Tax Merged

CHAPTER 12: SELF-TEST EXERCISES
True or False 1
T 1. Tax basis means cost or depreciated cost of the property.
T 2. The loss on the sale of stocks by a trust company is an ordinary loss.
T 3. The capital gain from the sale of domestic bonds and foreign stocks are subject to regular
income tax.
T 4. Capital loss is deductible to the extent of capital gains.
T 5. The sale of foreclosed land by a bank is subject to regular income tax.

F 6. Ordinary loss and capital loss are items of deduction from gross income.
T 7. The loss on the sale of bonds by banks is an ordinary loss.
F 8. An ordinary gain is an item of gross income while a net capital gain is an exclusion from gross
income.
F 9. The holding period rule is relevant to individuals and corporate taxpayers.
F 10. The gain is said to be short-term if the sale of the asset is made in less than one year from its
acquisition.
F 11. 50% of the capital gain or loss is considered if the asset is held by individuals for one year or
more.
F 12. Ordinary gains or losses are subject to the holding period rule if the taxpayer is an individual
taxpayer.
F 13. The gain or loss on the sale of any stocks is subject to capital gains tax.
F 14. Ordinary loss is deductible to the extent of ordinary gains.
T 15. A net ordinary loss is deductible from gross income while a net capital loss is nondeductible.
True or False 2
T 1. Obligations assumed on the property purchased form part of the basis thereof.
T 2. If assets are acquired by way of inheritance, their basis shall be their fair value at the point of death
of the decedent.
T 3. The indicated gain in a tax-free exchange shall be recognized not to exceed the value of cash or
properties received other than stocks.
T 4.The amount of net capital loss carry-over must not exceed the net income in the year it was
sustained.
F 5.If assets are acquired by way of donation, their basis shall be the fair value on the date of donation
F 6. The net capital loss can be carried over to a period of three years from the time it is sustained.
T 7. The basis of properties received as boot in a tax-free exchange is their fair value upon receipt.
F 8. Gains but not losses are recognized in tax-free exchanges.
T 9. When no other property is involved in a share-swap pursuant to a plan of merger or
consolidation, there is no gain to recognize.
F 10. Corporations are allowed to carry-over net capital loss for a period of one year only.
F 11. In initial acquisition of control, it is necessary that there are at least five persons who acquired
control of a corporation so that the exchange is exempt from income tax.
F 12. No gain can be recognized on a pure share-swap transaction which is not pursuant to a plan of
merger or consolidation.
T 13. Stock splits and stock dividends cause a dilution in the cost per unit of stocks which must be
considered in subsequent gain or loss measurement.
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T 14. Capital gains within the 61-day period are recognized, but losses are deferred when there are
acquisitions of identical securities in the same period.
F 15. When properties are sold for less than an adequate and full consideration, gain is measured
as the difference between fair value and the tax basis of the property disposed.
Multiple Choices: Theory - Part 1
1. Which capital asset is subject to the rules of capital gains tax?
a. Sale of office building

b. Sale of office equipment
c. Sale of domestic common shares directly to a buyer
d. Donation of domestic stock
2. Which is true regarding taxation of ordinary gain?

a. It is subject to regular tax regardless of the taxpayer
b. Individual taxpayers are always subject to regular tax.
c. It is subject to capital gains tax.
d. It is taxable under either regular tax or capital gains tax.
3. The gain arising from the sale of ordinary assets is

a. Ordinary income c. Extraordinary gain
b. Regular income d. Ordinary gain
4. The gain arising from dealings in capital assets is

a Capital income
b. Extraordinary gain
c. Capital gain
d. Regular income
5. Statement 1: The gain on sale of ordinary assets is subject to regular income tax,
Statement 2: The gain on sale of capital assets is subject to capital gains tax Which statement is
correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement
6. Which is correct regarding gains from capital assets?

a. Always subject to regular tax
b. Always subject to capital gains tax
c. Subject to both regular tax and capital gains tax
d. Subject to either regular tax or capital gains tax
7. Which is not correct regarding rules in dealings in properties?

a. Ordinary loss is deductible only up to the extent of capital gains.
b. Ordinary gains are taxable in full.
c. Ordinary losses are deductible in full.
d. Capital loss is deductible only up to the extent of capital gains.
8. Which statement is incorrect?

a. Capital loss is deductible from capital gain.
b. Capital loss can be deducted from ordinary gain.
c. Ordinary loss is deductible from ordinary gain.
d. Ordinary loss is deductible from capital gain.
9. Which is an incorrect statement regarding the taxability or deductibility of gains or losses in dealings
in properties?
a. Ordinary gain is taxable in full.

b. Ordinary loss is deductible in full.
c. Net capital gain is taxable in full.
d. Net capital loss is deductible in full.
10. Statement 1: Ordinary gains and losses are offset.

Statement 2: Capital gains and losses are offset
Which statement is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. None of these
11. Which of the following is not included in the computation of taxable income?
a. Ordinary gains c. Net capital loss
b. Ordinary loss d. Net capital gains
12. Which statement is true?

a. The taxability of ordinary gain depends upon the holding period of the taxpayer.
b. Capital loss is deductible up to the extent of capital gain.

c. Ordinary loss is deductible only up to the extent of ordinary gain.
d. Capital loss is deductible up to the extent of ordinary gain.
13. Statement 1: Net loss in dealing ordinary assets is deductible from gross income.
Statement 2: Net loss in dealing capital assets is not deductible from gross income. Which statement is
true?
a. Statement 1 is true, c. Both statements are true.

b. Statement 2 is true. d. Neither statement is true.
14. Statement 1: The net gain in dealing ordinary asset is subject to regular tax.
Statement 2: Net gain in dealing capital asset is an item of gross income subject to capital gains tax.
Which statement is true?
a. Statement 1 is true. c. Both statements are true.

b. Statement 2 is true. d. Neither statement is true.
15. The short-term holding period is

a. 12 months or less. c. up to 24 months.
b. less than 12 months. d. 24 months or less.
16. Which statement is true regarding the holding period rule?

a. Applicable only to corporate taxpayers
b. Applicable only to taxpayers engaged in business
c. C. Applicable only to individual taxpayers
d. Applicable to any taxpayer
17. The holding period rule applies to

a. Domestic corporations C. General professional partnerships
b. Taxable trusts d. Resident foreign corporations
18. To which of the following taxpayer does the holding period assumption not apply
a. Resident citizen c. Business partnership
b. Resident alien d. Non-resident citizen
19. For which of the following taxpayers is the holding period ignored?
a. Taxable estates c. Corporations
b. Taxable trusts d. All of these
20. A short-term holding period means

a. 12 months or less. c. more than 12 months.
b. less than 12 months. d. at least 12 months.
21. A long-term holding period means

a. more than 12 months. c. 12 months or less.
b. less than 12 months. d. at least 12 months.
22. For individual taxpayers, what percentage of the capital gain or loss is considered for capital assets held
for 12 months?
a 50% c.25%
b.100% d. 0%
23. Which of the following properly depicts the percentage of gains considered in dealings in
properties? Short term Long-term
a. Individual 50% 50%

b. Corporation 100% 100%
c. C. Individual 50% 100%
d. d. Corporation 100% 50%
24. What percentage of long-term capital gain shall be included in the computation of the net capital gain
or loss of a corporate taxpayer?
a. 0% c. 100%
b. 50% d. 200%
25. In the computation of the net capital gain or loss, what percentage of long-term capital losses is
taken into consideration by an individual taxpayer?
a. 0% c. 100%
b. 200% d. 50%
26. Which is incorrect in the determination of the net capital gain or loss for individuals?
a 100% of short-term capital gain
b. 100% of short-term capital loss
C. 100% of short-term ordinary gain
d. 50% of long-term capital gain
27. Which is incorrect regarding net capital loss carry over?

a. Applicable to corporate taxpayers
b. Applicable only for a period of one year
c Applicable only to individual taxpayers engaged in business
d. Applicable only to individual taxpayers not in business
28. Which is incorrect regarding the application of the net capital loss carry over?
a. There is no net capital loss carry over allowable if the succeeding year results to a net capital loss
b. Carry over shall not exceed the net income in the year the capital loss was sustained.
c. Carry over shall apply up to the extent of available net capital gain in thesucceeding year
d. Net capital loss carry-over can be applied against available ordinary gain inthe succeeding year.
29. What is the tax basis of properties received by way of gitt?

a. Fair value on the date of donation
b. Acquisition cost of the last donor who did not acquire the property by gift
c. Whichever is lower of A and B
d. Whichever is higher of A and B
30. What is the tax basis of properties received as inheritance?

a. Tax basis in the hands of the decedent
b. Fair value of the property on the date of succession
c. Whichever is lower of A and B
d. Whichever is higher of A and B
Multiple Choices: Theory - Part 2 1.
Which is an ordinary asset?
a. Gold inventory c. Investment in stocks

b. Notes receivable d. Accounts receivable
2. Which is an ordinary asset?

a Home computer c. Family residence
b. Office supplies d. Personal clothing
3. Which is a capital asset?

a. Inventory of securities c. Investment in foreign currencies
b. Parking lot d. Office building
4. Which is a capital asset?

a. Home supplies c. Domestic bonds of a security dealer
b. Farm supplies d. Residential lot held for sale
5. All of the following are capital assets to a merchandising business except
a. Store supplies
b. Receivables from customers

c. Personal car of the trader
d. Personal residence of the taxpayer
6. All of the following are ordinary assets to a real property developer except
a. Raw and undeveloped land intended to be sold as is
b. Mortgage receivables on properties sold
c. Land currently under development
d. Raw land held for future development
7. Which of the following capital assets when sold, exchanged, or disposed is subject to the rules of
regular income tax?
a Domestic stocks c. Stock rights and warrants

b. Domestic bonds d. Real properties not used in business
8. Which capital asset is subject to capital gains tax?

a. Domestic stocks held for sale
b. Domestic bonds held as investment
c. Domestic stocks held as investments
d. Domestic bonds held for sale
9. Which capital asset is not subject to regular tax?

a. Real property held for sale by a dealer
b. Foreign stocks
c. real property held as investment by a non-realty dealer
d. Domestic stock held by a security dealer
10. Which statement is generally true?

