Midterm Review for Tax Flashcards
🟢Definition, Nature, Basis, and Importance of Taxation🟢
What is the definition of Taxation
pg .1 & 2
Inherent Power of the Sovereign
Exercised through the legislature
To impose burden upon subjects & objects
w/in its JD for the purpose of raising revenues
to carry out the legitimate objects of gov’t
check pg. 2 & 3 (kma)
can Congress pass a law to remove the tax exemption of a corporation?
No, as a general rule
The rule is when the exemption is granted for valuable consideration [AND] granted on the basis of a contract, it cannot be revoked by a passage of law thus the constitutional prohibition non-impairment of obligations is present
TN:
contract = charter of the corp
valuable consideration = can be services in return
TN: does not apply to FRANCHISE
LB: ABC-CBN it was a franchise granted by congress
what are the requisites of a valid classification
- rest on substantial distinctions
- germane to the purpose of the law
- NOT limited to existing conditions only
- apply equally to all members of the same class
Mandanas v. Ochoa doctrine
As a general rule, the collection of taxes may not be enjoined by injunction
XPN
Only the CTA can issue a TRO because it is a matter of Collection questioning the way the tax was computed
Tax is Not subject to compensation and set-off
XPN
LB: Domingo v. Garlitos
offsetting can be done under (2) conditions
1. both claims are due & demandable
2. both claims are fully liquidated
what is the doctrine of equitable recoupment
a claim for refund that has been barred by prescription may be allowed to offset unsettled tax liabilities arising form the same transactilion.
The SC REJECTED this doctrine in Collector vs. UST since it may work to tempt both parties to delay and neglect their respective pursuits or legal action within the period set by law
🟢Purpose & Objective of Taxation 🟢
4R’s / Effects of Taxation
representation
redistrbution
revenue
repricing
What are the Inherent Limitations of Taxation
PENIT
Public Purpose
Exemption from Taxation of Gov’t Entities
Non-Delegation of the power to tax
International Comity
Territorial Jurisdiction
Where do bills originate relating to
- appropriation,
- revenue, or tariff bills,
- bills authorizing increase of public debt,
- bills of local application, and
- private bills?
Art. 7 Sec. 24 of Constitution
REVENUE BILLS (not laws) must originate exclusively in the house but the Senate may propose amendments
Q: If the Senate drafted ahead in their own version, can that be done, like a tax law? Exactly what happened to the amended VAT law.
Yes, provided Congress had enrolled the bill already.
It is permissible that Senate has their own bill but the same shall be submitted to the bicameral committee. What is required is that date of official registration of the bill is ahead.
when can there be a law granting any tax exemptions?
Art. 6 Sec 28 Constitution
“No law granting any tax exemption shall be passed without the concurrence of a majority of all Members of the Congress
You have a parcel of land and
you’re not engaged in any charitable activities or any educational purposes. In that land you have a building since it’s a 10-storey building, you decided to rent it to INC. The 1st floor is a restaurant and up until the 4th floor are parking lots for members of INC. From 5th to 7th floors are used for worship. From the 8th-10th floors are quarters of the ministers of the INC.
Will your property be exempted from tax? Provided Constiuttional Basis
Yes, but only on the 1st floor.
The 1st floor will be taxed because it’s not used actually, directly, and exclusive for religious purposes
It’s not only facilities that are indispensable but also incidentally necessary for that purpose, hence parking lots are exempted because it’s incidental to the use for that purpose
[A6 S28]
Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, [ade] actually, directly, and exclusively used for [rce] religious, charitable, or educational purposes shall be exempt from taxation.
Petitioner, a non-stock, non-profit corporation, owns a parcel of land and a hospital building. It provides both paying and non-paying medical services, with a significant portion of its property leased out to private enterprises.
Is it taxable?
Insofar as the land the hospital is situated used for patients, it is exempt from tax.
Insofar as the portions of land or hospital leased out to private entities are not exempt form tax
LB: Lung Center v. Quezon City
[SC]
we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are NOT exempt from such taxes.
On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.
Can a proprietary educational institution obtain a tax exemption even when the profits obtained are divided among its stock holders?
Yes, under certain conditions they may qualify for a tax preferential rate
If the school buys computers from abroad
and was imported here in the Philippines. Will they be subject to VAT, Customs duties, and excise tax?
It depends.
