TAX- Introduction to Income Taxation (2)

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Income

is regarded as the best measure of taxpayer’s’ ability to pay tax. It is an excellent object of taxation in the allocation of government costs

Gross Income

The tax concept of income is simply referred as ___ under the National Internal Revenue Code

Gross Income

is broadly defined as any inflow of wealth to the taxpayer that increases net worth from whatever source. It includes income from employment, trade, business or exercise of profession, income from properties and other sources such as dealing in properties and other regular transactions.

Capital

means any wealth or property

Return on Capita;

that increases net worth is income subject to income tax

Return of Capital

merely maintains net worth hence, not taxable

Realized, Benefit

·The term “___” means earned, meaning, there is a degree of undertaking or sacrifice from the taxpayer to be entitled of the benefit. The term “___” means any form of advantage derived by the taxpayer.

Onerous Transactions

Bilateral transfers or exchanges

Sale

•occurs when one exchanges goods or services for money or its equivalent

Barter

•occurs when one exchanges goods for goods, goods for services or services for services.

Gratuitous Transactions

Unilateral Transfers

Succession

•gratuitous transfer of property mortis causa (upon death)

Donation

•gratuitous transfer of property inter vivos (during life)

Actual Receipt

•involves actual physical taking of the income in the form of cash or property.

Constructive Receipt

involves no actual physical taking of the income but the taxpayer is effectively benefited.

Citizens

Under the Constitutions, ___ are:

1.  Those who are ___ of the Philippines at the time of adoption of the Constitution on February 2, 1987

2.  Those whose fathers or mothers are citizens of the Philippines

3.  Those born before January 17, 1973 of Filipino mothers who elected Filipino citizenship upon reaching the age of majority

4.  Those who are naturalized in accordance with the law.

Resident Citizen

a Filipino citizen residing in the Philippine

Non-resident Citizen

1.  A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein;

2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for an employment on a permanent basis.

3. A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year;

4. A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as non-resident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines.

Resident Alien

an individual who is residing in the Philippines but is not a citizen thereof, such as

1. An alien who lives in the Philippines but without definite intention as to his stay;

2. One who comes to the Philippines for a definite purpose which in its nature would require an extended stay and to that end makes his home temporarily in the Philippines; although it may be his intention at all timesto return to his domicile abroad

Non-resident Alien

individuals who is not residing in the Philippines and is not a citizen thereof.

Non-resident aliens engaged in business

aliens who stayed in the Philippines for an aggregate period of more than 180 days during the year.

Non-resident aliens not engaged in business

includes:

a. Aliens who come to the Philippines for a definite purpose which in its nature may be promptly accomplished;

b. Aliens who shall come to the Philippines and stay therein for an aggregate period of not more than 180 days

Estate

refers to the properties, rights and obligations of a deceased person not extinguished by his death.

Trust

is an arrangement whereby one person (grantor or trustor) transfers property to another person (beneficiary) which will be held under the management of a third party (trustee or fiduciary)

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Citizens staying abroad for a period of at least ___ days are considered non-resident.

More than 1 year

Aliens who stayed in the Philippines for ___ as of the end of the taxable year is considered resident.

Less than 1 year but more than 180

Aliens who are staying in the Philippines for ___ days are deemed non-resident aliens engaged in business.

Not more than 180

Aliens who stayed in the Philippines for ___ days are considered non-resident aliens not engaged in trade or business.

Domestic Corporation

is a corporation that is organized in accordance with Philippine laws.

Foreign Corporations

is one organized in a foreign law.

Resident Foreign Corporation

a foreign corporation which operates and conducts business in the Philippines through a permanent establishment.

Non-resident foreign corporation

a foreign corporation which does not operate or conduct business in the Philippines.

Special Corporations

•Domestic or foreign corporations which are subject to special tax rules or preferential tax rates.

Partnerships

A business owned by two or more persons who bind themselves together to contribute money, property or industry to a common fund, with the intention of dividing the profit among themselves.

General professional partnership

Partnership formed for the exercise of a common profession

Business partnership

Partnership formed for profit, hence, taxable as a corporation.

Joint venture

Business undertaking for a particular purpose, which may be organized as a partnership or a corporation

Exempt joint venture

are those formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations, pursuant to an operating consortium agreement under service contract with the government

Taxable joint venture

 all other joint ventures are taxable as a corporation.

Co-ownership

is a joint ownership of a property formed for the purpose of preserving the same and/or dividing its income

Situs of income

is the place of taxation of income. It is the jurisdiction that has the authority to impose tax upon the income. Situs is important in determining whether or not an income is taxable in the Philippines.