College of Accountancy, Business, Economics and International Hospitality Management

MODULE 2: INDIVIDUAL TAXPAYERS

Presented to the Faculty of

College of Accountancy, Business, Economics and
International Hospitality Management
Bachelor of Science in Management Accounting
Batangas State University - The NEU
Pablo Borbon Campus

In Partial Fulfillment
of the Requirements for the Course
TAX 301 – Income Taxation
Mr. Rhonel Hernandez
(Course Instructor)

Submitted by:

Barte, Jhoana Marie G.

Bautista, Harlene M.
Garcia, Marjorie B.
Umali, Yvonne P.
Villaran, Ashlley Nicole

BSMA – 3109

November 2023
College of Accountancy, Business, Economics and International Hospitality Management
Classification of Taxpayers
2-1. Determine the correct classification of the following individual taxpayers:

1. Manny, a Filipino businessman, went on a business trip abroad and stayed there most of the
time during the year.

2. Kyla, a Filipino professional singer, held a series of concerts in various countries around the
world during the current taxable year. She stayed abroad most of the time during the year.

3. Efren, a Filipino "cue" artist went to Canada during the taxable year to train and participate in
the world cup of pool. He stayed there most of the time during the year.

4. Mr. Almansor Sebastian, an Iranian and a resident of Tehran, Iran stayed in the Philippines
from July 1-15, 2018 to watch the 2018 FIBA Asia World Cup Qualifier held in MOA. During
his stay, he bought equity investments from Alpha and Delta Corporations (domestic
corporations). He likewise invested in a mutual fund of Banko de Isla de Pilipinas, a local bank.

5. Due to his expertise, Engr. Pedro D. Magiba (a freelancer) was hired by a foreign petroleum
contractor in Thailand to provide technical assistance for two months from February to March.
He was hired again for the months of June-July and October-December of the same taxable year.

6. In October 2018, Mr. Bald Nha, an American basketball coach was hired as a team consultant
by one of the teams in the Philippine Basketball Association (PBA) for one conference which
will last for a period of not more than three (3) months from October to December 2018. His
coming to the Philippines was for a definite purpose. However, he was subsequently chosen to
coach Gilas, the Philippine's national basketball team and lead the country's campaign for the
upcoming FIBA World Cup Qualifying Tournament to be held in Manila in July 2019. The
American mentor intends to leave the Philippines as soon as his job is finished.

Determination of Applicable Tax

(Final Withholding Tax on Passive Income, Basic Income Tax, Exempt)

2-2. Determine whether the income described below is subject to final withholding tax on
passive income, basic income tax or exempt from income tax.

Write the following in the TAX TYPE column:

● FWTx = if the income described is subject to final withholding tax on passive income. In
addition, if such income is subject to FWT, provide the correct FWT rate in the TAX
RATE column.
● BTx = if the income described is subject to basic income tax.
● Exempt = if the income described is exempt from income tax.

Unless provided otherwise, assume the taxpayer is a resident citizen.

TAX TYPE TAX RATE

1) Interest from peso bank deposit, BDO, Makati

2) Interest from US dollar bank deposit, BPI-Manila

College of Accountancy, Business, Economics and International Hospitality Management

3) Interest from a foreign currency deposit in Japan

4) Interest from money market placement, Philippines

5) Interest from a foreign currency deposit in Australia by a

nonresident citizen

6) Interest from overdue accounts receivable, Philippines

7) Compensation income, Philippines

8) Business income, Philippines

9) Gain from sale of car for personal use

10) Gain from sale of delivery truck

11) Royalties, in general, Davao City

12) Royalties, books published in Manila

13) Prizes amounting to P30,000, Philippines

14) Prizes amounting to P10,000, Philippines

15) Prizes amounting to P40,000, USA

16) P30,000 Other Winnings, Philippines

17) P10,000 Other Winnings, Philippines

18) P15,000 Other Winnings, Canada

19) P10,000 Phil. Lotto/PCSO winnings

20) P100,000 PCSO winnings by a resident alien

21) Philippine Lotto/PCSO winnings by a nonresident alien

not engage in trade or business

22) Lotto winnings in London

23) Interest income from long-term bank deposit by a

resident alien

24) Interest income from long-term bank deposit by a

non-resident alien not engaged in trade or business

25) Interest income from a government issued bonds with

maturity of ten (10) years

26) Interest income from bonds issued by PLDT with

maturity of ten (10) years
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27) Dividend income from a domestic corporation

28) Dividend income from a resident foreign corporation

29) Dividend income from a nonresident foreign corporation

30) Dividend income from a domestic corporation by a

nonresident alien engaged in trade or business

31) Dividend income from a domestic corporation by a

nonresident alien not engage in trade or business

32) Gain on sale of shares of stock of a domestic corporation

sold directly to a buyer

33) Gain on sale of shares of stock of a domestic corporation

traded in the local stock exchange

34) Gain on sale of real properties used in business

35) Gain on sale of real properties classified as capital asset

located in Singapore

Determination of Income Tax Due/Payable

2-3.

1. Pedro is a resident citizen, earning purely compensation income as follows for the taxable
year:
a. P200,000
b. P250,000
c. P800,000
d. P2,800,000

2. Juan is a resident citizen, earning purely business income for the taxable year:
Gross sales P2,800,000
Cost of sales 1,200,000
Operating expenses 650,000
Creditable withholding taxes 80,000

3. Use the same data in #2 but assume that Juan opted to be taxed using 8% income tax rate.

4 Juan is a resident citizen, earning purely business income for 2020 taxable year:
Gross sales P2,800,000
Cost of sales 1,200,000
Operating expenses 650,000
Rental income (net of CWT) 380,000
Other creditable withholding taxes 80,000

5. Can Juan choose to be taxed at 8% instead of the graduated income tax rate in #4? If yes, how
much is his income tax payable for the year?
College of Accountancy, Business, Economics and International Hospitality Management
6. Ana is a practicing professional with the following data for 2020 taxable year:
Gross receipts P4,000,000
Cost of direct services 1,800,000
Other operating expenses 825,000

7. Can Ana choose to be taxed at 8% instead of the graduated income tax rate in #6? If yes, how
much is her income tax payable for the year?

8. Lorna is a resident citizen, earning compensation and business income for 2020 as follows:
Compensation income P1,400,000
Gross sales 2,800,000
Cost of sales 1,200,000
Operating expenses 650,000
Withholding tax on compensation income 310,000
Other Creditable withholding taxes 80,000

9. Can Lorna choose to be taxed at 8% instead of the graduated income tax rate in #8? If yes,
how much is her total income tax payable for the year?

Computation of Basic Income Tax, Final Tax on Passive Income and Capital Gains Tax
2-4. Cj, single, had the following data for 2020 taxable year:

Gross business income, Philippines P 1,000,000

Gross business income, USA 500,000
Business expenses, Philippines 700,000
Business expenses, USA 430,000
Compensation income, Philippines 600,000
Dividend income from a domestic corporation 50,000
Dividend income from a foreign corporation 40,000
Interest income from peso bank deposit, Philippines 20,000
Interest income from bank deposits abroad 30,000
Interest income from bank FCDS deposits 40,000
Royalty income from FCDS deposits 25,000
Raffle draw prizes 10,000
PCSO winnings 200,000
Creditable withholding taxes on business income 125,000

REQUIRED:

10. Determine the following assuming the taxpayer is a resident citizen:

a. Taxable net income

b. Income tax payable
c. Total taxes on passive income
d. Total income tax expense

11. Determine the following assuming the taxpayer is a nonresident citizen:

College of Accountancy, Business, Economics and International Hospitality Management

a. Taxable net income

b. Income tax payable
c. Total taxes on passive income
d. Total income tax expense

12. Determine the following assuming the taxpayer is a resident alien:

a. Taxable net income

b. Income tax payable
c. Total taxes on passive income
d. Total income tax expense

13. Determine the following assuming the taxpayer is a nonresident alien engaged in trade or
business:

a. Taxable net income

b. Income tax payable
c. Total taxes on passive income
d. Total income tax expense

14. Determine the total net income taxes of the taxpayer assuming the taxpayer is a nonresident
alien not engaged in trade or business (ignore business income, business expenses and creditable
withholding taxes on business income in the Philippines).