- if these computers will be used for actual, direct, and exclusively used for educational purposes then it’s exempted, such as, for computer labs for the students
- if bought locally, it is NOT exempted because who is being taxed for VAT here is the seller and the seller shifts the burden to the buyer. The statutory taxpayer is the seller and not the local store, hence the school cannot make that as an exemption.
knowledge check: Constitutional Provisions that provide for tax exemptions & their specific tax exemptions
Art. 6 Sec 28 (3) - real property tax
Art. 14, Sec 4 (3) (4) - income, import, duties, doner’s
requisites for valid tax
- It should be for a public purpose
- The rule of taxation should be uniform
- That either the person or property taxed be within the jurisdiction of the taxing authority.
- That the assessment and collection should be in consonance with the due process clause
- The tax must not infringe on the inherent and the constitutional limitations of the power of taxation.
B. Indirect Constitutional Limitations
pg .35
discuss the case of Chamber of Real Estate & Builders’ Association Inc. v. Romulo et. al.
[MCIT]
Let’s say a corporation sells property for ₱10 million, and the cost of the property (cost of sales) was ₱6 million. The gross income is:
Gross Income = ₱10 million (sales) - ₱6 million (cost of property) = ₱4 million.
Now, the MCIT is applied to the gross income:
MCIT = 2% of ₱4 million = ₱80,000.
Section 1, Art. III, 1987 Const. — […] nor shall any person be denied the equal protection of the laws.
on the topic of indirect constitutional limitations of taxation
knowledge check: It follows that the guarantee of the equal protection of the laws is not violated by legislation based on a reasonable classification. Classification, to be valid, must
- rest on substantial distinctions
- germane to the purpose of the law
- not limited to existing conditions only,
- apply equally to all members of the same class
Does it apply not only to existing condition, for example, if in Cebu City, there will be an ordinance taxing an astronaut, and you happen to be the only astronaut in the area, can you question the ordinance for being violative of the Constitutional limitation and equal protection of laws?
A: because there may be only one astronaut now but it doesn’t mean there won’t be more in the future. The imposition of the ordinance is not only for the current situation but for future conditions as well. As long as it’s not intended specifically for you, then it cannot be questioned to be violative of equal protection of laws.
valid classification > (1) substantial distinction >
what is compelling interest test?
as long as there is a compelling
governmental interest, then the distinction can be justified. It has to make a justification
imposing higher excise tax on sugar beverages
when enacting laws that protect children, VAWC, it does not violate equal protection of laws because of the principle of
constitutionally permissible state interest
Section 10, Art. III, 1987 Const. — No law impairing the obligation of contracts shall be passed
when does non-impairment of contracts apply to “Privileges”
As a privilege you cannot demand. So if it is granted to you then it can be taken away. The government can do that and there is no question
but if there is a substantial consideration in exchange for that privilege then it cannot just be taken by the government just like how it is with this investment promotion agency
Congress granted Omega Power Corp. a 25-year legislative franchise to operate as an electricity distributor, which included a tax exemption on certain revenues. After 15 years, a new law was passed removing all tax exemptions for power distributors. Omega Power Corp. argued that the removal of their tax exemption violates the non-impairment clause and demanded to retain their franchise under the original terms.
Issue: Can Omega Power Corp. demand to retain its tax exemption for the remaining 10 years of its franchise?
No, the non-impairment clause protects contracts but not government franchises
The SC said that franchise is always subject to change because the
Constitution provides that so this cannot be considered as violation of the non-impairment clause of the Constitution
INCOME TAXATION
INCOME TAXATION
what is Income tax?
sec. 31 NIRC
“means the pertinent items of gross income specified in this Code, less the deductions, if any, authorized for such types of income by this Code or other special laws.”
[note]
tax of all yearly profits arising from property, professions, trades or offices or as a tax on a person’s income, emoluments or profit.
formula for taxable income
TI = Gross income - allowable deductions
Enumerate Gross Income
CGIRDAPP
(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner’s distributive share from the net income of the general professional partnership.
note
- may include Treasures & gambling gains
when is INCOME deemed taxable?
if all these elements are present
- there is gain or profit and
- G/P is NOT exempted under any law/treaty
Do you earn income from the inc. of your PLDT shares?
No, until you sell it then you’re able to get the income because it remains unrealized
is receiving a whiteboard marker without pay income? YES
after a year, it will no longer be considered income, it will be considered? __
is it taxable?
CAPITAL
No, we do not tax CAPITAL.
What is the Montgomery test?
