TAXN01B: Income Taxation

a. Final Income Taxation

b. Capital Gains Taxation

c. Regular Income Taxation

Three income taxation schemes

mutually exclusive

Tax schemes are ___________.

Mutually Exclusive Coverage

This means that an item of gross income that is subject to tax in one section will not be taxed to other schemes.

Final Income Taxation

characterized by final taxes

Final Income Taxation

withheld at source

net of tax

The income received by the taxpayer under final income taxation is __________.

Final income taxation

The tax withheld at source is final and there would be no need to file an income tax return to report the income to the government.

passive

Final taxation is applicable only to certain ______ income

Passive incomes

earned with very minimal or even without active involvement from the taxpayer in the earning process.

Interest income from banks

Dividends from domestic corporations

Royalties

Example of passive incomes

Active or Regular incomes

arises from transactions requiring considerable degree of effort or undertaking from the taxpayer

Compensation income

Business income

Professional income

Examples of Active income

Final Withholding Tax

It is a tax deducted from the income to be paid to the payee or seller.

Final withholding tax

It is constituted as full or final payment of the income tax liability.

Final Withholding Tax

It cannot be credited/deducted against the basic income tax due.

payor

The liability for the payment of the tax is primarily on the _____ as the withholding agent. (FWT)

taxpayer and government convenience

Final withholding tax is built upon _______________________.

25%

NRA-NETBs and NRFCs are subject to __% final tax

Pre-termination

refers to the act of ending an investment or deposit before its scheduled maturity date

Deposit Substitute

means an alternative form of obtaining funds from at least 20 persons at any

one time other than deposits, through the issuance, endorsement, or acceptance of debt

instruments for the borrowers’ own account, for the purpose of relending or purchasing of

receivables and other obligations, or financing their own needs or the needs of their agents or

dealer

Government debt instruments and securities

shall be considered as deposit substitutes irrespective of the number of lenders

at origination if such debt instruments and securities are to be traded or exchanged in the

security market

(1) printed literatures

(2) e-copies or CDs such as e-books

Under the regulations, the 10% preferential royalty final tax on books and literary works

pertain to (1)___________. Royalties on books sold on (2)___________ are subject to the 20% final tax.

cinematographic films and similar works

Royalties on _____________________ paid to NRA-ETBs, NRA-NETTBs or NRFCs are subject to a final tax of 25%.

a. The dividends actually received or remitted into the Philippines are reinvested in the business operations of the domestic corporation within the next taxable year from the time the foreign-source dividends were received or remitted;

b. The dividends received shall only be used to fund the working capital requirements, capital expenditure, dividends payments, investment in domestic subsidiaries, and infrastructure project; and

c. The corporation must directly hold at least 20% of the outstanding shares of the foreign corporation, and such shareholding must have been held continuously for a minimum of two years at the time of dividend distribution.

In general, foreign sourced dividends received by domestic corporations are subject to income tax. However, the same shall be exempt if ALL of the following occur:

1. The recipient was selected without any action on his part to enter the contest or proceeding;

2. The recipient is not required to render substantial future services as a condition to receiving the prize or award.

Prizes and awards primarily made in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement are exempted, but only if:

imposed on the capital gain on the sale, exchange, and other

disposition of certain capital assets.Capital Gains Tax

ordinary assets.

Capital assets include all other assets other than __________

Ordinary assets

assets directly used in the business, trade, or profession of the

taxpayer such as inventory, supplies, and items of property, plant, and equipment

domestic stocks and real properties

Capital gains taxation applies only to two types of capital assets:

1. Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year; or

2. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; or

3. Property used in trade or business of a character which is subject to the allowance for depreciation; or

4. Real property used in trade or business of the taxpayer.

Capital Assets (Sec. 39 of NIRC) include all the property held by the taxpayer (whether or not

connected with his trade or business) but does not include:

6% CGT or regular income tax for the sale of such property to the government or any of its political subdivisions, or agencies, or a GOCC.

An individual seller of real property capital assets has the option to be taxed at either _________ or ______________________ or ______________ or __________