2-5. A practicing professional, single, with his parents living dependent upon him, revealed the
following data for 2020 taxable year:

Income From

Philippines Abroad
Income from employment P 180,000 P 280,000
Business income 850,000 960,000
Deductible business expenses 610,000 730,000
Interest income on personal loans 6,000 3,000
Interest income on bank deposits 10,800 4,200
Interest income on money market placements 7,500 1,600
Dividend income from domestic corp. 5,700 -
Dividend income from foreign corp. 6,800 2,000
Royalty income 90,000 50,000
Winnings/ prizes from lotteries, raffle draws 45,000 16,900
Prizes from singing contest 5,600 -
Lotto winnings 150,000 50,000
Royalty income from sale of books 68,000 -
College of Accountancy, Business, Economics and International Hospitality Management

ADDITIONAL DATA:

● In February, the taxpayer bought a lot deemed as capital asset. The acquisition cost was
P840,000. He later sold the lot in December for P1,060,000.

● In September, the taxpayer sold his 560 shares of stock of Ayala Investment Corporation
held by him as capital asset, thru a local stock exchange. The cost was P36,900 whereas
the sales price was P154,000/

● In October, the taxpayer sold for P820,000 his house and lot located in Makati, held as
capital (not his principal residence). The fair market value on the date of sale was
P950,000 and the acquisition cost was P475,000.

REQUIRED:

1. Determine the following assuming the taxpayer is a resident citizen:

a. Taxable net income

b. Income tax payable
c. Final tax on passive income
d. Capital gains tax

2. Determine the following assuming the taxpayer is a non-resident citizen:

a. Taxable net income

b. Income tax payable
c. Final tax on passive income
d. Capital gains tax

3. Determine the following assuming the taxpayer is a NRA-ETB:

a. Taxable net income

b. Income tax payable
c. Final tax on passive income
d. Capital gains tax

2-6. Income Tax of Spouses

Mr. and Mrs. De Leon, residents of Quezon City with three (3) qualified dependent
children, provided the following data for 2020 table year:

Husband Wife Husband &

Wife
College of Accountancy, Business, Economics and International Hospitality Management
● Compensation Income P850,000 P650,000
● Personal and family expenses 30,000 20,000
(including premium payment for
life and fire insurance of P2,000
each)
● Premium payment for 5,000 5,000
health/hospitalization insurance
● Income from practice of 800,000
profession
● Expenses-practice of profession 320,000
● Income from trading business 250,000
· Expenses from trading business 100,000

REQUIRED:
a. Determine the taxable income of Mr. De Leon
b. Determine the taxable income of Mrs. De Leon
c. Determine the consolidated income tax payable of Mr. and Mrs. De Leon

2-7. Daniel, married to Kat, is a citizen and resident of the Philippines. The parents of the couple
are also living with the spouses for chief support. They had the following data for 2020 taxable
year:

DANIEL KAT DANIEL &

KAT
Gross income from business P 600,000 - -
Gross income from profession, net of P 40,000 - 360,000 -
CWTx
Rental income, net P 190,000
Dividend income:
from domestic corporation 4,000 - -
from resident corporation - 20,000 -
from nonresident corporation 10,000
Interest income on notes receivable 6,000 4,000 2,000
Interest on Philippine bank deposit, net 3,200 2,400 8,000
Interest on Phil. bank deposit under FCDU 4,000 4,000 2,000
Interest on bank deposit abroad 5,000 5,000 5,000
Interest income on long-term bank deposit 20,000
Interest in government bonds
Expenses-practice of profession
Income from trading business - 10,000 -
Expenses from trading business 10,000 - -

Determine the following:

a. Total capital gains taxes paid by the spouses
b. Total final taxes withheld on passive income of the spouses
c. Taxable income of Daniel
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d. Taxable income of Kat

QUARTERLY INCOME TAX RETURNS

2-8. The following cumulative balances during the year on income and expenses were
provided by Juan Dela Cruz, a resident citizen:

1st Q 2nd Q 3rd Q Year

Gross Profit from Sales P300,000 P650,000 P910,000 P1,200,000

Business expenses 120,000 262,000 405,890 426,700

Dividends-domestic 20,000 20,000 30,000 30,000

corp.

Interest income from

BPI 4,000 8,000 12,000 16,000

UCPB 8,000 12,000 16,000 18,000

Metro Bank 5,000 10,000 15,000 30,000

Capital gain on sale of 150,000 150,000 150,000 150,000

Land

Selling price 600,000

Cost 450,000

REQUIRED: Using above information, compute the following

1. Income tax payable, first quarter
2. Income tax payable, second quarter
3. Income tax payable, third quarter
4. Income tax payable, fourth quarter
5. Total final taxes (for the year) on passive income
6. Total capital gains tax

CAPITAL GAINS TAX

2-9.

1. A resident citizen taxpayer sold a vacant lot (held as investment) in the Philippines. Other data
regarding the sale are as follows:
Selling price P5,500,000
Fair market value 6,000,000
Zonal value 5,850,000
Expenses on the sale 275,000
College of Accountancy, Business, Economics and International Hospitality Management
2. A resident citizen taxpayer sold a vacant lot (held as investment) in the Philippines. Other data
regarding the sale are as follows:
Gain on sale P500,000
Zonal value 2,200,000
Cost 2,000,000
Expenses on the sale 150,000

3. A resident citizen taxpayer sold a residential house and lot (principal residence) in the
Philippines. Other data regarding the sale are as follows:
Selling price P5,000,000
Fair market value 6,000,000
Zonal value 5,500,000
Expenses on the sale 275,000
4. Using the same data in the preceding number, determine the capital gains tax assuming the
taxpayer utilized only 80% of the proceeds in acquiring the new principal residence.

2-10. Assume the following data:

Selling price of Building No. 1 P15,000,000
Selling price of Building No. 2 20,000,000
Cost of Building No. 1 10,000,000
Cost of Building No. 2 30,000,000
Expenses on sale of Building No. 1 200,000
Expenses Building No. 2 300,000
Fair Market Value of Building No. 1 12,000,000
Fair Market Value of Building No. 2 8,000,000

Required:
a. Compute the capital gains tax on Building No. 1
b. Compute the capital gains tax on Building No. 2
c. Compute the capital gains tax on Building No. 2 assuming the building is situated abroad.

2-11. The taxpayer is a resident

Selling price at a prevailing market value on a P600,000
direct sale to buyer of shares of stock of a domestic corporation
Cost of the shares sold 650,000
Required: Compute the capital gains tax.

2-12. The taxpayer is a resident citizen

Selling price on a direct sale to buyer of shares P300,000
of stock of a domestic corporation
Cost of the shares sold 220,000
Required: Compute the capital gains tax.

2-13. The taxpayer is a resident citizen

Selling price on a direct sale to buyer of shares P310,000
of stock of a domestic corporation
Cost of the shares sold 150,000
Required: Compute the capital gains tax.
College of Accountancy, Business, Economics and International Hospitality Management
2-14. The taxpayer is a nonresident alien engaged in trade or business:
Selling price on sale of shares of stock of a P550,000
domestic corporation through the local stock exchange
Cost of the shares sold 300,000
Required: Compute the capital gains tax.