It’s possible also that there’s already income, it’s already realized. But not yet received. It’s still on credit. You’re already
on credit
In a lessor-lessee rel’t, is security payment taxable?
No, because you don’t have rights over it only intended for damages if there are on the property therefore not considered as income yet
In a lessor-lessee rel’t, is advance rental taxable?
Yes
What are EXCLUDED from Gross Income?
LAGCRIM
sec. 32 NIRC
- Life insurance
- Amount received by Insured as Return of Premium
- Gifts, Bequests, and Devises
- Compensation for Injuries/Sickness
- Income exempt under a treaty
- Retirement benefits, pensions, gratuities, etc.
- Misc.
GR w/n LI is taxable
XPN
GR: whoever is the beneficiary of the life insurance, there is no tax as it is excluded
XPN: he is using LI as an **investment scheme ** so the proceeds are taxable.
Sec. 32 NIRC > LAGCRIM > Life Insurance
1M life insurance. A is supposed to pay it for 10 years, which is PHP 10k/year, but the life insurance is good for 1M. In year 3, A sold it to B. Therefore, B, the buyer will have to continually pay the proceeds.
Suppose A was able to sell it for 500k and he dies in the 7th year and the premium was paid by B for 4 years which is 40k thousand plus the 500k thousand.
[A] what is the formula for “PROCEEDS”
[B] How much is B’s total COSTs?
[C] why is BUYER the one to pay taxable income?
[D] is SELLER liable for tax income as well?
[a]
Proceeds - (Actual Consideration + amount premium shouldered by transferee)
[b]
1M - (500k+ 40k) = 460k.
hence, 460k is the taxable income on part of the BUYER
[c]
BUYER is taxed beacuse he will be the one who will receive the LI proceeds & that is the income return to sale
[d]
Yes. if there is income for SELLER, (sells it for 500k but purchased it for 30k) the difference then will be considered income on part of seller
Sec. 32 NIRC > LAGCRIM > Amounts Received by Insured as Return of Premium
Your life insurance is good for 20 years. If you will live for 20 years then you can get life insurance. So suppose the same, good for 20 years at 10,000 pesos but you will have a proceeds of 1,000,000 pesos.
how much is to be taxed and why?
800k should be taxed and not the 1M because 200k should be excluded as it is a return of premium which is your cost/payment so it makes sense not to include it in the taxable
Sec. 32 NIRC > LAGCRIM > Gifts, Bequest, and Devices
do we tax bequest (personal property given thru will) and device (real property) under INCOME TAX?
No, it is under Donor’s Tax
Sec. 32 NIRC > LAGCRIM >Compensation to personal injuries/sickness
You figured in an accident using your car and then you bump into another car because of which you are hospitalized for 10 days and you are not able to earn your compensation for 10 days and you have to pay for your medical bills.
[a]
You received insurance or compensation for your car repair and medical fee
is it taxable?
[b]
loss of income during stay in hospital, is it taxable?
Medical expenses is exempt as it is part of Physical Injuries
Repair compensation IS TAXABLE because the damage is not on the person but on the car
[b]
AMAGO - exempt as still part of damages related to sickness + Labor policy of “No work no pay”
Normally, lost income is still income, even if it is received later as compensation for an accident.
The idea is that if you had worked, you would have paid income tax on your salary. So, when you receive damages to replace that lost income, the government still considers it taxable because it’s basically the same as receiving your salary
which type of earners can avail of the 8% gross income tax option
- earning business/professional income
- mixed income earner (compensation + business income)
note
not available for pure compensation earners
what is one benefit in opting for the 8% gross income tax?
no need to pay for other percentage tax where gross sales is NOT subject to 12% VAT
the 8% is not imposed directly on the G.income, it’s G.income less 250k** which is very good
REQUISITES FOR 8% OPTION TO BE APPLICABLE
- You have to be earning business or professional income
- Your gross sales [or] gross receipts for the year should NOT exceed 3 million pesos
- You must not have registered as a VAT taxpayer
- Your business is not a business which is subject to any other special rate of other percentage tax but just the 3% other percentage tax.
how to compute or the formulate for purely compensation income earners?