A. A purely employed taxpayer does not have ordinary assets.
B. A self-employed taxpayer does not have capital assets.
a Statement A c. Both statements A and B
b. Statement B d. Neither statements A nor B
11. Which of the following capital asset is the holding period rule applicable?
a. Real properties not used in business
b. Home furniture
c. Domestic stocks sold directly to a buyer
d. All of these
12. Which of the following is considered as capital assets?

a. Fully depreciated properties
b. Land previously employed in business
c. Back-up and stand-by equipment
d. Assets not used in business for the last two years
13. Mr. Erorita acquired a lot as a future plant site. For lack of financing, the lot is currently vacant. For
taxation purposes, the lot should be classified as a/an
a. ordinary asset. c. real property.

b. capital asset. d. personal property.
14. Vernon Lacoste, a book publisher, received a lot as donation from a friend who is not engaged in the
realty business. He reserves the lot to house his publication business. What is the appropriate
classification of the lot for taxation purposes?
a. Ordinary asset c. Depreciable property

b. Capital asset d. Inventory
15. Bantay Kalikasan, a non-profit and non-stock organization, has an office buildin devoted for its tax-
exempt operations. For taxation purposes, this building is a la
a. ordinary asset.
b. either ordinary or capital asset at the discretion of the BIR examiner.
c. capital asset
d. either ordinary or capital asset at the discretion of Bantay Kalikasan.
16. Which of the following constitutes a long-term holding period?

a. An asset acquired on November 30, 2018 and was disposed of on November28, 2019
b. An asset acquired on March 28, 2018 and was disposed of on April 30, 2019
c. An asset acquired on March 13, 2018 and was disposed of on January 31,2019
d. An asset acquired on November 28, 2018 was and disposed of on November29, 2018
17. Which of the following statements is incorrect regarding the presentation of dealings in properties in
the income tax return?
a. Ordinary gains are presented as items of gross income.

b. Ordinary losses are presented as items of deduction.
c. Net capital gains are presented as items of gross income.
d. Net capital losses are presented as items of deduction.
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Reviewer in Taxation (Book 1) Asser S. Tamayo (2012 Edition)
CHAPTER 3
INCLUSIONS IN THE GROSS INCOME
Multiple choices:
1. It means all wealth which flows into the taxpayer other than mere return of capital and
includes gains derived from the sale or other disposition of capital assets.
a. Income
b. Asset
c. Capital
d. Fund
2. It means income (in the broad sense) excluding income which is by statutory provisions
or otherwise exempt from the tax imposed by law.
a. Gross income
b. Net income
c. Net assets
d. None of the choices
3. It means gross income less statutory deductions.

a. Gross income
b. Net income
c. Net assets
4. The term means the pertinent items of gross income specified in the Tax Code, less the
deductions and/or personal and additional exemptions, if any, authorized for such types of
income by the Tax Code or other special laws.
a. Gross income
b. Taxable income
c. Net assets
5. It is a fund or property existing at one distinct point of time.

a. Capital
b. Receipts
c. Revenue
d. Income
6. It has reference to all wealth that flows into the taxpayer which
a. Capital
b. Receipts
c. Revenue
d. Income
7. This term, as applied to taxation, refers to all funds or income derived by the government
whether from tax or other sources.
a. Capital
b. Receipts
c. Revenue
d. Income
8. One of the following is not distinction between capital and income.

a. Capital is fund, income is a flow.
b. Capital is wealth, income is the service of wealth.
c. Capital is a tree, Income is the fruit.
d. Capital is to corporations, Income is to individuals.
9. One of the following is not a requisite of a taxable income.

a. There must be gain
b. The gain must be realized or received
c. The gain must not be excluded by law from taxation.
d. The gain must be that of resident or nonresident citizen.
10. Which of the following statement is incorrect?

a. A mere increase in the value of the property is not income but merely an unrealized
increase in capital.
b. Gain may occur as a result of exchange of property, payment, assumption, reduction,
or cancellation of the taxpayer’s indebtedness (unless it amounts to a gift) or other
profit realized from the completion of a transaction.
c. If the taxpayer receives, through mistake, an amount in excess of the amount agreed
upon, the excess is not taxable unless the duty to return is not clear or is disputed.
d. None of the choices.
11. This states that for income to exist, it is necessary that the capital be separated from
something of exchangeable value.
a. Separabiltity or severance test of income
b. Ability to pay theory
c. Benefits received theory
d. Situs of taxation
12. In general, this term means all remuneration for services performed by an employee for
his employer under an employer-employee relationship.
a. Dividends
b. Compensation
c. Interest
d. Royalty

a. The name by which the remuneration for services is designated is immaterial to
constitute income.
b. The basis upon which the remuneration is paid is immaterial in determining whether
the remuneration constitutes compensation.
c. Remuneration for services constitutes compensation even if the relationship of
employer and employee does not exist any longer at the time when the payment is
made between the person in whose employ the services had been performed and the
individual who performed them.
14. Which of the following statements is incorrect?

a. If services are paid for in a medium other than money, the fair market value of the
thing taken in payment is the amount to be included as compensation subject to
withholding.
b. If the services are rendered at a stipulated price, in the absence of evidence to the
contrary, such price will be presumed to be the fair market value of the remuneration.
c. If a 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.
15. First statement: compensation may be paid in money or in some medium other than
money, as for example, stocks, bonds, or other forms of property.
Second statement: where compensation is paid in property other than money, the
employer shall make necessary arrangements to ensure that the amount of the tax
required to be withheld is available at the time for payment to the Commissioner.
a. Only the first statement is correct.
b. Only the second statement is correct.
c. Both statements are correct.
d. Both statements are incorrect.
16. Which of the following is not taxable?

a. Living quarters or meals furnished to an employee for the convenience of an
employer.
b. Tips of gratuities paid directly to an employee by a customer of the employer which is
not accounted for by the employee of the employer.
c. Pensions, retirement, and separation, in general.
d. Fixed or variable transportation, representation and other allowances which are
received by a public officer or employee or officer or employee of a private entity, in
addition to the regular compensation fixed for his position or office, in general.
17. Any amount paid specifically, either as advances or reimbursements for traveling,
representation and other bona fide ordinary and necessary expenses incurred or
reasonably expected to be incurred by the employee in the performance of his duties are
not compensation subject to withholding, if which of the following conditions is
satisfied?
I. It is ordinary and necessary traveling and representation or entertainment

expenses paid or incurred by the employee in the pursuit of trade, business or
profession.
II. The employee is required to account/liquidate for the foregoing expenses in
accordance with the specific requirements of substantiation for each category of
expenses pursuant to Sec. 34 of the Code.
a. Neither I nor II
b. Both I and II
c. I only
d. II only
18. First statement: the excess of advances made over actual expenses shall constitute taxable
income if such amount is not returned to the employer.
Second statement: reasonable amounts of reimbursement/advances for traveling and
entertainment expenses which are pre-computed on a daily basis and are paid to an
employee while he is on an assignment or duty need not be subject to the requirement of
substantiation and to withholding.
a. Only the first statement is correct.
b. Only the second statement is correct.
c. Both statements are incorrect.
d. Both statements are correct.
19. Promissory notes or other evidence of indebtedness received in payment for services, and
not merely as security for such payment, constitute income to the amount of their:
a. Face value
b. Maturity value
c. Fair market value
20. A taxpayer receiving a non-interest bearing note as compensation shall treat as income
the:
a. Face value of the note at that time
b. Fair discounted value of the note at that time
c. Maturity value of the note at that time
d. Fair market value of the note at that time
21. First statement: In the case of manufacturing, merchandising, or mining business, “gross
income” means total sales, less the cost of goods sold, plus any income from investments
and from incidental or outside operations or sources.
Second statement: In determining the gross income of manufacturing, merchandising, or
mining business, subtractions should not be made for depreciation, depletion, selling
expenses or losses, or for items not ordinarily used in computing the cost of goods sold.
a. Only the second statement is correct.

b. Only the first statement is correct.
c. Both statements are incorrect.

d. Both statements are correct.
22. First statements: All individuals, partnerships or corporations that cultivate, operate or
manage farms for gain or profit either as owners or tenants are designated as farmers.
Second statement: Persons cultivating or operating farms for recreation or pleasure, the
result of which is a continual loss from year to year, are not regarded as farmers.
a. Both statements are correct.