TRUE OR FALSE
1. Individual taxpayers are natural persons with income derived within the territorial
jurisdiction of a taxing authority.
2. Incomes earned outside the Philippines by OFWs are tax exempt because they are
considered nonresident citizens.
3. The intention with regard to the length and nature of stay of an alien determines whether
he is a resident or nonresident.
4. A foreigner who has acquired residency in the Philippines shall only become a
nonresident when he actually departs with the intention of abandoning his residency in
the Philippines.
5. An alien individual, whether a resident or not of the Philippines, is taxable only on
income derived from sources within the Philippines.
6. A foreigner who shall live in the Philippines with no definite intention as to his stay is a
nonresident alien.
7. Nonresident aliens who shall come to the Philippines and to stay herein for an aggregate
period more than 180 days during any calendar year are subject to the rule on reciprocity
under the Tax Code with respect to their allowed personal exemption.
8. An alien individual is deemed doing business in the Philippines if he shall come to the
Philippines and stay herein for an aggregate period of more than 180 days during the
calendar year.
9. Generally, a nonresident alien not engaged in trade or business is subject to 25%
creditable withholding tax on his gross income in the Philippines.
10. Sale of real property classified as a capital asset located abroad by a resident citizen is
subject to 6% capital gains tax based on the higher amount between selling price or zonal
value.
11. Sale of real property classified as a capital asset to the government is subject to 6%
capital gains tax or basic income tax, at the option of the taxpayer.
12. Sale of real property classified as ordinary assets to the government is subject to 6%
capital gains tax or basic income tax, at the option of the taxpayer.

MULTIPLE CHOICE
Choose the letter of the correct answer.

1. Under Section I, Art. III of the Philippine Constitution, a Filipino citizen is one who is/has:

I. Born (by birth) with Father and/or mother as Filipino citizens

II. Born before January 17, 1973 of Filipino mother who elects Philippine citizenship upon
reaching the age of majority; or
III. Acquired Philippine citizenship after birth (naturalized) in accordance with Philippine
laws

a. I and II only c. II and III only

b. I and III only d. I, II and III
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Use the following data for the next five (5) questions:

1. A taxpayer, married without qualified dependent child, had the following data for taxable year
2020:

Gross income, Philippines Php 800,000

Gross income, USA 600,000
Expenses, Philippines 400,000
Expenses, USA 300,000

2. If the taxpayer is a resident citizen, married, his taxable income is

a. P 400,000
b. P 350,000
c. P 700,000
d. P 650,000

3. If the taxpayer is a non-resident citizen, married, his taxable income is

a. P 400,000
b. P 350,000
c. P 700,000
d. P 650,000

4. If the taxpayer is resident alien, married, his taxable income is

a. P 400,000
b. P 350,000
c. P 700,000
d. P 650,000

5. If the taxpayer is a non-resident alien engaged in trade or business in the Philippines, married
and his country grants P 40,000 as a personal exemption for married individuals, his taxable
income is
a. P 400,000
b. P 360,000
c. P 700,000
d. P 660,000

6. If the taxpayer is a non-resident alien not engaged in business in the Philippines, married and
his country grants P 40,000 as a personal for married individuals, taxable income is
a. P 800,000
b. P 400,000
c. P 360,000
d. P 350,000

7. Mr. George Hames is a Syrian and a resident of Damascus, Syria. He requested you to file his
Philippine income tax return for 2020. The following information were forwarded to you:

Gross income from Philippines:

Interest income from BPI bank deposits P3,000,000
College of Accountancy, Business, Economics and International Hospitality Management
Dividend income from domestic corporations 500,000
Less: Expenses (300,000)
Net income in the Philippines 3,200,000
Add: Net income in Syria (Peso equivalent) 5,000,000
Total net income P8,200,000

Taxable income you will report is:

a. P3,000,000
b. P3,200,000
c. P3,500,000
d. P0

8. Which of the following received by an individual taxpayer is not subject to final tax but
subject to tax under Section 24 A of the Tax Code?
a. Cash dividend from domestic corporation
b. Property dividend from regional Operating headquarters of multinationals
c. Share in the distributive net income after tax of taxable partnership in the Philippines
d. Cash dividend from a foreign corporation with Philippine branch

9. Which of the following is an income subject to the basic tax?

A. Dividends received from domestic corporation
B. Prizes from USA lotto
C. Interest income from BDO
D. Share in the net income of ordinary partnership

10. Individual taxpayers not subject to tax under Section 24(A)

a. Resident citizens on their net income within and without the Philippines.
b. Resident citizens and resident aliens on their net income within the Philippines.
c. Nonresident aliens engaged in trade or business on their net income within the
Philippines.
d. Nonresident aliens not engaged in trade or business on their gross income within the
Philippines.

11. Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive Incomes are included in the computation of taxable income from
compensation or business/professional income.
a. Statement 1 and 2 are False
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statement 1 and 2 are true

12. Final tax is generally withheld

On passive income From Philippine sources

a. Yes Yes
b. No No
c. Yes No
d. No Yes
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13. Binay, a Filipino overseas contract worker and his spouse, a resident of the Philippines, have
a joint US dollar at PSBank, Makati. Their gross interest earnings in 2020 from the bank deposit
amounted to US $4,000. Which of the following statements is correct?
a. The interest income shall be treated as tax exempt because Binay is a non-resident
citizen.
b. The interest income shall be taxable in full because Binay and his spouse are both
Filipino citizens.
c. Fifty percent (50%) of the interest income shall be treated as exempt while the other fifty
percent (50%) shall be subject to the graduated rates.
d. Fifty percent (50%) of the interest income shall be treated as exempt while the other fifty
percent (50%) shall be subject to a final withholding tax of 15%.

14. Cash and/or property dividends shall be subject to 10% final withholding tax if actually or
constructively received from

I. Domestic companies or from joint stock companies.

II. Insurance or mutual fund companies.
III. Regional operating headquarters of multinationals.
IV. Philippines branch of foreign corporation.

a. I only c. IV only
b. I and II only d. I, II and III only

15. A resident citizen received a prize of P50,000. Which of the following statements is correct
in connection with the imposition of final tax on the prize?
a. The first P10,000 is subject to Section 24(A), the remaining P30,000 is subject to 20%
final tax.
b. The first P10,000 is exempt from tax, the remaining P30,000 is subject to 20% final tax.
c. The whole amount shall be subject to 20% final tax.
d. The whole amount shall be subject to 25% final tax.

16. Which of the following passive income is exempt from tax when received by resident
citizens and non-resident aliens engaged in trade or business in the Philippines, but subject to
25% final tax when received by nonresident aliens not engaged in trade or business?
a. Prizes of more than P10,000.
b. Interest income from long-term deposit or instrument evidence by certificates prescribed
by the Bangko Sentral ng Pilipinas.
c. Yield or any other monetary benefit from trust funds and similar arrangements.
d. Other winnings.

17. A resident citizen received a raffle prize of P40,000 from NBA while watching a basketball
game between the LA Lakers and Boston Celtics in LA California, USA. Which of the following
statements is correct?
a. The whole amount of P40,000 is part of his taxable income
b. The first P10,000 is part of his taxable income while the remaining P30,000 is subject to
20% final tax
c. The whole amount of P40,000 shall be subject to 20% final tax
College of Accountancy, Business, Economics and International Hospitality Management
d. The first P10,000 shall be exempt from tax while the remaining P30,000 is subject to
20% final tax

18. Which of the following income is taxable in the Philippines?

a. Interest income in the Philippines earned by a nonresident alien
b. Cash dividend received by a nonresident citizen from a foreign corporation
c. Salary received for working abroad by a nonresident citizen
d. Business income earned in USA by an American citizen residing in Palawan

Use the following data for the next two (2) questions
Pedro, a resident citizen, received the following during 2020:
Proceeds from copyright royalty, net of tax P11,250
Proceeds from mineral claim royalty, net of tax 12,000
Share from trading partnership, net of withholding tax 270,000

19. How much is the total final tax on Pedro's income?

a. P50,000 с. P31,250
b. P34,250 d. P4,250

20. How much is the income tax still due and payable of Pedro in 2020?
a. P50,000 с. P31,250
b. P34,250 d. P0

Use the following data for the next two (2) questions
A taxpayer received in 2018 the following passive income within Philippines, net of applicable
tax, if any:
Interest on bank deposit under FCDU P212,500
Royalty on books 94,500
Dividend income from a domestic corporation 114,000

21. If taxpayer is a resident alien, the final tax on the above passive income would amount to
a. P41,194 c. P64,000
b. P46,500 d. P84,000

22. If taxpayer is a non-resident alien engaged in business, the final tax on the above passive
income would amount to
a. P41,194 с. P64,000
b. P46,500 d. P84,000

CAPITAL GAINS TAX - SHARES AND REAL PROPERTIES

23. Statement 1: There is capital gain tax on shares of stock only if the shares are those of a
domestic corporation held as capital asset and not listed and traded in a local stock exchange.
Statement 2: The capital gain tax on shares of stock is paid within thirty days from the date of
sale.
a. Statements 1 & 2 are false
b.Statement 1 is true but statement 2 is false
c.Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
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24. Which of the following transactions is exempt from capital gains tax?