TI = GI - Nontaxable Income/Benefits
how to compute for purely self-employed and/or professional income earners
GS/GR [and] non-operating income NOT exceeding the VAT threshold provided in NIRC of the Tax 3M
what options are available to self-employed/professionals whose GR/GS [and] non-operating income does not exceed the VAT threshold of 3M
- graduated rates
OR
- 8% tax on GS/GR [and] NOI in excess of 250k (in lieu of GIT AND percentage tax)
(note)
GIT - graduated income tax
consistent w/ requisites,
the option of 8% is NOT available to?
- vat registered tax payers regardless amount of gross sales receipts
- taxayer subject to other percentage taxes
- partners of a general professional partnership
A taxpayer subject to the graduated income tax rates (either selected this as the income tax regime. or failed to signify chosen intention or failed to qualify to be taxed at the 8% income tax rate) is also subject to
applicable business tax
For MIXED income earners, the income tax rates applicable are:
- The compensation income shall be subject to the tax rates prescribed under Section 24(A)(2)(a), [AND]
- The income from business or practice of profession shall be subject to the following:
a. If the gross sales/receipts and other non-operating income do not exceed the VAT threshold, the individual has the option to be taxed at:
1. sec 24(A)(2)(a)
2. 8% based on gross sales/receipts [and] non-operating income
b. If the gross sales/receipts and other non-operating income EXCEEDS the VAT threshold, the individual shall be subject to the graduated income tax rates
BIG NOTE
in the 8% tax rate option, the 250k deduction shall NOT apply since it already was applied in the compensation aspect
On February 2019, Ms. C tendered his resignation to concentrate on her business. Her total compensation income amounted to P150,000 inclusive of benefits of P20, 000.
Her business for 2019 generated gross sales of P2,400,000. Her cost of sales operating expense are P1,000,000 and P600,000, respectively, and with nonoperating income of P100,000.
She opted for the 8% income tax rate. How will you determine his tax liability?
[b] where will the exemption of 250k be applied?
2.4M + 100k nonoperating income = 2.5mil x. 08 = 200k tax income due
NOTE: Even if compensation income did not fully exhaust the 250k exemption, it would still not be reason for you to deduct 250k on your taxable business income just because you avail the 8% gross income tax. It is deemed not available anymore the moment you have a compensation income. The 250k would not still be allowed as a deduction in the business income.
[b]
if mixed earner - ang compensation income is subject to graduated rates. nya diri i apply ang 250k and dili sa professional/business income
Forms of Escape from Taxation
- shifting
- evasion
- avoidance
- exemption
- capitalization
🟢 GAINS FROM DEALINGS IN PROPERTY 🟢
Properties of a taxpayer may be classified into 2:
- capital assets
- ordinary assets
The following are the qualifications for you to be exempted from capital gains tax if you sell your principal residence (see Section 24(D)(2) above):
- You sold your principal residence.
- The proceeds will be used to acquire or construct a new principal residence within a period of 18 calendar months.
- The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired.
- That the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption herein mentioned.
- You need to open an escrow account where you will deposit the supposed 6% capital gains tax.
- Can only be availed only once every 10 years.
- If there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax
[3] - What does it mean? Whatever is the value of the property that you sold, that value will be taken together for your new property. It will be part of the cost of the new property.
[5] - So after 18 months, you will be able to get back that deposit in an escrow account. But it will remain there for a period of 18 months. Why? Because you’re trying to determine whether you can qualify under the exemption.
The property that you are going to sell is worth 10 million. 10M is the Gross Selling Price. You purchased the property for 5M, which is the Acquisition Cost. The property is located in Mabolo, Cebu City. So this is under the jurisdiction of RDO 82. The Zonal Value of a property in Mabolo is 130K. The property is 100 sq.m.
So 130k x 100 sq.m = 13,000,000, it’s the Zonal Value.
Let’s say the fair market value determined by the local assessor is 9M.
What will be the tax base for this particular property? Summary of Values:
* GSP = 10M
* Zonal Value = 13M
* FMV = 9M
It will be the highest among the 3 values, which is the ZV of 13M. So this is the value where we based our tax rate of 6%. We don’t deduct the acquisition cost!
CGT: 780,000
What if this is a principal residence? That means that the total proceeds that you got from the sale of your principal residence is only 10M (kay mao man imo GSP). The law says that you must be able to use this up within a period of 18 months just so you can be exempted.
what are examples of tax-free exchange in the NIRC?
- merger/consolidation
- exchange of property for control
AJMB owns a parcel of land worth P10 million. To diversify his investments, he transfers this land to XYZ Corporation in exchange for 60% of XYZ Corporation’s total voting shares. The transfer is done solely for shares, and no cash or other property is involved. AJMB gains control of XYZ Corporation as a result of the transaction.