b. Both statements are incorrect.
c. Only the second statement is correct.
d. Only the first statement is incorrect.
23. Which of the following methods may be used by farmers to determine their gross
income?
a. Cash basis or receipts or disbursements basis in which no inventory is used to
determine profits.
b. Accrual basis in which an inventory is used to determine profits.
c. Crop basis which is used when the farmer is engaged in producing crops which take
more than a year to gather and dispose of from time of planning.
d. all of the choices.
24. Using the cash basis for determining his income a farmer may include which of the
following items in his gross income?
a. Amount of cash or the value of merchandise or other property received from sale
of livestock and produce which were raised during the taxable year or prior years
received from sale of livestock and farm produce raised in the farm.
b. Profit from sale of any livestock or other items which were purchased.
c. Gross income from all other sources.
d. All of the choices
25. In the case of a farmer reporting in accrual basis, his gross profits are ascertained by:
I. Adding to the inventory value of livestock and products on hand at the end of the
year the amount received from the sale of livestock products, and miscellaneous
receipts for hire of teams, machinery and the like during the year.
II. Deducing from the sum the inventory value of livestock and products on hand at
the beginning of the year and the cost of livestock raised or purchased during the
year.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
26. A farmer under accrual basis has the following data for the year.
Beginning inventory:
Livestock and farm products raised in the farm P60,

000
Livestock and farm products purchased the previous year 30, 000
Ending inventory:
Livestock and farm products raised in the farm
100,000
Livestock and farm products purchased
80,000
Sales of livestock and farm products raised and purchased 120,000
Cost of livestock and farm products purchased during the year
100,000
Miscellaneous receipts:
Gain on sale of work, breeding or dairy animals 30,000
Gain on sale of farm equipment and machinery 10,000
Hire of tractor 20,000
Hire of teams like hire of carabaos or horses 6,000
Others 4,000
How much is his gross income?

a. P 370,000
b. P 270,000
c. P 180,000
27. First statement: Gain or loss from the sale of goodwill results only when the business, or
part of it, to which the goodwill attaches is sold in which case the gain or loss will be
determined by comparing the sale price with the cost or other basis of the assets including
goodwill.
Second statement: income from expropriation (forced sale) is income from sale or
exchange and any profit derived therefrom is,
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the second statement is correct.
d. Only the first statement is correct.
28. In computing gain or loss from the sale or other disposition of property acquired as gift or
donation, the basis of cost shall be the :
a. Fair market value, date of acquisition
b. Latest inventory value.
c. Purchase price plus expenses of acquisition.
d. Same as it would be in the hands of the donor.
29. In computing gain or loss from the sale or other disposition of property acquired as
inheritance, the basis of cost shall be the:
a. Fair market value, date of acquisition/inheritance.
b. Latest inventory value.
c. Purchase price plus expenses of acquisition.
d. Same as it would be in the hands of the decedent.
30. Which of the following is not an income of the lessor under a lease contract?
a. The consideration for the use of the property paid periodically by the lessee to the
lessor
b. Obligations of the lessor to third parties paid by the lessee
c. Advance rentals in the nature of prepaid rent.
d. Amount received in the nature of security deposit.
31. The lessor may report as income at the time when such buildings or leasehold
improvements are completed the fair market value of such buildings or leasehold
improvements subject to the lease.
a. Annual or spread out method
b. Lump sum or outright method
c. Percentage of completion method
d. Completed contract method
32. The lessor may spread over the life of the lease the estimated depreciated value of such
buildings or improvements at the termination of the lease and report as income for each
year of the lease an aliquot part thereof.
a. Annual or spread-out method
33. (Phil. CPA Modified) Mr. C Conte bought a 2,000 square meter land at a cost of
P500,000. He leased the land Mr. D. Damian at an annual rental of P40, 000. The term of
the contract of lease was 15 years. The contract of the lease provided that Mr Damian will
construct a building on the land, which will belong to the lessor at the end of the term of
the lease or at the termination of the lease. The building was constructed for a total cost
of P400, 000 and has an estimated useful life of 20 years which was the basis of a
straight-line method of depreciation. The remaining term of the lease when the building
was completed was 14 years.
How much was the income from the lease contract in the year the improvement was
completed assuming Mr Conte will report his income from leasehold improvement using
outright or lump sum method?
a. P160, 000
b. P114, 290
c. P120, 000
d. P 48, 587
34. Using the same data in the preceding number, how much was the yearly income assuming
Mr Conte will spread his income from leasehold improvement over the term of the
contract of lease?
a. P160, 000
b. P114, 290
c. P120, 000
d. P 48, 587
35. Using the same data in the preceding number, how much was the income of Mr Conte in
the 12th year, assuming the contract of lease was terminated after 11th year or at the
beginning of the 12th year due to the fault of the lessee?
a. P160, 000
b. P114, 290
c. P120, 000
d. P 48, 587
36. Using the same data in the preceding number, how much was the deductible loss of the
lessor assuming the leasehold improvement was destroyed at the beginning of the 10th
year of the lease of contract and there was insurance of P30, 000 and salvage value of
P20, 000?
a. P68, 568
b. P38, 568
c. P18, 568
d. None
37. One of the following does not constitute gross income.
a. Income earned by corporate sinking fund
b. Amount received through a compromise agreement with the government for the
latter’s unlawful encroachment of a right to a portion a landed estate, insofar as
said amount exceeds the purchase price of the portion of land.
c. Income from expropriation (forced sale) of land.
38. ( Phil. CPA) if an individual performs services for a creditor who in consideration thereof
cancels the debt, the cancellation of indebtedness may amount to a:
a. Gift
b. Capital contribution
c. Donation inter vivos
d. Payment of income
39. (Phil. CPA) Which of the lease agreements will the amount received by the lessor in
consideration for the lease of his property shall not be considered as rent income?
a. Financial lease
b. Condition mortgage
c. Lease-purchase
d. Pacto de retro arrangement
a. Gains, profits and income are to be included in the gross income for the taxable
year in which they are received by the taxpayer, unless they are included when
they accrue to him in accordance with approved method of accounting followed
by him.
b. If a person sues in one year on a pecuniary claim or for property, and money or
property is recovered on a judgment therefore in a later year, income is realized in
that year, assuming the money or property would have been income in the earlier
year if then received.
c. Bad debts or accounts charged off because of the fact that they were determined
to be worthless, which are subsequently recovered, whether or not by suit,
constitute income for the year in which recovered, regardless of the date when
amounts were charged off.
41. The recovery of the account previously written off would constitute taxable income only
if in the year of recognition of being worthless, the write-off resulted in a reduction of a
taxable income.
a. Reciprocity rule
b. Equity of incumbent rule
c. Tax benefit rule
d. Materiality rule
42. One of the following is considered an income for income taxation.
a. Advance in the value of the person or a corporation
b. Increase in book value of real property and other fixed assets of a corporation as
a result of their re-appraisal
c. Net increase in the value of livestock or increase of its inventory
d. Items of gross income which have been credited or set apart for the taxpayer
without restriction
a. Direct dividend is one where the paying corporation acknowledges that the
distribution is dividend payment
b. An indirect dividend is a distribution of profits disguised as a payment for
services, properties, etc.
c. Dividend paid out of the income of the corporation earned before January 1, 1988
is not taxable to the receiving stockholders
d. A dividend paid in shares of stock of another corporation held as investment is a
stock dividend.
44. Which of the following is incorrect?
a. A stock dividend constitutes income if it gives the shareholder an interest different
from that which his former stock represented.
b. When there is only one class of stock issued and outstanding at the time of the
stock dividend, the dividend will not result in a change in the proportionate
interests of the shareholders in the net assets of the corporation, hence, the stock
dividend is not taxable.
c. When a stockholder receives a stock dividend which is taxable income, the
measure of income is the par value of the shares of stock received.
d. A stock dividend represents the transfer of surplus to a capital account.
45. (Phil. CPA) if a stockholder receives a taxable stock dividend, what is the measure of
income applicable to him?
a. Par value of the shares on the date he receives them
b. Fair market value of the shares on the date of declaration
c. The adjusted cost of the old shares and the new shares of the corporations
d. The book value of the shares of the preceding calendar year
46. (Phil. CPA) a corporation receives its own shares of stock in exchange for the property.
What is the basis of the gain or loss?
a. The gain or loss shall be based on the fair market value of its shares only.
b. The gain or loss shall be based solely on the cost of the property.
c. The gain or loss shall be based on the fair market value of its own shares and the
cost of the property.
d. There is neither gain nor a loss.
47. (Phil. CPA) if a corporation distributes its assets to its stockholders , this kind of a
corporate distribution which is recognized in the Tax Code is a:
a. Stock dividend
b. Property dividend
c. Cash dividend
d. Liquidating dividend
48. (Phil. CPA) if a corporation distributes its assets to its stockholders upon dissolution, this
kind of corporate distribution will result in:
a. Stock dividend
b. Property dividend
c. Cash dividend
d. Liquidating dividend
49. (Phil. CPA Modified) During 2004, Juan Kwan received the following income:
Interest from Philippine Treasury Certificates P4,
000
Refund pertaining to 2003 income tax
500
The total amount of interest subject to tax in Kwan’s 2004 income tax return was:
a. P4, 500
b. P4, 000
c. P500
d. Zero
50. (Phil. CPA) Jose Josef filed Form No. 1700 for the taxable year. In July 2004, he received
an income tax refund of P9, 000, plus interest of P100, for overpayment of 2003 income
tax. What amount of the tax refund and interest were taxable in Josef’s 2004 income tax
return?
a. Zero
b. P100
c. P9, 000
d. P9, 100
51. Which of the following will constitute a taxable income?
a. Prize won in an essay contest the recipient joined
b. The Nobel Peace Prize
c. Prize won as most valuable amateur player in an international sports competition
d. Award not exceeding the amount set by law for being a model employee
52. Which of the following tax refunds constitutes income?
a. Refund of Philippine income tax
b. Refund of estate tax
c. Refund of ½ % of 1 % stock transactions tax
d. Refund of percentage tax
53. Which of the following damage recovery is taxable?
a. Amount recovered from libel suits
b. Amount recovered in patent infringement suits
c. Amount recovered from breach of promise to marry
d. Amount recovered due to alienation of affection.
FAR EASTERN UNIVERSITY
SILANG, CAVITE
Integrated Review on Taxation April, 2021

