TAXN01G (Group 2) Exclusions from Gross Income

RECAP: Gross Income Chapter VI Section 32 A

Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items:

RECAP: Gross Income

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.

Exclusions Chapter VI Section 32 B

It means that theres an income or inflows into the hands of the taxpayers but the same are excluded in the taxable income It doesnt form part of the gross income and thus is exempt from tax

NIRC National Internal Revenue Code (R.A. 8424)

Tax Reformation Act of 1997
STATE POLICY. It is hereby declared the policy of the State to promote sustainable economic growth through the rationalization of the Philippine internal revenue tax system, including tax administration; to provide, as much as possible, an equitable relief to a greater number of taxpayers in order to improve levels of disposable income and increase economic activity; and to create a robust environment for business to enable firms to compete better in the regional as well as the global market, at the same time that the State ensures that Government is able to provide for the needs of those under its jurisdiction and care.

What is the difference between EXCLUSIONS & EXEMPTIONS?

Exclusions removal of otherwise taxable items from the reach of taxation Exemptions freedom from a charge of burden to which others are subjected

Exclusions from Gross Income as stated in NIRC Section 2 par. B

The following items shall not be included in gross income and shall be exempt from taxation: 1. Life Insurance Proceeds 2. Amount received by insured as return of premium 3. Gifts, Bequests and Devises 4. Compensation for injuries or sickness 5. Income exempt under treaty 6. Retirement benefits, pensions, gratuities, etc. 7. Miscellaneous Items

1. Life Insurance Proceeds 2. Amount received by insured as return of premium

- by Princess

LIFE INSURANCE What is excluded: The proceeds of

life insurance policies paid to heirs or beneficiaries upon the death of the insured. Reason: Insurance is a contract of indemnity; hence, the proceeds should be treated as indemnity and not as gain or income. HOWEVER, If such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income.

Amount Received by Insured as RETURN of Premium

3. Gifts, Bequests and Devises 4. Compensation for injuries or sickness 5. Income exempt under Treaty
- by

Jenessa

Tax Exemption: Gifts, Bequests, and Devises

-This refers to properties acquired by gift, bequest, devise, or descent. Gift - something voluntarily transferred by one person to another without compensation. Bequest - the property or money that you promise in your will to give to another person or organization after you die. Devises - a will or clause of a will disposing of real property

Tax Exemption: Gifts, Bequests, and Devises

A gift is an act of liberty which requires the acceptance of the donee and that anything received therefrom is not derived from trade or business neither from the exercise of profession. Hence, it is not an income.
Gifts or donation inter vivos are subject to donors tax.

Tax Exemption: Gifts, Bequests, and Devises

Whereas, bequest and devises are gifts which would take effect upon the death of the donor, hence subject to estate tax. Bequest refer to personal property while devises refer to real property.

Tax Exemption: Compensation for Injuries or Sickness

a) Amounts received, through Accident or Health Insurance or under Workmens Compensation Acts. b) Compensation for personal injuries or sickness c) Damages received, whether by suit or agreement, on account of such injuries or sickness.

Revenue Regulations No. 2-98, Sec. 2.78.1(B)(6) provides that:

(B) Exemptions from withholding tax on compensation. The following income payments are exempted from the requirement of withholding tax on compensation: (6) Damages. Actual, moral, exemplary and nominal damages received by an employee or his heirs pursuant to a final judgment or compromise agreement arising out of or related to an employer-employee relationship.

Tax Exemption: Compensation for Injuries or Sickness

The foregoing are excluded in the determination of income because the amount received therefrom is not considered an income but merely a recompense or reward in the form of damages.

Tax Exemption: Income Exempt under Treaty

This refers to the income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines (Sec.34[B][5]).

6. Retirement benefits, pensions, gratuities, etc.

- by Micah &
Hanna

6. Retirement Benefits, Pensions, Gratuities, etc.

a) Retirement Benefits b) Separation Pay c) Social Security Benefits, Retirement Gratuities, Pensions and Other Similar Benefits d) Benefits under United States Veterans Administration e) Social Security Benefits f) GSIS Benefits

a. Retirement Benefits
Requisites: 1. In accordance with a reasonable private benefit plan maintained by the employer; 2. Retiring official or employee has been in the service of the same employer for at least ten (10) years; 3. Not less than fifty (50) years of age at the time of his retirement 4. The benefits granted under this subparagraph shall be availed of by an official or employee only once

Retirement benefit received by official employees of private firms under a reasonable private benefit plan maintained by the employer, if the following requirements are met: a. The retirement plan must be approved by the Bureau of Internal Revenue;
b. The retiring official or employees must have been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of retirement; and c. The retiring official or employee shall not have previously availed of the privilege under the retirement benefit plan of the same or another employer