Is the transfer of the parcel of land subject to capital gains tax? Explain
No, because AJMB owns more than 51% of XYZ corp and therefore it is a tax free exchange
🟢 SITUS INCOME 🟢
Let’s say for example, call center agent, ang client nimu foreigners. You are paid in dollars but since diri ka sa Pilipinas, work from home ka nagrender sa service nimu
what is the situs of income?
Here, you are supposed to pay income tax on the amount that you receive from your foreign clients to the Philippine government because the situs is here.
it is irrelevant who is the one who paid or the contract, what is relevant is where the SERVICE is render
where is the situs of income for a sale of personal property
mobilia sequuntur the law that governs the movable is the person’s domicile
where is the situs of REAL property
Lex rei sitae, where the property is situated, that is the law that governs it
in what instances is the situs of income irrelevant?
[b] in what instances DOES it matter?
for RC & DC because they are taxed within & without of the philippines
[b]
NRC or FC
🟢INTEREST INCOME 🟢
Mr. X is a resident citizen, nagpautang kay Mr. Y, US citizen. Out of that utang, nakaearn si Mr. X ug income.
[a] Taxable ba in the Philippines?
b. since Y is US, and interest income is the residence of the D/borrower, when does that apply
A
- yes, simply because X is a RC therefore taxable within & without
B
- basing residence applies when Creditor is a NRC
Sister companies or business affiliates. Kana btaw si Foreign Corpo has a subsidiary in Philippines
scenario: FC (extended a loan) to the Subsidiary sa Pilipinas.
a. Asa ang situs in that case
There is income interest. Subsidiary then pays the loan to the FC parent
b. what is the tax to be applied
a subsidiary in Phil. is still a DC and thus the situs is in the Phil
[b]
- withholding tax of 25% because the situs of income is the Phil. & Debtor is a resident in Phil
(apply those when it is NRC or FC)
what are the allowable deductions (AD)? for NET INCOME
ExIn TaLoBa ChaRe Pen Dep Dep
EIT LBC RPDD, also known as itemized deductions
Expenses
Interest
Taxes
Losses
Bad Debts
Charitable contributations
research & dev’t
pensions
depreciations
depletion
these are items allwoed by law to be deducted from GI to arrive at NI subject to tax
note
1. not applicable to compensation earners
what can be deducted from gross income?
SADC
sales return
allowances
discounts
cost of sales
basic principle in relation to allowable DEDUCTIONS (AD) (not exclusions)
- law authorizing deduction
- complied all required conditions for entitlment
- construed strictly against the taxpayer
- withholding tax must be imposed whenever required by law
note
first two would suffice
Deduction vs. Exclusions
D
- initially part of GI
E
- never part of GI
Exclusion v. Exemption
both are items of nicome
both are non taxable
EXCL
- are exclusions from GI
EXMP
- exempted not just for determining GI, but from the tax itself
DAFUQ
if TP (self-employed professional) opted 8% but exceeds the VAT threshold during the year, what are his liabilities
- for the first 3M, he now has to pay 3% percentage tax (if he hadn’t exceeded, the 8% already replaced this which is why he didn’t have to pay)
- compute the income tax on the accumulated income using 0-35%
- Deduct 8% income tax paid from previous quarter
- pay VAT on succeeding receipts
Mixed Income Eaerner (MIE)
what is his tax liabilities for 3M and exceeding 3M
3M
1. business tax 8% tax rate + 0-35% GITR of compensation income
2. business income [and] compensation income at 0-35% + 3% percentage tax
[Exceeding 3M]
1. business income [and] compensation income at 0-35% GITR + 12% VAT
requisites to avail of the 8% tax rate for business income
Revenue Memorandum Order No. 23-2018 which are:
a. Individuals (Single Proprietor or Professional or Mixed Income Earner) earning from self-employment and/or practice of profession;
b. Taxpayers whose gross sales/receipts and other non-operating income did not exceed the ₱ 3 Million VAT threshold during the taxable year;
c. Taxpayers registered and subject only to Percentage Tax under Section 116 of the NIRC, as amended; or taxpayers exempt from VAT or other Percentage Taxes; and
d. Taxpayer must have signified his/her intention to elect the 8% Income Tax rate
is passive income part of the income tax?