Quiz 02 Instructor: John Bo S. Cayetano
MCQ:
1. Progressive regular income tax does not apply to a
A.Non-resident alien C. Non-resident citizen
B.Resident alien D. Resident citizen
2. The highest marginal income tax rate for individual income taxpayer is
A.25% C. 30%
B.32% D. 35%
3. A taxpayer collected the following passive income during the year:
Passive income Philippines Abroad

Interest income from banks P300,000 P800,000
Royalties from books 200,000 100,000
Rent properties 400,000 200,000
What is the amount to be reported in gross income if the taxpayer is a resident citizen?
A. 900,000 C. 1,500,000
B.1,100,000 D. 2,000,000
4. What is the reportable gross income assuming the taxpayer is a resident alien?
A.0 C. 900,000
B.600,000 D. 400,000
5. In 2021, the taxpayer received the following prizes and winnings:
Passive income Philippines Abroad

Prizes P 10,000 P 400,000
Winnings 400,000 100,000
What is the reportable item of gross income if the taxpayer is respectively is a resident citizen
and a non-resident citizen?
RC NRC
A.500,000 0
B.510,000 10,000
C.0 500,000
D. 910,000 410,000
6. What is the reportable item of gross income if the taxpayer is a domestic corporation and a
resident foreign corporation, respectively?
DC RFC
https://www.coursehero.com/file/139593470/estate-tax-1docx/
A.500,000 0
B.510,000 10,000
C.910,000 410,000
D. 500,000 10,000
7. Mr. Asuncion received the following royalties from the following sources:
Mining claims P 150,000

A novel on seduction and 250,000
love
Basic accounting textbook 80,000
Music album 40,000
What is the total amount to be reported in gross income?

A.0 C. 400,000
B.150,000 D. 520,000
8. Ms. Allyza is employed in JBC Corporation. She has the following for the current year:
Statutory minimum wage P 175,000

Overtime pay 40,000
Night-shift differential 25,000
Commission from the same employer 20,000
Total P 160,000
How much is the exempt amount?

A.260,000 C. 20,000
B.240,000 D. None of the choices
9. XYZ Corporation is a foreign corporation engaged in business in the Philippines. During the
year 2021, its income and expenses are shown below:
Gross income, Philippines P 20,000,000

Business expenses, Philippines 5,000,000
Business expenses, South Korea 70,000,000
Business expenses, South Korea 3,000,000
Interest income on dollar deposit PNB- 500,000
Manila
Yield on money market placement in South 1,000,000
Korea
How much is the Philippine income tax due and payable?

A.4,500,000 C. 3,000,000
B.3,750,000 D. 4,000,000
10. Assuming the corporation is not engaged in business in the Philippines, how much is the
final withholding tax in the Philippines?
A.6,000,000 D. 3,750,000
B.5,000,000 D. 4,000,000
1. It is important to know the source of income for the tax purposes (i.e., from within and
without the Philippines) because:
A.Some individuals and corporate taxpayers are taxed on their worldwide income while others
are taxable only upon income from sources within the Philippines.
B.The Philippine imposes income tax only on income from sources within
C.Some individual taxpayers are citizens while others are aliens
D. Export sales are not subject to income tax
2. Which of the following shall be treated as derived entirely from sources without the
Philippines?
A.Gains, profits and income derived from the purchase of personal property within and its sale
without the Philippines.
B.Gains, profits and income derived from the purchase of personal property without and its
sale within the Philippines
C.Gain from the sale of shares of stock in a domestic corporation regardless of where the said
shares are sold
D. All of the choices
3. Which of the following fringe benefits shall not be subject to the fringe benefit tax?
A.Benefits given to the rank and file employees, whether granted under a collective bargaining
agreement or not.
B.Fringe benefits required by the nature of, or necessary to the trade, business or profession of
the employer.
C.Fringe benefit given for the convenience or advantage of the employer.
D. All of the choices.
4. A insured his life for P10,000,000. In case A dies, the proceeds of the life insurance shall be:
A.Excluded from gross estate if the if the beneficiary is the estate, executor or administrator
whether revocable or irrevocable.
B.Part of gross income if the beneficiary is a third person and the designation is revocable
C.Part of the gross estate if the beneficiary is a third person and the designation is irrevocable
D. Excluded from gross income whether beneficiary is revocable or irrevocable
5. A acquired his residential land in 2002 at a cost of P1,000,000. He sold the property on
January 1, 2021 with a fair market value of P5,000,000 for a consideration of P4,000,000.
Within 18 months, he purchased his new principal residence at a cost of P7,000,000. How
much is the capital gains tax?
A.300,000 C. 75,000
B.240,000 D. 0
6. Using the same data, except that A acquired a his new principal residence at a cost of
P3,000,000, how much is the capital gains tax?
A.300,000 C. 240,000
B. 75,000 D. 0
7. DEF College, a private education institution organized in 2015 had the following data in
2021:
Tuition fee P 4,800,000
Rental income 5,200,000
Total school expenses 9,450,000
Assuming the asset of the school does not exceed P100,000,000, the income tax payable for
2021 is
A.110,000 C. 137,500
B. 5,500 D. 165,000
8. XYZ Corporation, a domestic corporation had the following data during the calendar year
2021:
Gross income from business P

1,000,000
Dividends from:
Domestic corporation 100,000
Foreign corporation, 90% of the gross income was derived from the 100,000
Philippines
Philippines
Philippines
Assuming that not all of the exemption requirement for the dividends from foreign corporation
is met (e.g., two years holding perio), the total taxable gross income is
A.1,320,000 C. 1,220,000
B.1,148,000 D. 1,150,000
9. A has 4,000 shares of investment in the common shares of Delightful Corporation, costing
P500,000. During the current taxable year, he received from Delightful Corporation a
dividends amounting to 24,000. If A is a resident alien, the dividend is
A.Subject to final tax if Delightful Corporation is a domestic corporation
B.Exempt from income tax if Delight Corporation is a resident foreign corporation
C.Part of gross income if Delightful Corporation is a domestic corporation
D. Taxable if the 24,000 is in the form of stock dividends
10. Exclusions from gross income, except:

A.Interest on the price of land covered by the Presidential Decree on land reform
B.Interest payment on proceeds of life insurance held by the insurer
C.GSIS, SSS, Philhealth and Pag-ibig contributions and union dues of individuals
D. Gains realized by an investor upon redemption of shares of stock in a mutual fund
company.
FRINGE BENEFITS TAX
1. The following concepts denote exemption from the fringe benefits tax, except
a. convenience of the employer
b. necessity to the business or trade
c. welfare and benefits of the employee
d. de minimis benefits
2. With regard to the amount on which the fringe benefit tax rate is applied, which statement is wrong? The tax
benefit rate is applied on
a. The monetary value of the fringe benefit
b. The gross-up monetary value of the fringe benefit
c. The amount deductible by the employer from gross income
d. Both accounts of the fringe benefit and the fringe benefit tax
3. The following fringe benefits are not subject to fringe benefit tax, except
a. if required by the nature of or necessary to the trade, business or profession of the employer
b. contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization
benefits plans
c. benefits given to the rank and file employees.
d. if given for the convenience or advantage of the employee
4. Basic rules on fringe benefits tax, except

a. Fringe benefits given to the rank and file employees are not subject to fringe benefits tax
b. Fringe benefits given to a supervisory or managerial employee are subject to fringe benefits tax
c. De minimis benefits whether given to rank and file employee or to supervisory or managerial employee are
not subject to fringe benefit tax
d. The fringe benefit tax is a tax imposed on the managerial or supervisory employee
5. As a rule, fringe benefit furnished or granted in cash or in kind by an employer to an individual employee maybe
subject to the fringe benefit tax, if given to
A. Rank and file employees B. Managerial employees C. Those holding supervisory positions
a. Only A and B b. Only A and C c. Only B and C d. A, B and C
6. The fringe benefit tax is

A. Imposed on the employer B. Withheld at source C. Deductible expense by the employee
a. Only A and B b. Only A and C c. Only B and C d. A, B and C
7. Which of the following is subject to fringe benefit tax?

a. compensation income of the rank and file employees
b. fringe benefit of the rank and file employees
c. compensation income of the managerial employees
d. fringe benefit of the managerial employees
8. Which of the following statements is correct?