For the retirement benefits to be exempt from the withholding tax, the taxpayer is burdened to prove the concurrence of the following elements:
1. A reasonable private benefit plan is maintained by the employer; 2. The retiring official or employee has been in the service of the same employer for at least ten (10) years; 3. The retiring official or employee is not less than fifty (50) years of age at the time of his retirement; and 4. The benefit had been availed of only once

b. Separation Pay
Any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death sickness or other physical disability or for any cause beyond the control of the said official or employee a. Less than 10 years b. Below 50 years old

c. Social Security Benefits, Retirement Gratuities, Pensions and Other Similar Benefits Benefits received by resident or non-resident citizens of the Philippines or aliens who come to reside permanently in the Philippines, from foreign government agencies and other institutions, private or public

d. Benefits under United States Veterans Administration

Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration

e. Social Security Benefits

Benefits received from or enjoyed under the Social Security System in accordance with the provisions of Republic Act No. 8282
R.A. 8282 = Social Security Law

f. GSIS Benefits

Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by government officials and employees.
R.A. 8291 = The Government Service Insurance System Act of 1997

7. Miscellaneous Items
- by April and Jo

7. Miscellaneous Items
a) Income Derived by Foreign Government b) Income Derived by the Government or its Political Subdivisions c) Prices and Awards d) Prices and Awards in Sports Competition e) 13th Month Pay and Other Benefits f) GSIS, SSS, Medicare and Other Contributions g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness h) Gains from Redemption of Shares in Mutual Fund

K Investment Office, a London-based investment body of the state Kuwait, is accorded an independent juridical status for the purpose of managing Kuwaits funds and investment assets.

K investment Office has investments in the Philippines in government bonds, corporate bonds and bank deposits, which are primarily held by custodian, H Bank.
BIR RULING 103-2012, FEB. 21, 2012

Is the income derived by K investment Office from its investment in the Philippines included in income tax, and consequently from WHT?

Income derived from investments in the Philippines in loans, stocks, bonds, or other domestic securities or from interest on deposits in banks in the Philippines by :
(1)Foreign Governments; (2)Financing Institutions owned, controlled, or enjoying refinancing from foreign governments; (3)International or regional financial institutions established by foreign governments.

Garments and Textile Export Board(GTEB) has been created and organized pursuant of P.D. No. 14 on June 10, 1978. It was placed under the Office of the President and chaired representative of Secretary of Trade. One of its functions is to oversee the implementation of the garments and textile agreements between the Republic of the Philippines and other countries particularly the administration of garments and textile quotas.

BIR RULING 67-99, MAY 13, 1999

Income derived from any public utility or from the exercise of any essential governmental functions accruing to the Government of the Philippines or to any political subdivisions thereof.

Sec. 32(B)(7)(a)

GTEB contends that it should not be subject to corporate income tax because it is a government regulatory body performing strictly govt functions. Is the contention valid?

Prizes and Awards made primarily in recognition of: Religious Charitable Scientific Educational Artistic Literary Civic Achievement If: (1) The recipient was selected w/o 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

All prizes and awards granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their national sports association.
The sports competition whether local or international sports competition as long as sanctioned or accredited by the athletes respective national sports associations, the prizes and awards will be excluded from gross income

However, the provisions of R.A. 7549, dated May 22, 1992, which was integrated in the aforecited section of the Tax Code. Section 2 of the said Act provides that the national sports association shall refer only to those sports associations duly accredited by the Philippine Olympic Committee (POC).
International Chess Grandmaster Joly Antonio. Accordingly, the prize money won by GM Rogelio (Joey) M. Antonio, Jr., is subject to 20% final withholding tax under Section 24(B)(1) of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98. (BIR Ruling No. 026-2000 dated June 13, 2000)

It is not included in the taxable income of the candidate to whom they were given because contributions were given not for personal expenditure/enrichment of the candidate concerned but for the purpose of utilizing such contributions for the campaign. Requisites: These campaign contributions must have been utilized to cover a candidates expenditures for electoral campaign Any candidate winning or losing should file the appropriate Statement of Expenditures required under the Omnibus Election Code

Gross benefits received by officials and employees of public and private entities. Provided, however, that the total exclusion under this subparagraph shall NOT exceed thirty thousand pesos (P30,000)which shall cover:

1. Benefits received by officials and employees of the national and local government pursuant to R.A. 6866;
2. Benefits received by employees pursuant to P.D. 851, as amended by Memorandum Order 28, dated Aug. 13, 1986

3. Benefits received by officials and employees not covered by P.D. 851, as amended by Memorandum Order 28, dated Aug. 13, 1986; and 4. Other benefits such as productivity incentives and Christmas bonus. Provided, further, that the ceiling of thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the effect on the same of the inflation rate at the end of the taxable year.

GSIS, SSS, Medicare and Pag-ibig contributions, and union dues of individuals. These items are not included in the Gross Taxable Compensation Income.

Gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years.

Gains derived by investors from redemption of shares of stock by investors in a mutual fund are exempt from capital gains tax pursuant to Section 32 (B)(7)(h) of the Tax Code of 1997, which excludes such gains from gross income.

Hazard pay shall mean the amount paid by the employer to MWEs who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or isolated stations and camps, which expose them to great danger of contagion or peril in life.

Thanks for listening

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