer 2

Depends on nationality of corporation

Question 3

Situs of Income
- Dividends from Domestic Corporation
- Dividends from Foreign Corporation

What is the rule?

Answer 3

• Domestic = within PH
• Foreign = Pre-Dominance Test

Question 4

Pre-Dominance Test
- Formula = Taxable Income - PH / Taxable Income - World
- 3 years preceding the year of declaration

True or False?

Answer 4

False → must be gross income

Question 5

Pre-Dominance Test
What is the rule in case the ratio of PH to World is
- 50%
- 49%

Answer 5

• atleast 50% - Partly Within
• less than 50% - Entirely Without

Question 6

TAXABLE INCOME
- Return ON capital that increases net worth
- Realized benefit (earned)
- Not exempted by law, contract or treaty

Dapat realized → if nag increase lang yung value pero di naman nabenta (realized or earned), it is not a taxable income

Answer 6

Yes

Question 7

ITEMS W INFINITE VALUE (RETURN OF CAPITAL)
- Not part of taxable income (LHR)

Answer 7

• Life
• Health
• Reputation

Question 8

In case of accidents, payment of hospital bills is taxable income. True or False?
In case of accidents, payment of lost salaries is taxable income. True or False?

Answer 8

False
True (recovery of lost income)

Question 9

Items of Gross Income
- RPW ID (refer to Individuals and Corporations)

Answer 9

Yes

Question 10

Items of Gross Income
- For bad debt recovery, only direct writeoff method is allowed. What is the rule for bad debt recovery to be an inclusion in gross income?

Answer 10

it must reduced taxable income (tax benefit rule)

Question 11

Items of Gross Income
- What is the treatment for cancellation of debt if it is in exchange for rendering of service?
- What is the treatment for cancellation of debt it it is a shareholder debt cancelled by a corporation?

Answer 11

• as if compensation income
• as if dividend (FWT)

Question 12

Items of Gross Income
- What is the acceptable method for LTCC?

Answer 12

Percentage of Completion

Question 13

Items of Gross Income
- Payment for pensions are generally items of gross income.
- What are the requisites to be an exclusion in gross income, if with retirement plan? (1-10-50 ABP)
- What are the requsites to be an exclusion in gross income, if without retirement plan? (60-5)

Answer 13

With Retirement Plan
- 1st time availment
- 10 years of service to same employer (cumulative, kahit di tuloy tuloy)
- 50 years of age
- approved benefit plan by BIR

Without Retirement Plan
- 60 years of age
- 5 years of service to same employer

Question 14

Items of Gross Income
- Payment for separation are generally items of gross income.
- What are the requisites to be an exclusion in gross income?

Answer 14

must be beyond control (death, sickness, physical disability)

Question 15

Items of Gross Income
- Tax refunds are generally items of gross income.
- Tax Refunds that are Exclusions (FITS-V)

Answer 15

Foreign Income Tax → claimed as credit
Income Tax
Transfer Tax
Stock Transaction Tax
VAT

Question 16

Items of Gross Income
- Rent and Advance Rent (since cash basis)
- Obligations assumed by lessor. Inclusion or Exclusion?
- Leasehold Improvements to lessor. Inclusion or Exclusion?
- Security deposit. Inclusion or Exclusion?

Answer 16

• Exclusion → must be assumed by lessee to be an inclusion
• Inclusion
• Exclusion

Question 17

Leasehold Improvements
- Outright Method → 100% FMV
- Spread-Out Method → over the life

What is the formula for annual income in case of spread-out method?

Answer 17

BV, end of lease
—————
remaining lease term

Question 18

Items of Gross Income
- Insurance proceeds. Inclusion or Exclusion?
- Interest on insurance proceeds. Inclusion or Exclusion?
- Return of premium. Inclusion or Exclusion?
- Annuity in excess of premium. Inclusion or Exclusion?

Answer 18

• Exclusion
• Inclusion
• Exclusion
• Inclusion

As if return ON capital

Question 19

Items of Gross Income
- Recovery of lost profits. Inclusion or Exclusion?
- Recovery of loss of earning capacity. Inclusion or Exclusion?
- Compensatory damages. Inclusion or Exclusion?

Answer 19

• Inclusion
• Inclusion
• Exclusion

refer to LHR

Question 20

Gambling gains and illegal income, since contrary to law, are not part of taxable income. True or False?

Answer 20

False
- kung hindi sila isasama sa taxable income, baka lahat is gumawa na lang ng illegal since hindi naman matatax-an

Question 21

Income by foreign governments and income exempt under treaty are not part of taxable income. True or False?

Answer 21

True (principle of goodwill to other nations eme)

Question 22

Hidden treasure are not part of taxable income. True or False?

Income of GOCC (Basic Principle = TIP END) are not part of taxable income. True or False?

Gifts, bequests, devises are not part of taxable income. True or False?

Answer 22

• False (since gain yan, part yan ng income)
• False (ang exempted lang is government, pero yung GOCC is taxable)
• True

Question 23

13th month and other benefits in excess of 90k is part of taxable income.

Answer 23

Yes

Question 24

Mandatory deductions are not part of taxable income.

Answer 24

Yes

Question 25

For minimum wage earners, aside from their basic pay, what other payments to them are exempted from income tax?

Answer 25

HHON - Hazard - Holiday - Overtime - Night Shift