a. Fringe benefits given to employees is subject to fringe benefits tax
b. Fringe benefits given to employees is exempt from fringe benefits tax
c. If the fringe benefits is taxable, the tax will be paid by the employer
d. Fringe benefits maybe given to managerial, supervisory and rank and file employees
https://www.coursehero.com/file/24626026/CPAR-Fringe-Benefit-Taxpdf/
9. Daily meal allowance for overtime work is a de minimis if not exceeding what percent of the basic minimum
wage?
a. 10% b. 15% c. 20% d. 25%
10. Facilities or privileges furnished or 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, or
efficiency of his employees.
a. fringe benefit b. fringe benefit tax c. de minimis d. grossed-up monetary
11. the following fringe benefits are not subject to fringe benefits tax, except:
a. Fringe benefits given to the rank and file employees, whether granted under a collective bargaining agreement
or not
b. Contributions of the employer for the benefit of the employees to retirement, insurance and hospitalization
benefits plan
c. De minimis benefits, as defined in the rules and regulations to be promulgated by the Secretary of Finance,
upon recommendation of the Commissioner.
d. Fringe benefits furnished or granted by the employer to its managerial and supervisory employees.
12. Which statement is wrong? The fringe benefits tax is

a. imposed on the employer
b. imposed on the rank and file employee if the amount of the benefit exceeds the ceiling allowed by the tax
code
c. withheld at source
d. deductible by the employer
13. A Corporation gave the following cash benefits to a rank and file employee in 2011:
Uniform allowance P 5,000
Rice subsidy 21,000
Monetized unused leave credits (12 days) 9,000
Safety achievement award 10,000
Medical allowance to dependents of the employee 2,000
Medical benefits 12,000
13th month pay 16,000
Christmas bonus 16,000
The fringe benefits that shall be considered as part taxable income is

a. P 10,000 b. P 20,000 c. P 18,000 d. P 8,000
14. In 2012, A Corporation allows its Sales Manager to incur expenses subject to reimbursement, as follows:
Electricity (Meralco) – 70% in the name of A Corporation P 20,000
Water (Maynilad) -70% in the name of A Corporation 2,000
Grocery (SM) 10,000
Gasoline of Company car 12,000
Representation and Transportation 4,000
The amount subject to fringe benefits tax is
a. P48,000 b. P25,400 c. P15,400 d. P16,600
15. The grossed-up monetary value of fringe benefit subject to fringe benefit tax received by a non-resident alien
individual not engaged in trade or business in the Philippines is computed by dividing the monetary value of the
fringe benefit by
a. 75% b. 25% c. 85% d. 15%
***16-17
As a means of promoting the health , goodwill, and efficiency of his employees, employer A gave rank and file
employee B the following fringe benefits in 2012:
a. Monetized unused leave credits of 15 days P 9,000

b. Rice Subsidy 24,000
c. Uniform and clothing allowance 8,000
d. Achievement award for length of service in the form of tangible 15,000
property
e. Gifts given during Christmas and major anniversary celebrations 10,000
f. 13th month pay 18,000
16. The amount of taxable fringe benefits is

a. P30,000 b. P10,000 c. P23,000 d. P11,000
17. The employer’s deductions for the benefits given

a. P23,000 b. P18,000 c. P66,000 d. P84,000
18. The following data belong to A Corp. for the year 2010
a. Educational assistance to supervisors and their children P 100,000
b. Employer’s contribution for the benefit of the employees to retirement, insurance 80,000
and hospitalization benefit plans
c. Year’s rental for an apartment paid by the Co. for the use of its comptroller 120,000
The fringe benefits tax due is
a. P75,294 b. P103,529 c. P141,176 d. P112,941
19. A Corp., a regional operating headquarters of a multinational Corp. established in the Phils. Provided its employees
cash and non-cash fringe benefits in 2010 as follow:
Total amount of fringe benefits P1,000,000
60% of said amount was given to rank and file employees
40% of said amount was given to corporate officers as follow:
a. to resident citizens 45%
b. to non-resident aliens not engaged in business in the Phils. 35%
c. to special aliens and Filipino employees 20%
The fringe benefits tax due is
a. P145,489 b. P188,235 c. P84,706 d. P60,704
20. A Co., paid a monthly salary of P100,000 and the monthly rental of P68,000 for a condominium unit for the
General Manager.
Determine the monthly fringe benefit tax payable (16,000)
21. B Co., owns a condominium unit which is being used by the President of the corp.. It has a fair market value per
Real Property Tax Declaration of P2,100,000 and a zonal value of P3,000,000.
Determine the monthly fringe benefit tax due (8,824)
22. Mr. A is a mining engineer employed by B. Co., a mining firm. The Co.’s mine is in Minndanao. Mr. A was
provided by the Co. with living quarters at the mine site. The fair rental value of the living quarters is P15,000 a
month.
Determine the monthly fringe benefit tax due (0)
23. In addition to other fringe benefits, Mr. B, a Chief Accountant, availed of the car plan of his employer, C Co.,
Under the plan, Mr. B shouldered only fifty percent (50%) of the cost of the car. Mr. B paid P340,000 for the car.
The car was registered in the name of Mr. B. the Co. paid another P340,000.
Determine:
a. The fringe benefit tax due (160,000)
b. The deductible expense of the employer. (500,000)
24. In 2010, A company purchased a second hand car for its Chief Accountant as a fringe benefits. The cash purchases
price of the car is P120,000, but the company paid P30,000 as down payment plus four equal annual instalment of
P30,000 (P120,000 plus P30,000 interest). The ownership was transferred to the chief accountant.
25. In 2010, A, the sales manager, purchased a brand new car amounting to P500,000 of which P200,000 was
contributed by the company as his fringe benefit.
26. In 2010, ABC Corp. hired Miss A as sales manager for cosmetics. She was given the following compensation and
fringe benefit:
Salary P 200,000/month
Three maids 4,000 per maid/month
Personal driver 8,000/ month
Home owner’s Association dues 1,200/year
27. In 2012, A, the owner of Victory Supermarket lends P100,000 to B, the supermarket manager. It is stipulated in
their agreement that the amount should be paid in one year with an annual interest of 3%.
Determine the monthly fringe benefit tax due (4235/4=1059)
28. In 2012, Mr. A the Vice President for finance of X Corp. incurred the following expenses by attending a three-day
foreign business convention:
Plane tickets (USA travel)

First class $ 1,000
Economy 500
Hotel accommodation (USA) 2,700
Inland travel 600
Assume $1.00 = P50
Determine the monthly fringe benefit tax due assuming that the business convention was:
a. With documentary evidence (49,412) b. Without documentary evidence (112,941)
29. During the taxable year 2010, A Corp. assigned its own residential building as a residential building as a residential
house of its Marketing Manager. The FMV of the said property as determined by the CIR and the fair market value
of its current Real Property Tax declaration amounts to P9,000,000 & P10,000,000, respectively.
Determine the monthly fringe benefit tax due for the month of January. (9,804)
30. In 2010 ABC Corporation paid for the annual rental of a residential house used by its general manager amounting
to P136,000. The entry to record the benefits is
a. Fringe Benefit Expense P 136,000

Fringe Benefit Tax Expense 64,000
Cash P 200,000
b. Fringe Benefit Expense P 136,000
Cash P 200,000
c. Fringe Benefit Expense P 68,000
Cash P 168,000
d. Fringe Benefit Expense P 68,000
Cash P 132,000
31. Identify whether or not the following are subject to fringe benefits tax:
a. Fringe benefit required by the nature of or necessary to trade, business of the employer
b. Fringe benefit for the convenience or advantage of the employer
c. Fringe benefit given to rank and file employees
d. Housing privilege of the AFP
e. Housing units situated inside or adjacent to business or factory (located within 30 meters from the perimeter of
the business)
f. Temporary housing for an employee who stays in the housing unit for 3 months or less
g. Representation and entertainment allowances which are fixed in amount and regularly received by employee
h. Use by employee of aircraft (including helicopters) owned and maintained by the employer
i. Cost of economy and business class airplane ticket for foreign travel
j. De minimis benefits
k. Educational assistance granted to employees’ dependents through competitive scheme under scholarship
program of the company
l. Cost of premiums borne by the employer for the group insurance of his employees
m. Contributions of employer for the benefit of the employee under SSS and GSIS laws
n. Contributions of the employer for the benefit of the employees to retirement, insurance and hospitalization
benefit plam.
1.
Marjorie Alcoran, an American Management Expert is hired by a Philippine

corporation to assist in its organization and operation for which he has to stay
in the Philippines for 5 months. He came to the Philippines for this definite
purpose but the nature of his job may require him to extend his stay and live
temporarily in the Philippines. The American management expert intends to
leave the Philippines as soon as his job is done.
2.
For income tax purposes, the American management expert shall be classified
as a:
a. resident alien.
b. nonresident alien engaged in trade or business.
c. nonresident alien not engaged in trade or business.
d. resident citizen.
Answer: A
2. A citizen who has been previously considered as a nonresident 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 a nonresident
citizen for the taxable year in which he arrives in the Philippines with respect
to his:
a. income derived from sources abroad until the date of his arrival in the Philippines.
b. income derived from sources within the Philippines.
c. income derived from sources abroad until the last day of the calendar year.
d. income derived from sources within and outside the Philippines.
Answer: A
3. Ms. Allyza is employed in JBC Corporation. She earns the following the
current year:
Statutory minimum wage, inclusive of the 13th month pay P175,000

Overtime pay 40,000
Commission from the same employer. 20,000
Total. P260,000

a. P260,000
b. P240,000
c. P20,000
Answer: B
Solution:
Basic statutory minimum wage. P175,000
Overtime pay. 40,000
Night-shift differential. 25,000
Total. P 240,000
a.
In the case of corporations adopting the fiscal-year accounting period, the

taxable income shall be computed without regard to the specific date when
specific sales, purchases and other transactions occur.
b.
b. The corporations' income and expenses for the fiscal year shall be deemed
to have been earned and spent equally for each month of the period.
c. The corporate income tax rate shall be applied on the amount computed by
multiplying the number of months covered by the new rate within the fiscal year by
the taxable income of the corporation for the period, divided by twelve.
Answer: D
5. They are constituted when one interests himself in the business of another by
contributing capital thereto, and sharing in the profits and losses in the proportion
agreed upon.
a. Joint stock companies
b. Joint accounts or cuentas en participacion
c. Associations
d. Joint ventures
Answer: B
6. One of the following is not a requisite of a taxable income.