Case 1- Sale of the principal residence of the taxpayer where the entire proceeds is used to
purchase a vacation lot in Tagaytay.

Case 2 - Sale of a beach lot of the taxpayer where the entire proceeds is used to construct his
principal residence.

Case 3 - The sale of the principal residence of the taxpayer avasing tax exemption for the second
time in ten (10) years to purchase another principal residence.

A B C D

Case 1 Yes Yes No No

Case 2 Yes Yes No No

Case 3 Yes No Yes No

Use the following data for the next two (2) questions:
Pedro inherited from his parents a large parcel of undeveloped land acquired by them years ago
with a total cost of P2,500,000. Pedro now sells all of these parcels for P25,000,000.

25. How much of the gains should Pedro report in his income tax return for the year?
a. None, because the properties are capital assets and the transaction is subject to capital
gain tax and not basic tax.
b. P22,500,000 because although the properties are capital assets and the transaction is
subject to capital gain tax, such tax is still considered income tax. Thus, the gain shall
also be reported in Pedro's income tax return.
c. Pedro has the option to report an income of P22,500,000 subject to basic tax or exclude
the income from his income tax return and pay 6% capital gains tax.
d. Any of the choices above

26. Suppose that when Pedro inherited these parcels of land, they were already developed real
estate subdivisions with small lots being sold on installment basis. He sold the property for
P25,000,000. How much of the gains should Pedro report in his income tax return for the year?
a. None, because the properties are capital assets and the transaction is subject to capital
gain tax and not basic tax.
b. P22,500,000 because the properties are classified as ordinary income tax returns.Thus,
the gain shall also be reported in Pedro’s income tax return.
c. Pedro has the option to report an income of P22,500,000 subject to basic tax or exclude
the income from his income tax return and pay 6% capital gains tax.
d. Any of the choices above

SALE OF PRINCIPAL RESIDENCE

27. If the proceeds are from the disposition of principal residence and fully utilized in acquiring
or constructing a new principal residence, the capital gain is not subject to tax if the
College of Accountancy, Business, Economics and International Hospitality Management
a. Acquisition or construction of the new principal residence is within 18 calendar months
from the date of disposition.
b. 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.
c. The Commissions shall have been duly notified by the taxpayer within 30 days from the
date of sale or disposition through a prescribed return of his intention to avail of the tax
exemption.
d. All of the above

28. Juan is a resident of QC. He sold his family home for P4,000,000 which was previously
acquired for P2,000,000. Juan complied all BIR requirements to avail of tax exemption and spent
P2,500,000 in acquiring a new family home. How much is the capital gains tax to be paid by
Juan?
a. P0 c. P150,000
b. P90,000 d. P240,000

Use the following data for the next two (2) questions
Cliff is a self-employed and/or professional. He provided the following information for 2020
taxable year:
Gross sales P1,650,000
Cost of sales 500,000
Business expenses 425,000
Rental income (net) 308,750
Philippine charity sweepstakes winnings 500,000
Royalty income - books 120,000
Other royalty income - Philippines 60,000
Dividend income - domestic corporations 40,000
Interest income, BDO QC 100,000
Interest income received from a depository bank 50,000
under FCDS, Philippines
Creditable withholding tax from business income 65,000
Quarterly tax payments 82,500

29. How much is the income tax payable of Cliff?

a. P9,500 c. P57,500
b. P10,500 d. P205,000

30. How much is the income tax payable of Cliff assuming he opted to be taxed at 8% income
tax rate?
a. (P9,500) c. P57,500
b. P10,500 d. P205,500

31. Ciff is deriving compensation and business income. He provided the following information
for 2020 taxable year:
Gross compensation income P 600,000
Gross sales 1,650,000
Cost of sales 500,000
Business expenses 425,000
Rental income (net) 308,750
College of Accountancy, Business, Economics and International Hospitality Management
Philippine charity sweepstakes winnings 500,000
Royalty income - books 120,000
Other royalty income - Philippines 60,000
Dividend income - domestic corporations 40,000
Interest income, BDO QC 100,000
Interest income received from a depository 50,000
bank under FCDS, Philippines
Creditable withholding tax from business 65,000
income
Quarterly tax payments 82,500

How much is the income tax payable of Cliff assuming he opted to be taxed at 8% income tax
rate?
a. P89,500 c. P57,500
b. P90,500 d. P205,000

32. Michael Cabarles, single, has the following income and expenses for the year 2020. He
supports an eight-year-old illegitimate child.

Professional Income, net of P60,000 P540,000

withholding tax,
Rental income (net) 47,500
Rewards as BIR informer 30,000
Wagering gains 50,000
Kickbacks received from suppliers of clients 40,000
Interest income on time deposit (net) 32,000
Dividend income from domestic corporations 75,000
Professional expenses 325,000
Household expenses, 24,000
Premium payment on health insurance 4,000
Facilitation fees paid to government agencies 15,000

Compute the amount of his taxable income subject to basic tax for 2018?
a. P 325,000 с. P415,000
b. P 340,000 d. P 445,000

Use the following data for the next three (3) questions:
A resident citizen, married, with two (2) qualified dependent children has the following data for
the year 2020:

Gross sales, Philippines P 5,000,000

Sales returns and allowances, Philippines 500,000
Cost of sales, Philippines 1,500,000
Gross sales, Ukraine 3,000,000
Sales returns and allowances, Ukraine 200,000
Cost of sales, Ukraine 800,000
Business expenses, Philippines 500,000
Business expenses, Ukraine 300,000
Interest income, peso bank deposit BDO-Marikina 20,000
College of Accountancy, Business, Economics and International Hospitality Management
Interest income, US dollar deposit, BDO-Mandaluyong 50,000
Gain from sale of residential house and lot (selling price, 500,000
P3,000,000; FMV, time of sale, P5,000,000)
Gain from sale of shares of stock listed and traded in the 30,000
local stock exchange (selling price, P100,000)
Gain from sale of shares of stock not traded in the local 150,000
stock exchange

33. How much is the total final tax on passive income?

a. P14,000 c. P4,000
b. P7,750 d. P11,500

34. How much is the capital gains tax due?

a. P310,000 c. P180,000
b. P300,000 d. P322,500

35. How much is the taxable net income?

a. P4,700,000 c. P2,900,000
b. P4,280,000 d. P4,200,000

FILING OF INCOME TAX RETURNS

36. Which of the following income is required to be filed in a quarterly income tax return?
a. Compensation income
b. Passive income
c. Business income
d. Capital gains

37. The following are the requirement for substituted filing of income tax return, except
a. He had one employer only.
b. His income was purely compensation income.
c. Income tax withheld by the employer is correct.
d. He had consecutively filed his income tax return for the past five years.

