INCOME TAX - 11-20

income

all wealth which flows into the taxpayer other than as a mere return on capital. It includes the forms of income specifically described as gains derived from the sale or other disposition of capital. (Sec. 36, Regs.;

income taxation

tax on all yearly profits arising from property, professions, trades or offices, or as tax on a person's income, emoluments, profits and the like

taxable income

the amount or taxable base upon which the tax rate prescribed by law is to be applied. Depending upon the clas of taxpayer, it may refer to gross income or net income not excluded by law or treaty from taxation.

compensation income

all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Tax Code.

compensation for personal services

usually made in money but it may also be paid for in kind, or both in money and in kind.

stock transfer

corporation transfers to its employees its own stock as remuneration for services rendered by the employee, the amount of such remuneration is the fair market value of the stock at the time the services were rendered

stock option

option granted by a person, natural or juridical, to a person or entity entitling said person or entity to purchase shares of stocks of a corporation, which may or may not be the shares of stock of the grantor itself, at a specific price to be exercised at a specific date or period

shares of stocks

domestic corporation but is not traded in the stock exchange, the gain, if any, is subject to CAPITAL GAINS TAX under Sections 24 & 25 of the TAX CODE

stocks listed and traded

subject to stock transaction tax

stocks from foreign corporation

subject to ordinary income tax

living quarters or meals

person receives a salary as remuneration for services rendered, and in addition thereto, living quarters or meals are provided,

fringe benefits and other facilities privilege

furnished or offered by an employer to the employees are generally taxable income. HOWEVER, the benefits will generally not be taxable if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees.

tips and gratuities

paid directly to an employee by a customer of the employer which are not accounted for by the employee to the employer are considered as taxable income but not subject to withholding.

pensions, retirement and separation pay

constitute compensation subject to income tax, except those exempted by law.

fixed or variable transportation representation and other allowances

Most allowances (transportation, representation, etc.) received in addition to regular compensation are taxable income.

vacation and sick leave allowances

which are paid to an employee constitute compensation. Thus, the salary of an employee on vacation or on sick leave, which are paid notwithstanding his absence from work, constitutes compensation. However, these monetized leave credits are not subject to income tax for both managerial and rank-and-file employees:

backwages

unpaid wages from the period of dismissal

promissory notes other evidence of indebtedness

received in payment of services, and not merely as security for such payment, constitute income to the amount of their fair market value.

director fees

received by a director who is at the same time an employee or officer (e.g., President) of a corporation are subject to income tax and to withholding tax on wages

fringe benefits

good, service, or other benefit furnished or granted in cash or in time other than the basic compensation by an employer to an individual employee

de minimis benefits

facilities or privileges furnished are offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, our efficiency of his employees (not taxable)

resident citizen

non-resident citizen

resident and non-resident alien

three types of individuals under the national internal revenue code

gross income

all gains, profits and income, except (passive) income subject to final tax and exempt income (exclusions), derived during a taxable year by a taxpayer from whatever source whether legal or illegal, and in whatever form ( money, property, or services)

global tax system

classification of income is not important since all income, regardless of classification, tax using the same rate

schedular tax system

classification of income is important since the different types of income are subjected to the different sets of graduated or flat income tax rates depending on their classification

semi schedular or semi global tax system

all compensation income, business or professional income, capital gains and passive income not subject to final tax, and other income are subjected to one set of graduated tax rates, thus the computation is global

source of income

residence and citizenship status

engagement in trade or business

criteria for imposing philippine income tax

there must be gain

Gain or profit is essential to the existence of taxable income. Gain not to be in cash derived from sale of assets.

gain must be realized or received

The increase in value, i.e., the gain, can only be taxed when a disposition of the property has occurred, which is of such a nature as to constitute a realization of such gain, that is, a severance of the gain from the original capital invested in the property.

gain must not be excluded by law from taxation

Income that is exempt from tax by law is not considered in determining gross income.