a. There must be gain.
b.The gain must be realized or received.
c. The gain must not be excluded by law from taxation.
d. The gain must be that of resident or nonresident citizen.
Answer: D
7. The lessor may report as income at the time when such buildings or leasehold
improvements are completed the fair market value of such buildings or leasehold
improvements subject to the lease.
a. Annual or spread-out method
Answer: B
8. Which of the following dividends shall be considered as income not from sources
within the Philippines?
a. Dividends from a domestic corporation.
b. Dividends from a foreign corporation where less than fifty percent (50%) of the
gross income of such foreign corporation for the three-year period preceding the
declaration of such dividends was derived from sources within the Philippines.
c. Dividends from a foreign corporation where more than eighty five percent (85%) of
the gross income of such foreign corporation for the three-year period preceding the
declaration of such dividends was derived from sources within the Philippines.
Answer: B
9. Which of the following shall be treated as derived entirely from sources without the
Philippines?
a. Gains, profits and income derived from the purchase of personal property within
and its sale without the Philippines.
b. Gains, profits and income derived from the purchase of personal property without
and its sale within the Philippines.
c. Gain from the sale of shares of stock in a domestic corporation regardless of
where the said shares are sold. d. All of the choices.
Answer: A
10. An employee of X Company retired at the age of 50 years old after serving the
company for 10 years. He received retirement benefits from X Company amounting
to P2,500,000. The following year after his retirement, he was invited by Y
Corporation to join it as its Executive Vice-President. After serving Y Corporation for
10 years, he retired at the age of 61. Y Corporation gave him P3,000,000 retirement
benefits.
Which retirement benefits should be subject to tax?
a. Retirement benefits from X Company

b. Retirement benefits from Y Corporation
c.Both retirement benefits
d. Neither retirement benefits
Answer: B
a. Government Debt Instruments and Securities, including Bureau of Treasury issued

instruments and securities such as Treasury bonds (T-bonds) Treasure bills (T-bills)
and Treasury notes, shall be considered as deposit substitutes irrespective of the
number of lenders at the time of origination if such debt instruments and securities
are to be traded or exchanged in
b. Interest income derived from the Government Debt Instruments and Securities is
subject to final withholding tax payable upon original issuance of the deposit
substitutes.
c. The mere issuance of government debt instruments and securities is deemed
falling within the coverage of "deposit substitutes" irrespective of the number of
lenders at the time of origination, and therefore interest income derived therefrom
shall be subject to the applicable final withholding tax on deposit substitutes the
secondary market.
d. All of the choices.
Answer: D
12. Which of the following passive income is exempt from tax when received by
resident or citizen and nonresident 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 evidenced by certificates
prescribed by Bangko Sentral ng Pilipinas
C.Yield or any other monetary benefit from trust funds and similar arrangements
d. Other winnings
Answer: B
13. The documentary stamp tax on all sales, or agreement to sell, or memoranda of
sales, or deliveries, or transfer of due-bills, certificates of obligation, or shares or
certificates of stock is based on:
a.
purchase value
b.
c.
book value
d.
e.
par value
f.
g.
fair value
h.
Answer: C
14. In which of the following cases shall the expense account not be treated as
taxable fringe benefit but subject to the tax imposed Section 24 of the Tax Code?
a. Expenses incurred by the employee but which are paid by his employer
b. Expenses paid for by the employee but reimbursed by his employer.
c. Personal expenses of the employee (like purchase of groceries employer. for the
personal consumption of the employee and his family members) paid for or
reimbursed by the employer to the employee whether or not the same are duly
receipted for in the name of the employer.
d. Representation and transportation allowances which are fixed in amounts and are
regularly received by the employees a part of their monthly compensation income.
Answer: D
15. Which of the following is not a requisite for the deductibility of entertainment,
amusement and recreation expenses during the taxable year?
a. Paid or incurred during the taxable year
b. Directly connected to the development, management and operation of the trade,
business or profession of the taxpayer or related to or in furtherance of the conduct of
his trade, business or exercise of a profession
c. Not contrary to law, morals, public policy or public order
Answer: D
16. A taxpayer is engaged in the jewelry business. The car door is accidentally
slammed on her hand, breaking the setting of a ring which he is carrying as a sample
demonstration to a prospective buyer. The diamond falls from the ring and is never
found. The loss is:
a. not deductible because it was caused by carelessness.
b. deductible as a casualty loss.
c. not deductible because loss of jewelry is generally not
deductible
d. deductible because diamonds are precious.
Answer: B
17. If a taxpayer computes his income based on the value of his notes or accounts
receivable at their fair market value when received, which may be less than their face
value, the amount deductible for bad debts in any case is limited to the:
a face value when received.

b. net realizable value at the end of the year.
c. fair market value when received.
d. maturity value upon maturity.
Answer: C
18. The amount of any charitable contribution of property other than money shall be
based on the:
a. fair market value of said property.

b. acquisition cost of said property.
c. fair market value or acquisition cost of said property, whichever is lower.
d. fair market value or acquisition cost of said property, whichever is higher.
Answer: B
19. Mr. Jeraldven Cada created two (2) trust, designating Atty. Kit Sarmeinto and
the Philippine Trust Company as trustees. The common beneficiary of the two
(2) trust was his son, Jhon, married, and with two (2) qualified dependent
children. The following data were made available for the year 2018:
Trust No.1 Trust No.2

Gross Income P 600,000 P 700,000
Business expenses 300,000 400,000
Income distribution to beneficiary 100,000 200,000
Jeraldven Cada
Gross Income P 800,000
Business expenses 250,000
Income distribution receieved, gross
Of 15% creditable withholding tax 300,000
Question 1: How much was the tax due from each trust?
a. P 32,000 P10,500
b. 50,000 50,000
c. 25,000 5,500
d. None None
Answer: D
SOLUTION:
Gross Income P600,000 P700,000
Less: Business expenses (300,000) (400,000)
Income Distribution (100,000) (200,000)
Taxable net income P200,000 P100,000
Tax due [ Sec. 24 (A) Exempt Exempt
Question 2: How much was the due on the consolidated income?
a. P65,000 c. P37,000
b. P59,000 d. P10,000
Answer: D
SOLUTION:
Gross Income P1,300,000
Less: Business expenses (700,00)
Income distribution (300,00)
Taxable net income P 300,000
Tax due [Sec, 24 (A)] 250,000 Exempt
50,000 x 20% P 10,000
20. A proprietary private educational institution has presented the following data for
the year 2018:
Gross income, related activities P5,000,000

Gross income, unrelated activities (including
P2,000,000 rent from commercial spaces,
gross of 5% withholding tax) 7,000,000
Expenses, related activities 2,000,000
Expenses, unrelated activities 3,000,000
Dividend from a domestic corporation 100,000
How much is the tax payable?

a. P2,000,000 c.P700,000
b. P2,000,000 d. P600,000
Answer:B
SOLUTION:
Gross income, related activities P 5,000,000

Gross income, unrelated activities 7,000,000
Total P 12,000,000
Less: Expenses, related activities (2,000,000)
Expenses, unrelated activities (3,000,000) 5,000,000
Taxable net income P 7,000,000
Tax due (30%) P 2,100,000

Less: Withholding tax on rent 100,000
Tax payable P 2,000,000
21. A business partnership organized by partners Ba and Bo, equal partners, has the
following data for the year ended 2018:
Gross business income P1,000,000
Deductible expenses 300,000
Yield from deposit substitute, net of final
withholding tax 50,000
Interest income derived from a depository bank
under EFCDS, net of withholding tax 100,000
Gain from sale of shares of stock not traded in the
local stock exchange, net of capital gains tax 80,000
Withdrawals on the share in the net income of the
partners, net of withholding tax 150,000
Rent income, gross of 5% withholding tax 300,000
Payments of quarterly taxes, first 3 quarters 120,000
Question 1: How much is the taxable net income of the business partnership?
a. P1,300,000 c. P700,000
b. P1,000,000 d. None of the choices
Answer: B
SOLUTION:
Gross business income P1,000,000

Add: Rent income 300,000
Less: Deductible expenses (300,000)
Taxable net income P1,000,000
Question 2: How much is the tax payable of the business partnership?

a. P300,000 c. P165,000
b. P180,000 d. None of the choices
Answer: C
SOLUTION:
Tax due (1,000,000 x 30%) P 300,000

Less: Tax payments, first 3 quarters (120,000)
Creditable withholding tax on rent
(5% x P300,000) (15,000)
Tax payable P 165,000
Question 3: How much is the distributable net income of the partnership?

a. P930,000 c. P800,000
b. P880,000 d. P730,000
Answer: A
SOLUTION:
Taxable income P1,000,000

Less: Income tax (300,000)
Income after tax 700,000
Add: Yield from the deposit substitute 50,000
Interest income, (EFCDS) 100,000
Gain from the sale of shares of stock not traded
In the local stock exchange 80,000
Distributable net income P930,000
Question 4: How much is the final withholding tax on the share of each partner, if
any?
a. P88,000 c. P37,500
Answer: B
SOLUTION:
Ba(50%) Bo(50%)
Share in the distributable net income P 465,000 P465,000
Tax rate 10% 10%
Final withholding tax P 46,500 P 46,500
22. Mr.sherman , a Nigerian engineering residing in Estip, Nigeria, was contracted by

a domestic corporation to assemble in the Philippines an equipment it bought in
Nigeria. He started the work in Nigeria and spent 10 days there. The assembling job
was completed in the Philippines for another 20 days. He was paid P300,000 for his
job.
How much is the income from the Philippine source?