38. Statement 1: If an employee had multiple employers within the year, an income tax return
must be filed at the end of the year.
Statement 2: If an employee had three employers, in succession, for each of the past three years,
substituted filing of tax return is not allowed.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

39. Who of the following individual taxpayers may avail of substituted filing of Income Tax
Return (ITR)?

❖ Rianne:
● Deriving compensation income from ABC Company, his only employer for the
taxable year.
● The correct amount of tax was withheld by ABC Company
College of Accountancy, Business, Economics and International Hospitality Management
●He also derived interest income from his peso bank deposit in BPl and the sale of
his shares in DEF Corporation (a closely-held domestic corporation) to Brian
resulted in a gain of P100,000.
❖ Leomar:
● Deriving purely compensation income from XYZ Corporation, his only employer
for the taxable year.
● The correct amount of tax was withheld by XYZ
● Leomar's spouse is engaged in business

A B C D

Rianne Yes Yes No No

Leomar Yes No Yes No

40. 1st statement: Taxable income from self-employment (business and profession) is reported
on a quarterly and annual basis.
2nd statement: The quarterly income tax return shall be filed and the tax paid as follows: 1st
Q ─ not later than April 15, 2nd Q ─ not later than August 15, 3rd Q ─ not later than September
15.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

41. Pedro's income tax due for the year amounted to P80,000. He may elect to pay the tax due on
installment as follows:
a. In two equal installments
b. 1st installment is payable upon filing the annual income tax return.
c. 2nd installment is payable on or before October 15 following the close of the calendar
year.
d. All of the above

42. 1st statement: If any installment payment of income tax is not paid on or before the date
fixed for its payment, the whole amount of the unpaid tax becomes due and payable, together
with the delinquency penalties to be reckoned from on the original date when the tax is required
to be paid.
2nd statement: Installment payment of income is not allowed to self- employed and/or
professionals who are availing the 8% income tax rate.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
College of Accountancy, Business, Economics and International Hospitality Management
ANSWER KEY:

2-1.Classification of Taxpayers

1. Manny is classified as a Resident Citizen.

2. Kyla is classified as a Resident Citizen.
3. Efren is classified as a Resident Citizen.
4. Mr. Almansor Sebastian is classified as a Non-resident alien not engaged in trade and
business (NRA_NETB).
5. Engr. Pedro D. Magiba is classified as a Non-resident citizen.
6. Mr. Bald Nha is classified as a Resident Alien

2-2. Determination of Applicable Tax

TAX TYPE TAX RATE

1. FWTx 20%

2. FWTx 20%

3. FWTx 15%

4. FWTx 20%

5. Exempt -

6. BTx Tax Table

7. BTx Tax Table

8. BTx Tax Table

9. CGT 15%

10. BTx Tax Table

11. FWTx 20%

12. FWTx 10%

13. FWTx 20%

14. BTx Tax Table

15. FWTx 15%

16. FWTx 20%

17. FWTx 20%

18. FWTx 15%

College of Accountancy, Business, Economics and International Hospitality Management

19. Exempt -

20. FWTx 20%

21. FWTx 25%

22. FWTx 15%

23. Exempt -

24. Exempt -

25. Exempt -

26. FWTx 20%

27. FWTx 10%

28. FWTx/BTx Tax Table

29. FWTx/BTx Tax Table

30. FWTx 20%

31. FWTx 25%

32. CGT 15%

33. CGT 15%

34. BTx Tax Table

35. CGT 15%

2-3. Determination of Income Tax Due/Payable

1. a. Exempt
b. Exempt
c. Income Tax Due = P130,000
d. P 746,000 computed as follows:
Tax Due:
1st P2,000,000 P490,000
Excess over P2,000,000 = (P800,000 x 32%) 256,000
Total P 746,000

2. Income Tax Payable = P95,000 computed as follows:

Gross sales P2,800,000
Cost of Sales (1,200,000)
Operating Expenses (650,000)
Taxable Net Income P950,000
Tax due:
1st P800,000 P130,000
College of Accountancy, Business, Economics and International Hospitality Management
Excess over P800,000 = (P150,000 x 30%) 45,000
Tax Due P175,000
Less: Creditable withholding tax (80,000)
Income Tax Payable P95,000

3. Income Tax Payable = P124,000 computed as follows:

Gross sales P2,800,000
Less (250,000)
Balance subject to 8% tax P2,550,000
x 8%
Tax Due P 204,000
Less: Creditable withholding tax (80,000)
Income Tax Payable P 124,000

4. Income Tax Payable = P215,000 computed as follows:

Gross sales P2,800,000
Rental Income (P380,000/95%) 400,000
Cost of Sales (1,200,000)
Operating Expenses (650,000)
Taxable Net Income P 1,350,000
Tax due:
1st P800,000 P130,000
Excess over P800,000 = (P550,000 x 30%) 165,000
Tax Due P295,000
Less: Creditable withholding tax (80,000)
Income Tax Payable P215,000

5. The 8% optional tax is not applicable since, the total of the gross sales and other
operating income exceeded the revised vat threshold of P3,000,000.

6. Income Tax Payable = P225,500 computed as follows:

Gross receipts P4,000,000
Cost of direct services (1,800,000)
Other operating expenses (825,000)
Taxable Net Income P 1,375,000
Tax due:
1st P800,000 P130,000
Excess over P800,000 = (P575,000 x 30%) 172,500
Tax Due P302,500
Less: Creditable withholding tax (80,000)
Income Tax Payable P225,500

7. The 8% optional tax is not applicable since the gross receipts exceeded the revised vat
threshold of P3,000,000.

8. Income Tax Payable = P212,000 computed as follows:

Compensation Income P1,400,000
Gross sales P2,800,000
Cost of Sales (1,200,000)
College of Accountancy, Business, Economics and International Hospitality Management
Operating Expenses (650,000)
Taxable Net Income P2,350,000
Tax due:
1st P2,000,000 P490,000
Excess over P2,000,000 = (P350,000 x 32%) 112,000
Tax Due P602,000
Less: Creditable withholding tax
On compensation income (310,000)
On business income (80,000)
Income Tax Payable P212,000

9. The 8% optional tax is applicable since the gross sales did not exceed the revised vat
threshold of P3,000,000. The income tax payable shall be computed as follows:
Gross sales P2,800,000
x 8%
8% Tax on sales P224,000
ADD: Tax due on compensation income
1st P800,000 P130,000
Excess over P800,000 = (P600,000 x 30%) 180,000 310,000
Tax Due P534,000
Less: Creditable withholding tax
On compensation income (310,000)
On business income (80,000)
Income Tax Payable P144,000

➢ For mixed income earners, P250,000 is not deducted for purposes of computing
the 8% tax.
➢ The 8% tax is not applicable to compensation income.

Computation of Basic Income Tax, Final Tax on Passive Income and Capital Gains Tax
2-4.

Cj, single, had the following data for 2020 taxable year:
Gross business income, Philippines P 1,000,000
Gross business income, USA 500,000
Business expenses, Philippines 700,000
Business expenses, USA 430,000
Compensation income, Philippines 600,000
Dividend income from a domestic corporation 50,000
Dividend income from a foreign corporation 40,000
Interest income from peso bank deposit, Philippines 20,000
Interest income from bank deposits abroad 30,000
Interest income from bank FCDS deposits 40,000
Royalty income from FCDS deposits 25,000
Raffle draw prizes 10,000
PCSO winnings 200,000
Creditable withholding taxes on business income 125,000
College of Accountancy, Business, Economics and International Hospitality Management
REQUIRED:

10. Determine the following assuming the taxpayer is a resident citizen:

a. Taxable net income- P1,050,000

b. Income tax payable- P80,000
c. Total taxes on passive income- P57,500
d. Total income tax expense-P262,500

a.
Gross business income, Philippines P 1,000,000
Gross business income, USA 500,000
Business expenses, Philippines (700,000)
Business expenses, USA (430,000)
Compensation income, Philippines 600,000
Dividend income from a foreign corporation 40,000
Interest income from bank deposits abroad 30,000
Raffle draw prizes 10,000
Taxable Net Income P 1,050,000
b.
Taxable income P 1,050,000
Tax bracket threshold (800,000)
Net 250,000
Multiply by Tax Rate based on tax bracket 30%
Basic income tax due 75,000
Additional as per tax bracket 130,000
Total 205,000
Creditable Withholding Tax (125,000)
Income Tax Payable P 80,000

c.