No, it is subject to final withholding tax such that the tax is withheld to be immediately be paid out to BIR so no computation is required
taxable or not?
dividends issued from one DC-DC
dividends issued from one DC-RFC
dividends issued from one DC-NRFC
provided it is CASH
exempt
exempt
FWT of 25%
when is stock dividends taxable?
- when it is repurchased by the corp
- when it dilutes ownership & benefits of a SH
how is diguised dividends taxed?
as part of the ordinary income of a SH
what is the tax sparing rule?
CIR v. P&G-Phil.
The Tax Sparing Rule applies to dividends paid by a DC to (NRFC). Normally, the tax rate on such dividends is 25%. However, if the NRFC’s home country allows a “deemed paid” tax credit the Philippines reduces the tax rate to 15% instead of 25%.
15% came from sec. 28(B)(5)(b)
what are the types of CAPITAL GAIN
- sale of real property w/in philippines (6% of FMV/SP whiever higher)
- sales of shares of stock (15% of net capital gain)
a. listed but not traded in LSE
b. not listed not traded in LSE - sale of other capital assets (GITR)
when does MCIT apply?
MCIT/ tax on 2% on the gross income is imposed to a corp at the 4th taxable yaer immediately ff. the year corp commenced its business operations (5 years basically starting from day 1)
2020(1), 2021(2), 2022(3), 2023(4), 2024(5)
past the 2025, if the MCIT > than RCIT, then MCIT is applied. if RCIT > than MCIT, then RCIT is applied
JKL, Inc. is a corporation authorized to engage in the business of manufacturing ultra—high density microprocessor unit packages. After its registration on July 5, 2015, GHI, Inc. constructed buildings and purchased machineries and equipment. As of December 31, 2015, the total cost of the machineries and equipment amounted to P250,000,000.00. However, GHI, Inc. failed to commence operations. Its factory was temporarily closed effective December 15, 2019 due to the COVID-19 Pandemic. With the worsening situation, the company plans to sell its machineries and equipment to JKL Integrated for P300,000,000.00 by October 30, 2020. Thereafter, GHI,Inc. will be dissolved effective November 30, 2020. May the machineries and equipment be deemed a capital asset? If yes, what is the applicable tax rate?
Yes, the machineries and equipment are capital assets. However, NIRC provides that the capital gains tax of 6% applies only to sale of land/buildings.
Although classified as CA, it is subject to RCIT (MCIT if 5 years after operation + if MCIT higher than RCIT)
SMI-ED Phil Case SC ruled that provision on CGT on individuals [and] corporation differs
individuals: real property
corp: sale of land/bldgs.
The machineries & equipment are CA because the corp failed to commence its business so it did not form part of the stocks in trade nor was it subject to depreciation
mental cue for corporate properies
GR
xpn
gr: ordinary assets (RCIT)
xpn:
1. if provided for another classification (final tax, etc)
2. not used in the business is capital
(if land/bldg = CGT 6%)
if rael property = CGT 6% only for individuals
if stocks listed not in LSE/ not in both = 15% CGT
if capital asset, but machinery then it is RCIT
fringe benefits
HEV HIMEHEL (from frieren)
- housing privilege
- expense accout
- motor vehicles
- household expenses
- interest of loan at less than market value
- membership fees, dues, other expenses in social & athletic clubs (except business associations)
- expenses for foreign travel
- holiday & vacation expenses
- educational assistance of ees/dependents
- life/health insurance & other non-insurance claims
distinguish NSNP institution from Proprietary Educational Institution
NSNP EI
- constitutionally exempts them from ALL TAXES provided that the assets & properties used are ADE used for educational purposes
PEI
- exempts property tax only if property used is ADE
- can avail of the preferential interest tax rate 10% provided that it complies with the predominance test
Co-ownership You co-own a property for the purpose of enjoyment of the common property. Not to earn profit. Because if you own the property to earn property, then that is already taxable partnership.
instances where co-ownership may be taxed
- failure to divide for a certain no. of years
- investmetn &dev’t of the property IN ORDER TO EARN PROFIT
what are the itemized deductions
ExIn TaLoPa ChaRePen DepDep
expenses
interests
taxes
losses
patents
chartiable contributions
research & dev’t
~pension~ no more
depreciation
depletion
what is the Cohan Rule?
in exceptional circumstances, if sure that you incur expenditure, but cannot send proof then BIR examiners use this rule that allow 50% and disallow 50%