a. P300,000 c. P100,000
Answer: B
SOLUTION:
Income within -20/30 x 300,000 = P200,000
23. Jaja expects that within a week, the market price of Angeles Corporation shares,
which is the selling price at P10 per share, will go down. She does not have Angeles
Corporation shares so she calls her up her stockbroker and asks him to sell for her
10,000 shares of Angeles Corporation shares. Jaja and the stockbroker agree that
the sold shares are to be replaced within one week after the sale.
The stockbroker sells for jaja the10,000 shares at P10 per share. One week after,
when the sold shares are about to be replaced, the selling price of Angeles
Corporation shares rises to P16 per share, contrary to Jaja’s expectation.
Nevertheless, she orders her stockbroker to buy for her 10,000 Angeles Corporation
shares to cover the same number of shares she borrowed a week ago.
How much is the capital gain(loss) from the short sale?

a. P100,000 gain c. P60,000 loss
b. P50,000 gain d. P30,000 loss
Answer: C
SOLUTION:
Selling price (P10,000 x 10) P100,000

Less: Cost (P10,000 x 16) (160,000)
Loss on short sales P60,000)
24. An individual taxpayer held share of stocks as investment. During the current
year, he sold the shares he bought for P100,000 to a direct buyer for P180,000. He
incurred P30,000 selling expenses in connection with the sale.
How much was the capital gain tax on the sale if any?
a. P8,000
b. P7,500
c. P4,000
d. P2,500
Answer: B
SOLUTION:
Selling price P180,000

Less: Cost (100,000)
Selling expenses (30,000)
Capital gain P50,000
Capital gain
(P50,000x15%) P7,500
25. An individual taxpayer holds shares of stock as investment which he bought for
P500,000. During the current year, he sold it directly to a buyer for P750,000.
How much is the capital gains tax on the sale, if any?
a. P25,000
b. P20,000
c. P12,000
d. None
Answer: B
SOLUTION:
Selling Price P750,000

Capital gain P250,000
Capital gain (P250,000x15%) P37,500
26. An individual taxpayer invested P 300,000 in the common shares of SMC Corp.
During the current year, he sold these shares directly to a buyer for P 250,000.
How much is the capital gains tax on the sale, if any?
a. P 25,000
b. P 12,000
c. P 3,750
d. None
Answer: D
Selling Price P 250,000
Capital loss (P 50,000)
Capital gains tax _______
27. An alien manager employed by an offshore banking unit in the Philippines

received fringe benefits amounting to P 680,000 during the first quarter of the year
2017.
Question 1 – How much was the fringe benefit tax, if any?

a. P 226,667
b. P 217, 600
c. P 120,000
d. None
Answer: C
SOLUTION:
Grossed-up monetary value of
fringe benefit (P680,000/85%) P800,000
Tax rate 15 %
Fringe benefit tax P120,000
Question 2 – Assuming the offshore banking unit registered with SEC on January 1,
2018, how much was the fringe benefit tax, if any?
a. P306,154
b. P217,600
c. P120,000
d. None
Answer: A
SOLUTION:
Grossed-up monetary value of

fringe benefit (P680,000/65%) P1,046,154
Tax rate 35%
Fringe benefits tax P366,154
28. A VAT registered trader sold goods to a person with disability. The amount of the
sale, net of value, is P100. How much is the total amount to be paid by the person
with disability?
a. P122.000
b. P89.60
c. P80.00
d. None
Answer: B
SOLUTION:
Amount of sale P100.00

Less: 20% discount (20.00)
VATable sale 80.00
Add: 12% VAT (12%x80) 9.60
Total amount to be paid P89.60
Persons with disability do not enjoy VAT exemption unlike Senior Citizen.
29. Ms. Aj Raval, single, is a prominent independent contractor who offers

architectural and engineering services. Since RPSV’s career flourished, her
tota; gross receipts amounted to P4,250,000 for taxable year 2018. Her
recorded cost of service and operating expenses were P2,150,000 and
P1,000,000 respectively. She opted to avail of the 40% OSD.
Question 1. How much is the deductible OSD?

a. P1,700,000
b. P840,000
c. P 440,000
Answer: A
SOLUTION:
Gross receipts P4,250,000

OSD rate 40%
Operational Standard Deduction P1,700,000
30. A single resident citizen has two (2) qualified dependent children. Aside from the
two children, he is also supporting a person with disability who is not a relative and
his father who is 70 years old. During the year 2018, he earns and spends the
following:
Gross receipts from practice of profession P750,000
Cost of services 500,000
Expenses in connection with the practices
Of profession 50,000
Hospitalization insurances premium paid
starting July, 2014 at P500 per month 3,000
Question 1. How much is the taxable `net income using itemized deduction?
a. P450,000
b. P347,000
c. P 200,000
Answer: C
SOLUTION:
Itemized deduction
Gross receipts P750,000
Less: cost of services 500,000
Gross income 250,000
Less: Expenses 50,000
Taxable net income P200,000
Question 1. How much is the taxable `net income using optional standard deduction
(OSD)?
a. P450,000
b. P347,000
c. P 200,000
Answer: A
SOLUTION:
Optional standard deduction
Gross receipts P750,000

Less: optional standard deduction
(40% x 750,000) 300,000 300,000
https://www.coursehero.com/file/90761910/income-tax-7-007jpg/
COLEGIO DE DAGUPAN
Arellano St., Dagupan City
School of Business and Accountancy
INCOME TAXATION
Departmental Examination
(Midterms)
1. Which is not subject to final tax?

a. Gain on sale of shares of stock directly to buyer
b. Royalties from musical composition
c. Capital gain on sale of real property classified as capital asset
d. Share of a partner in the distributive net income after tax of a business
partnership
2. Which is subject to final tax?

a. Share of the distribute net income of a general professional partnership
b. Winnings not exceeding P10,000
c. Prizes not exceeding P10,000
d. Interest income from foreign bank deposits
3. Which of the following passive income is taxed on an annual and net basis?
a. Capital gain on sale of domestic stocks directly to buyer
b. Capital gain on sale of domestic stocks through the Philippine Stock Exchange
c. Capital gain on sale of real property classified as capital asset
d. Capital gain on sale of real property classified as ordinary asset
4. Capital gain on the sale of which capital asset below is conclusively presumed
a. Real property used in business c. Personal property not used in
business
b. Real property not used in business d. Personal property used in business
5. The passive income that is subject to a two-tiered final tax structure is

a. Capital gain on sale of stocks of a resident foreign corporation directly to
buyer
b. Capital gain on the sale of capital interest in a partnership
c. Capital gain on sale of sale of real property not used in business
d. Capital gain on the sale of stocks of a domestic corporation directly to buyer
6. Which is taxed at the lowest final tax rate among the following passive income?
a. Interest income received from a depositary bank under the expanded foreign
currency deposit system received by a resident citizen
b. Cash dividend from a domestic corporation
c. Royalties from books and other literary works
d. Interest income from long-term deposit with maturity of over five years
7. All of the following are subject to 7 ½% final tax on interest on FCDU Deposit,
except
a. Resident citizen c. Domestic corporation
b. Non-resident citizen d. Resident corporation
c. Resident alien
8. Dividends received by which of the following is not subject to dividend tax?

a. Resident individual c. Resident corporation
b. General professional partnership d. Non-resident foreign
corporation
9. Ambiong Bank of Baguio started operation in 1995 with the following information
on results of operation and dividend declarations.
Year Net Dividends
income declared
1996 P -
500,000
1997 1,500,00 -
0
1998 2,000,00 -
0
1999 1,000,00 -
0
2000 2,500,00 P 6,500,000
0
How much tax must have been paid in the 2000 dividend declaration of Ambiong
Bank?
a. P650,000 b. P390,000 c. P450,000 d. P0
10.The prizes on the following award or competition is generally taxable

a. Prize in a chess competition sponsored by an organization sanctioned by the
Philippine Olympic Committee.
b. “Most Charitable Person of the Year”
c. “Nobel Prize Winner”
d. Pageant competition
11. Mr. Acebo, a non-security broker or dealer, made the following dispositions
directly to buyer:
Date Domestic securities Gain/(Loss)

2/4/8 Abacus ordinary shares P
150,000-
5/8/8 PLDT bonds 150,000-
7/15/8 Globe preferred shares ( 80,0
00)
9/20/8 Globe common shares 50,000-
11/15/8 Metrobank ordinary 80,000-
shares
Compute the amount of capital gains tax payable (refundable) of Mr. Acebo for
the year 2008.
a. (P1,500) b. P15,000 c. P 0 d. P38,000
12. Which of the following entities is not exempt to the final capital gains tax
imposed on the sale, exchange and other disposition of real property?
a. Banks on their sale real and other assets acquired in the Philippines
b. Resident corporations on their land not used in business in the Philippines
c. Real estate developer or dealer on their sale of condo units
d. Resident citizen on his sale of one of his residence under foreclosure sale
13. The actual capital gain derived by an individual taxpayer may be included to all
income subject to progressive income tax when
a. It involves sales of real property to non-residents
b. It involves sales of real property to the government
c. It involves sales of personal property to non-residents
d. It involves sale of domestic stocks directly to taxpayer
14. Ms. Janet Ranillo, a real estate dealer, sold a real property for P200,000 on
October 29, 2007 in installment. The cost of the property was P150,000. The
terms of the sale agreed upon by Ms. Ranillo an the buyer were:
Downpayment P 40,000
Balance, payable in monthly installments
of P10,000 160,000
beginning November 29, 2007 until
fully paid
How much income will be reported in 2007?