Dividend income from a domestic corporation 50,000 10% 5,000

Interest income from peso bank deposit, Philippines 20,000 20% 4,000
Interest income from bank FCDS deposits 40,000 15% 6,000
Royalty income from FCDS deposits 25,000 10% 2,500
PCSO winnings 200,000 20% 40,000
Final Tax on Passive Income P57,500

d.
Basic Income Tax Due P205,000
Final taxes on passive income 57,500
Total Income Tax Expense P 262,500

The question is tax expense, ignoring the income tax payable of P80,000.
College of Accountancy, Business, Economics and International Hospitality Management

11. Determine the following assuming the taxpayer is a nonresident citizen:

a. Taxable net income-P 950,000

b. Income tax payable-P 50,000
c. Total taxes on passive income- P 51,500
d. Total income tax expense- P 226,500

a.
Gross business income, Philippines P 1,000,000
Business expenses, Philippines (700,000)
Compensation income, Philippines 600,000
Dividend income from a foreign corporation 40,000
Raffle draw prizes 10,000
Taxable Income P 950,000

b.
Taxable income P 950,000
Tax bracket threshold (800,000)
Net 150,000
Multiply by Tax Rate based on tax bracket 30%
Basic income tax 45,000
Additional as per tax bracket 130,000
Total 175,000
Creditable Withholding Tax (125,000)
Income Tax Payable P 50,000
c.

Dividend income from a domestic corporation 50,000 10% 5,000

Interest income from peso bank deposit, Philippines 20,000 20% 4,000
Interest income from bank FCDS deposits exempt
Royalty income from FCDS deposits 25,000 10% 2,500
PCSO winnings 200,000 20% 40,000
Final Tax on Passive Income P51,500

d.
Basic Income Tax Due P175,000
Final taxes on passive income 51,500
Total Income Tax Expense P 226,500

12. Determine the following assuming the taxpayer is a resident alien:

a. Taxable net income- P950,000

b. Income tax payable- P50,000
c. Total taxes on passive income- P57,500
d. Total income tax expense- P232,500
College of Accountancy, Business, Economics and International Hospitality Management
a.
Gross business income, Philippines P 1,000,000
Business expenses, Philippines (700,000)
Compensation income, Philippines 600,000
Dividend income from a foreign corporation 40,000
Raffle draw prizes 10,000
Taxable Income P 950,000

b.
Taxable income P 950,000
Tax bracket threshold (800,000)
Net 150,000
Multiply by Tax Rate based on tax bracket 30%
Basic income tax 45,000
Additional as per tax bracket 130,000
Total 175,000
Creditable Withholding Tax (125,000)
Income Tax Payable P 50,000
c.

Dividend income from a domestic corporation 50,000 10% 5,000

Interest income from peso bank deposit, Philippines 20,000 20% 4,000
Interest income from bank FCDS deposits 40,000 15% 6,000
Royalty income from FCDS deposits 25,000 10% 2,500
PCSO winnings 200,000 20% 40,000
Final Tax on Passive Income P57,500

d.
Basic Income Tax Due P175,000
Final taxes on passive income 57,500
Total Income Tax Expense P 232,500

13. Determine the following assuming the taxpayer is a nonresident alien engaged in trade or
business:

a. Taxable net income- P950,000

b. Income tax payable-P50,000
c. Total taxes on passive income- P16,500
d. Total income tax expense- P191,500

a.
Gross business income, Philippines P 1,000,000
Business expenses, Philippines (700,000)
Compensation income, Philippines 600,000
Dividend income from a foreign corporation 40,000
Raffle draw prizes 10,000
Taxable Income P 950,000
College of Accountancy, Business, Economics and International Hospitality Management

b.
Taxable income P 950,000
Tax bracket threshold (800,000)
Net 150,000
Multiply by Tax Rate based on tax bracket 30%
Basic income tax 45,000
Additional as per tax bracket 130,000
Total 175,000
Creditable Withholding Tax (125,000)
Income Tax Payable P 50,000

c.

Dividend income from a domestic corporation 50,000 20% 10,000

Interest income from peso bank deposit, Philippines 20,000 20% 4,000
Interest income from bank FCDS deposits exempt
Royalty income from FCDS deposits 25,000 10% 2,500
PCSO winnings exempt
Final Tax on Passive Income P16,500

Unfortunately, unlike resident citizens, nonresident citizens and resident alien, the PCSO
exemption of nonresident alien engaged in trading business under TRAIN Law was
retained.

d.

Basic Income Tax Due P175,000

Final taxes on passive income 16,500
Total Income Tax Expense P 191,500

14. Determine the total net income taxes of the taxpayer assuming the taxpayer is a nonresident
alien not engaged in trade or business (ignore business income, business expenses and creditable
withholding taxes on business income in the Philippines).

Compensation income, Philippines P 600,000

Dividend income from a domestic corporation 50,000
Dividend income from a foreign corporation 40,000
Interest income from peso bank deposit, Philippines 20,000
Interest income from bank FCDS deposits exempt
Royalty income from FCDS deposits 25,000
Raffle draw prizes 10,000
PCSO winnings 200,000
Total Gross Income P 945,000
x 25%
College of Accountancy, Business, Economics and International Hospitality Management
Income Tax Due/Expense P 236,250

NOTE: The creditable withholding tax on business income shall be ignored because it is
not applicable to a nonresident alien not engaged in business.

2-5. A practicing professional, single, with his parents living dependent upon him, revealed the
following data for 2020 taxable year:

Income From

Philippines Abroad
Income from employment P 180,000 P 280,000
Business income 850,000 960,000
Deductible business expenses 610,000 730,000
Interest income on personal loans 6,000 3,000
Interest income on bank deposits 10,800 4,200
Interest income on money market placements 7,500 1,600
Dividend income from domestic corp. 5,700 -
Dividend income from foreign corp. 6,800 2,000
Royalty income 90,000 50,000
Winnings/ prizes from lotteries, raffle draws 45,000 16,900
Prizes from singing contest 5,600 -
Lotto winnings 150,000 50,000
Royalty income from sale of books 68,000 -

ADDITIONAL DATA:

● In February, the taxpayer bought a lot deemed as a capital asset. The acquisition cost was
P840,000. He later sold the lot in December for P1,060,000.

● In September, the taxpayer sold his 560 shares of stock of Ayala Investment Corporation
held by him as capital asset, thru a local stock exchange. The cost was P36,900 whereas
the sales price was P154,000/

● In October, the taxpayer sold for P820,000 his house and lot located in Makati, held as
capital (not his principal residence). The fair market value on the date of sale was
P950,000 and the acquisition cost was P475,000.

REQUIRED:

1. Determine the following assuming the taxpayer is a resident citizen:

a. Taxable net income- P 1, 076,100

b. Income tax payable-P 212,830
c. Final tax on passive income- P 68,030
d. Capital gains tax-P 120,600
College of Accountancy, Business, Economics and International Hospitality Management
a.

From From Total

Philippines Abroad
Income from employment P 180,000 P 280,000 P 460,000
Business income 850,000 960,000 1,810,000
Deductible business expenses (610,000) (730,000) (1,340,000)
Interest income on personal loans 6,000 3,000 9,000
Dividend income from foreign 6,800 2,000 8,800
corp. 5,600 - 5,600
Prizes from singing contest 4,200 4,200
Interest income on bank deposits 1,600 1,600
Interest income on money market 50,000 50,000
placements 16,900 16,900
Royalty income 50,000 50,000
Winnings/prizes from lotteries,
raffles
Lotto winnings
Taxable Income P 1,076,100

b.

Taxable income P 1,076,100

Tax bracket threshold (800,000)
Net 276,100
Multiply by Tax Rate based on tax bracket 30%
Basic income tax 82,830
Additional as per tax bracket 130,000
Income Tax Payable P 212,830

c.
Interest income on bank deposits P 10,800
Interest income on money placements 7,500
Royalty income 90,000
Lotto winnings 150,000
Winnings/prizes from lotteries, raffle draws 45,000
Total P 303,300
@ 20% P 60,660

Dividend income from domestic corp. 5,700

Royalty income from sale books 68,000
Total P 73,700
@ 10%
7,370

Total Final Tax on Passive Income P 68,030

College of Accountancy, Business, Economics and International Hospitality Management

d.

Sale of lot (P 1,060,000 x 6%) P 63,600

Sale of house and lot (950,000 x 6%) 57,000

Capital Gains Tax P 120,600

2. Determine the following assuming the taxpayer is a nonresident citizen:

a. Taxable net income- P 438,400

b. Income tax payable-P 39,600
c. Final tax on passive income- P 68,030
d. Capital gains tax-P 120,600

a.

From
Philippines

Income from employment P 180,000

Business income 850,000
Deductible business expenses (610,000)
Interest income on personal loans 6,000
Dividend income from foreign corp. 6,800
Prizes from singing contest 5,600
Taxable Income P 438,400

b.

Taxable income P 438,400

Tax bracket threshold (400,000)
Net 38,400
Multiply by Tax Rate based on tax bracket 25%
Basic income tax 9,600
Additional as per tax bracket 30,000
Income Tax Payable P 39,600

c.

Interest income on bank deposits P 10,800

Interest income on money placements 7,500
Royalty income 90,000
Lotto winnings 150,000
Winnings/prizes from lotteries, raffle draws 45,000
College of Accountancy, Business, Economics and International Hospitality Management
Total P 303,300
@ 20% P 60,660

Dividend income from domestic corp. 5,700

Royalty income from sale books 68,000
Total P 73,700
@ 10%
7,370

Total Final Tax on Passive Income P 68,030

As long as there is no interest income from foreign currency bank deposits under FCDS/FCDU,
the final tax on passive income of nonresident citizens is the same as that of a resident citizen.

d.

Sale of lot (P 1,060,000 x 6%) P 63,600

Sale of house and lot (950,000 x 6%) 57,000

Capital Gains Tax P 120,600

All individual taxpayers are subject to the same types of CGTs

3. Determine the following assuming the taxpayer is a NRA-ETB:

a. Taxable net income- P 438,400

b. Income tax payable-P 39,600
c. Final tax on passive income- P 38,600
d. Capital gains tax-P 120,600

a.

From
Philippines

Income from employment P 180,000

Business income 850,000
Deductible business expenses (610,000)
Interest income on personal loans 6,000
Dividend income from foreign corp. 6,800
Prizes from singing contest 5,600
Taxable Income P 438,400
College of Accountancy, Business, Economics and International Hospitality Management
b.

Taxable income P 438,400

Tax bracket threshold (400,000)
Net 38,400
Multiply by Tax Rate based on tax bracket 25%
Basic income tax 9,600
Additional as per tax bracket 30,000
Income Tax Payable P 39,600
c.

Interest income on bank deposits P 10,800

Interest income on money placements 7,500
Royalty income 90,000
Dividend income from domestic corp. 5,700 rate is 20%
Winnings/prizes from lotteries, raffle draws 45,000
Total P
@ 159,000 P 31,800
20%
Dividend income from domestic corp. @ 20%
Royalty income from sale books -
Total 68,000
@ P 68,000
10% 6,800

Total Final Tax on Passive Income P 38,600

d.
Sale of lot (P 1,060,000 x 6%) P 63,600
Sale of house and lot (950,000 x 6%) 57,000

Capital Gains Tax P 120,600

All individual taxpayers are subject to the same types of CGTs

2-6. Income Tax of Spouses

Mr. and Mrs. De Leon, residents of Quezon City with three (3) qualified dependent
children, provided the following data for 2020 table year:

Husband Wife Husband &

Wife
College of Accountancy, Business, Economics and International Hospitality Management
● Compensation Income P850,000 P650,000
● Personal and family expenses 30,000 20,000
(including premium payment for
life and fire insurance of P2,000
each)
● Premium payment for 5,000 5,000
health/hospitalization insurance
● Income from practice of 800,000
profession
● Expenses-practice of profession 320,000
● Income from trading business 250,000
· Expenses from trading business 100,000

REQUIRED:
a. Determine the taxable income of Mr. De Leon- P 1,240,000
b. Determine the taxable income of Mrs. De Leon- P 890,000
c. Determine the consolidated income tax payable of Mr. and Mrs. De Leon- P419,000

a.

Income Husband
Compensation income P850,000
Income from practice of profession (800,000/2) 400,000
Income from trading business 250,000
Expenses-practice of profession (320,000/2) (160,000)
Expenses- trading business (100,000)

Taxable Income P 1,240,000

b.

Income Wife
Compensation income P 650,000
Income from practice of profession (800,000/2) 400,000
Income from trading business -
Expenses-practice of profession (320,000/2) (160,000)
Expenses- trading business -

Taxable Income P 890,000

c.

Husband Wife
Taxable income P 1,240,000 P 890,000
Tax bracket threshold 800,000 800,000
Net 440,000 90,000
Multiply by Tax Rate based on tax bracket 30% 30%
College of Accountancy, Business, Economics and International Hospitality Management
Basic income tax 132,000 27,000
Additional as per tax bracket 130,000 130,000
Taxable Income P 262,000 P 157,000
Consolidated Tax Due P 419,000

Personal expenses are not deductible. The personal exemptions and premium payments for
health insurance are no longer deductible beginning January 1, 2018 under TRAIN Law.

2-7 Daniel, married to Kat, is a citizen and resident of the Philippines. The parents of the
couple are also living with the spouses for chief support. They had the following data for 2020
taxable year:

DANIEL KAT DANIEL &

KAT
Gross income from business P 600,000 - -
Gross income from profession, net of P 40,000 - 360,000 -
CWTx
Rental income, net P 190,000
Dividend income:
from domestic corporation 4,000 - -
from resident corporation - 20,000 -
from nonresident corporation 10,000
Interest income on notes receivable 6,000 4,000 2,000
Interest on Philippine bank deposit, net 3,200 2,400 8,000
Interest on Phil. bank deposit under FCDU 4,000 4,000 2,000
Interest on bank deposit abroad 5,000 5,000 5,000
Interest income on long-term bank deposit 20,000
Interest in government bonds
Expenses-practice of profession
Income from trading business - 10,000 -
Expenses from trading business 10,000 - -

Determine the following:

a. Total capital gains taxes paid by the spouses- P 322,500
b. Total final taxes withheld on passive income of the spouses- P 14,300
c. Taxable income of Daniel- P 597,500
d. Taxable income of Kat- P 565,000

a.

Sale of shares of domestic corp. directly to a buyer (P150,000 x 15%) P 22,500

Capital gain on sale of land in the Philippines classified as capital asset 300,000
(P5,000,000 x 6%)
Total Capital Gains Tax P 322,500

CGT on shares of domestic corporation under TRAIN Law

Sale of shares in the local stock exchange is subject to transaction of 6/10 of GSP under
TRAIN Law
 College of Accountancy, Business, Economics and International Hospitality Management

b.

Dividend income from domestic corp. (P40,000 x 10%) P 4,000

Interest income on Philippines bank deposit (3,200 + 2,400 + 8,000)/80% x 20% 3,400
Interest income on Philippines bank deposit under FCDU (4,000 + 4,000 +2,000) x 15% 1,500
Interest income on government bonds (deposit substitute) (10,000 x 20%) 2,000
Royalty-literary (10,000 x 10%) 1,000
Royalty other than literary (12,000 x 20%) 2,400
Total Final Tax on Passive Income of Daniel and Kat P 14,300

c.

Gross income from business P 600,000

Rental income net of tax 100,000
Dividend income from nonresident corporation (10,000/2) 5,000
Interest income on notes receivable [6,000 + (2,000/2)] 7,000
Interest on bank deposit abroad [5,000 +(5,000/2)] 7,500
Capital gain on sale of land abroad (P500,000/2) 250,000
Gain on sale of shares – New York Stock Exchange (P30,000/2) 15,000
Expenses [P350,000 + (75,000/2)] (387,500)
Taxable Net Income of Daniel P 597,500

d.

Gross income from practice of profession (P360,000/90%) P 400,000

Rental income net of tax 100,000
Dividend income from resident corporation 20,000
Dividend income from nonresident corp. (P10,000/2) 5,000
Interest income on notes receivable [P4,000 + (P2,000/2)] 5,000
Interest on bank deposit abroad [5,000 +(5,000/2)] 7,500
Capital gain on sale of land abroad (P500,000/2) 250,000
Gain on sale of shares – New York Stock Exchange (P30,000/2) 15,000
Expenses [P200,000 + (75,000/2)] (237,500)
Taxable Net Income of Kat P 565,000

2-8. Quarterly Income Tax Returns

1.Income tax payable, first quarter= P-

2.Income tax payable, second quarter= P27,600
3.Income tax payable, third quarter= P28,427.5
4.Income tax payable, fourth quarter= P67,297.5
5.Total final taxes (for the year) on passive income= P15,800
6.Total capital gains tax= P600,000 x .06= P36,000
College of Accountancy, Business, Economics and International Hospitality Management

1st Q 2nd Q 3rd Q Year

Gross Profit from Sales P300,000 P650,000 P910,000 P1,200,000

Business expenses (120,000) (262,000) (405,890) (426,700)

Personal exemption -

Taxable income P180,000 P388,000 P504,110 P773,300

Tax Due (Tax Table) - P27,600 P56,027 P123,325

Less: Tax Paid

Q1 - - - -

Q2 - (27,600) (27,600)

Q3 - (P28,427.5)

Income Tax Payable P- P27,600 P28,427.5 P67,297.5

Note: The amounts shown above are cumulative.

Taxable income for 1st Q is P180,000

P0, tax exempt

Taxable income for 2nd Q is P388,000

Tax on first P250,000 P0
In excess of 250,000
(138,000 x 20%) P27,600
Tax due P27,600

Taxable income for 3rd Q is P504,110

Tax on first P400,000 P30,000
In excess of 400,000
(104,110 x 25%) P 26,027
Tax due P56,027

Taxable income for 4th Q is P773,300

Tax on first P400,000 P30,000
In excess of 400,000
(373,300 x 25%) P93,325
Tax due P123,325

(Amounts are cumulative) Amount % Tax

Dividends-domestic corp. P30,000 10 P3,000

College of Accountancy, Business, Economics and International Hospitality Management

Interest income from

BPI 16,000 20 3,200

UCPB 18,000 20 3,600

Metro Bank 30,000 20 6,000

Total final tax on passive income P15,800

2-9. Capital Gains Tax

1. Selling price P5,500,000

Fair market value P6,000,000
Expense on the sale 275,000

Fair market value P6,000,000

CGT rate x .06
Capital gains tax P360,000

2. Gain on sale P500,000

Zonal value P2,200,000
Expense on sale 150,000

Zonal value P2,200,000

CGT rate x .06
Capital gains tax P132,000

3. The Sale of principal residence is exempt to CGT because he/she fully utilized it in
acquiring or constructing a new principal residence.

4. Selling price P5,000,000

x .80
Total P4,000,000

Taxable income= P1,000,000/P5,000,000 x P6,000,000

= 0.2 x P6,000,000
Taxable income= P1,200,000

Taxable income P1,200,000

CGT rate x .06
Capital gains tax P72,000

2-10. a. Selling price of Building No. 1 P15,000,000

Expenses on sale of Building No. 1 200,000
Cost of Building No. 1 10,000,000
Fair Market Value of Building No. 1 12,000,000

Selling Price P15,000,000

College of Accountancy, Business, Economics and International Hospitality Management
CGT rate x .06
Capital gains tax P900,000

b. Selling price of Building No. 2 20,000,000

Expenses Building No. 2 300,000
Cost of Building No. 2 30,000,000
Fair Market Value of Building No. 2 8,000,000

Cost of Building No. 2 30,000,000

CGT rate x .06
Capital gains tax P1,800,000

c. Answer: The 6% capital gains tax on real properties sold are applicable only on real
properties “held as capital assets” situated in the Philippines. The property sold is located abroad
and classified as an ordinary asset.

2-11. Selling price P600,000

Cost of the shares sold (650,000)
Total -P50,000
It will not be subject to CGT because it will result in a capital loss.

2-12. Domestic Corporation P300,000

Cost of the shares sold (220,000)
Total P80,000
CGT rate x .15
Capital gains tax P12,000

2-13. Domestic Corporation P310,000

Cost of the shares sold (150,000)
Total P160,000
CGT rate x .15
Capital gains tax P24,000

2-14. Answer = P0
Subject to 6/10 of 1% stock transaction tax. Not CGT

TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6. FALSE
7. FALSE
8. TRUE
9. FALSE
10. FALSE
11. TRUE
12. TRUE
College of Accountancy, Business, Economics and International Hospitality Management

MULTIPLE CHOICE

1. D
2. C
3. A
4. A
5. A
6. A
7. D
8. C
9. A
10. D
11. D
12. A
13. D
14. C
15. C
16. B
17. A
18. A
19. B
20. D
21. C
22. B
23. D
24. D
25. A
26. B
27. B
28. B
29. C
30. A
31. B
32. C
33. D
34. D
35. D
36. C.
37. D.
38. B.
39. B.
40. B.
41. D.
42. B.
College of Accountancy, Business, Economics and International Hospitality Management
Supporting Computation (Multiple Choice)

2. Gross income, Philippines P800,000

Gross income, USA 600,000
Expenses, Philippines (400,000)
Expenses, USA (300,000)
Taxable income P700,000

3-5 Gross income, Philippines P800,000

Expenses, Philippines (400,000)
Taxable income P400,000

19. Final Withholding Tax

Copyright (11,250/90%)x10% P1,250
Royalty (12,000/80%) x 20% 3,000
Share from Trade Partnership
(treated as dividend income)
(270,000/90%) x10% 30,000
FWT P34,250

20. Answer = P0

21. Interest from FCDU (212,500/85%)x15% P37,500

Royalty (94,500/90%) x 10% 10,500
DI from DC (144,000/90%) x10% 16,000
FWT P64,000

22. Interest from FCDU (212,500/85%)x15% exempt

Royalty (94,500/90%) x 10% 10,500
DI from DC (144,000/80%) x20% 36,000
FWT P46,500

Sale of Principal Residence

28. CGT = 1.5/4 X P4M X 6% = P90,0000

29. Gross sales P1,650,000

Rental income (P308,750/95%) 325,000
Cost of sales (500,000)
Business expenses (425,000)
Taxable Net Income P1,050,000

TAX DUE:
1st P800,000 P130,000
In excess = P250,000 x 30% 75,000
Total P205,000
Less: CWTx (65,000)
Quarterly tax payments (82,500)
College of Accountancy, Business, Economics and International Hospitality Management
Income Tax Payable P57,500

30. Gross sales P1,650,000

Rental income (P308,750/95%) 325,000
Less (250,000)
Taxable Net Income P1,725,000

TAX DUE:
x 8%
Total P138,000
Less: CWTx (65,000)
Quarterly tax payments (82,500)
Income Tax Payable (P9,500)

31. Gross sales P1,650,000

Rental income (P308,750/95%) 325,000
Taxable Net Income P1,975,000

TAX DUE:
x 8%
Total P158,000
Less: CWTx (65,000)
Quarterly tax payments (82,500)
Basic Tax on Compensation income
[P30,000 + (P200,000 x 25%)] 80,000
Income Tax Payable P90,500

32. Professional income, gross P600,000

Rental income, gross 50,000
Wagering gains 50,000
Kickbacks from suppliers 40,000
Professional expenses (325,000)
Taxable net income P415,000

33. Interest income – BDO; P20,000 x 20% P4,000

Interest income FDCU – P50,000 x 15% 7,500
Total FWT P11,500

34. CGT, residential house, P5M x 6% P300,000

CGT, shares = P150,000 x 15% 22,500
Total CGT P322,500

35. Gross sales, Phils. P5,000,000

Gross sales, Ukraine 3,000,000
Sales returns and allowances (500,000)
Sales returns and allowances-Ukraine (200,000)
Cost of sales, Philippines (1,500,000)
Cost of sales, Ukraine (800,000)
College of Accountancy, Business, Economics and International Hospitality Management
Business expenses, Philippines (500,000)
Business expenses, Ukraine (300,000)
Taxable net income P4,200,000