a. P12,500 b. P15,000 c. P50,000 d. P75,000
15. Ms. Lyn Rosales, a real estate dealer, sold a real estate for P2,000,000 on
November 29, 2007. The cost of the property was P1,500,000. The terms of the
sale were as follows:
Downpayment P
400,000
of P100,000 1,600,00
beginning December 29, 2007 until 0
fully paid
How much was the income to be reported in 2007?

a. P100,000 b. P112,000 c. P125,000 d. P140,000
16. Compute the capital gains tax in the above case.

a. P 30,000 b. P 40,000 c. P120,000 d. P 0
The following problems relates to numbers 17 through 20:

17. Raff Escuela sold his principal residence for P5,000,000. His principal residence
was acquired at P2,000,000 and has a fair market value of P6,000,000 at the
date of sale. Within 18 months, Raff reconstructed his new principal residence for
P4,500,000.
Compute the capital gains tax to be deposited in escrow.

a. P 270,000 b. P 300,000 c. P360,000 d. P 0
18. The cost basis of the new residence is

a. P1,800,000 b. P1,500,000 c. P3,750,000 d.
P4,500,000
19. The amount of capital gains tax to be released to Raff is

a. P240,000 b. P270,000 c. P300,000 d. P324,000
20. Compute the cost basis of the new residence if it was acquired for P5,200,000.
a. P2,000,000 b. P2,200,000 c. P1,733,333 d.
P4,333,333
21. Which is not a requisite of the wash sales rule of securities?

a. The sale or other disposition of securities resulted to a loss
b. There was an acquisition or contract or option for acquisition of stock or
securities within 30 days before the sale or after the sale.
c. The stock or securities sold were substantially the same as those acquired
within the 61-day period.
d. The seller must be a dealer in securities in a short sale transaction.
22. The following are not substantially identical securities, except one
a. Common stock and preferred stock
b. Voting and non-voting common stock
c. Bonds with different interest rates or secured and unsecured bonds
d. Similar bonds with different maturity dates
23. To which of the following is the capital gains tax required to be filed? (Select the
exception.)
a. Authorized Agent Bank under the jurisdiction of the RDO where the seller is
required to register
b. Revenue collection officer
c. Duly authorized City or Municipal Treasurer of the RDO where the seller is
d. Office of the Commissioner of Internal Revenue
24. Which is incorrect? The calendar year accounting period is applicable to
a. individual income taxpayers only
b. taxpayers who do not keep book or with no annual accounting period
c. taxpayers with other than fiscal accounting period
d. individuals and corporations
25. Which is correct? The fiscal accounting period is applicable only to

a. domestic corporations. c. corporations and individuals by
election.
b. resident corporations. d. Any taxpayers who are not
individuals.
26. A short accounting period may arise under the following scenarios, except one.
Select the exception?
a. When a taxpayer dies.
b. When a business is dissolved.
c. When the Commissioner of Internal Revenue terminates the taxpayer’s
accounting period.
d. When an individual taxpayer changes his accounting period to a fiscal year.
27. DEF Corporation changed its accounting period from a calendar year to a fiscal
year ending every March 31. DEF Corporation should file its annual income tax
return not late than
a. April 15 c. June 15
b. August 15 d. July 15
28. Bee Jay, a resident citizen, changed its accounting period for internal reporting
purposes from a calendar year to a fiscal year ending every June 30 after a
significant change in the nature of his business. Bee Jay should file its annual
income tax not later than
a. June 30 b. September 15 c. October 15 d.
April 15
29. Gross income is reported partially in each taxable year in proportion to

collections made in such period as it bears to the total contract price refer to
a. Crop year basis method c. Percentage of completion basis
method
b. Accrual method d. Installment sales method
30. Which is incorrect regarding a change in accounting period by non-individual

taxpayers?
a. IF the change is from fiscal year to calendar year, a separate final or
adjustment return shall be made for the period between the close of the last
fiscal year for which return was made and the following December 31
b. If the change is from calendar year to fiscal year, a separate final or
calendar year for which return was made and the date designated as the
close of the fiscal year
c. If the change is from one fiscal year to another fiscal year, a separate final or
adjustment return shall be made for the period between the close of the
former fiscal year and the date designated as the close of the new fiscal year
d. If the change is from fiscal year to a calendar year, a separate final or
calendar year and the last fiscal year
31. Starting August, 2008, ABC Corporation changed its accounting period from a
fiscal year ending every June 30 to the calendar year. Which statement is
correct?
a. ABC Corporation should file an adjustment return on April 15, 2009 covering
the period of July 1, 2008 to December 31, 2008.
b. ABC Corporation should file an adjusted return on April 15, 2009 covering the
period of August 1, 2008 to December 31, 2008.
c. ABC Corporation should file an adjustment return on October 15 covering the
period of January 1, 2008 to June 30, 2008
d. ABC Corporation need not file an income tax return until April 15, 2009
32. Effective February 2008, DEF Corporation changed its accounting period from a
fiscal year ending every January 31 to another fiscal year ending every August
31. Which is correct?
a. DEF Corporation should file an adjustment return covering the period
covering August 31, 2007 to August 31, 2008.
b. DEF Corporation should file an adjustment return covering the period January
1, 2008 to August 31, 2008
c. DEF Corporation should file an adjustment return covering the period of
February 1, 2008 to August 31, 2008.
d. DEF Corporation should file an adjustment return covering the period of
August 31, 2008 to December 31, 2008.
33. Which is correct?

a. The installment method of reporting income is applicable only to dealers in
property.
b. The installment method can be availed only by any taxpayer when the initial
payment do not exceed 25% of the selling price of the property sold.
c. The casual sale of personal property cannot avail of the installment method if
the selling price is below P1,000
d. Dealers in real properties can always avail of the installment method.
34. On July 1, 2008, Eliazar sold a real property for P600,000. 10% down-payment is
due upon signing of the contract of sale. The balance is payable as follows: 15%
December 31, 2008; 50% March 31, 2009; 35% July 31, 2009
Since the property is classified as ordinary asset only the gain of P300,000 is
subject to progressive tax. How much of the gain is taxable in 2008?
a. P0 b. P6,000 c. P300,000 d. P70,500
35. The following accounts relates to book of Zeus, a dealer of household

appliances:
12/31/2006 12/31/2007
Installment sales P 1,000,000 P 2,000,000
Cost of installment sales 500,000 1,100,000
2007 Installment receivables - 500,000
2006 Installment receivables 300,000 50,000
How much taxable gain is to be reported in 2007?

a. P1,750,000 b. P800,000 c. P675,000 d. P900,000
36. Which is incorrect regarding change in accounting methods?

a. If the taxpayer changes from accrual to installment basis, he should include
the amounts received from sales or other dispositions of property made in
any prior year in the computation of his income for the year of change or any
subsequent year.
b. Any change in accounting method or accounting period require the BIR’s
approval
c. If a taxpayer adopted the cash basis and the accrual basis in computing
income earned on separate trade or business, he may opt to combine the two
income determined from the respective methods as a consolidated income
for tax purposes
d. If the taxpayer changes from accrual to installment basis, he should include
only receipts that relates to current sales or dispositions
37. On October 1, 2008, Vicky sold one of her business establishment (ordinary
asset). The land and building cost Vicky P10,000,000 and was sold for
P14,000,000. P500,000 was paid upon the signing of the contract. The
establishment is subject to P11,000,000 real mortgage and is to be assumed by
the buyer. Compute the amount taxable gain to be reported in 2008.
a. P500,000 b. P5,000,000 c. P4,000,000 d.
P625,000
38. On December 31, 2008, Carlo received P100,000 notes due April 1, 2009 as
payment for his business advisory services from his client. The notes can be
discounted at various bank at P96,000. Under deferred payment method, how
much is taxable in 2008 and in 2009?
a. P100,000; P0 c. P4,000; P96,000
b. P96,000; P4,000 d. P0; P100,000
39. The following computations were shown by the taxpayer as support of his GAAP
income under the accrual basis:
Gross profit from cash and credit sales P 500,000

Rental Income:
Cash rentals received P 300,000
Unearned rent, beginning 100,000
Unearned rent, end ( 50,000) 350,000
Other Income: P 850,000
Unrealized gain on trading securities 50,000
Total Income P 900,000
Determine the income for taxation purposes.

a. P800,000 b. P500,000 c. P900,000 d. P950,000
40. Mr. Mario was alleged to have under-declared his income during the previous
year. An examiner conducted an evaluation of Mr. Mario based on his statement
of assets and liabilities. The following information were available:
Declared asset, beginning of the year P

400,000
Discovered undeclared assets existing at the beginning of 500,000
the year
Declared liabilities, beginning* 200,000
Ending assets as evaluated, inclusive of discovered 1,000,000
undeclared assets
Ending liabilities as evaluated 150,000
*40% was discovered unsupported and apparently fictitious
In the same period, Mr. Mario donated a parcel of land out of its declared asset
with a declared value of P200,000. Mr. Mario also presented a lists of his
personal and family expenditures aggregating P150,000 during that year. Using
the net worth method, what is Mr. Mario’s possible income?
a. P70,000 b. P270,000 c. P420,000 d. P220,000
41. Income tax return may be filed on the following, except

a. Authorized agent bank c. Authorized City or Municipal
Treasurer
b. Collection agent of the BIR d. Barangay treasurer of the
taxpayer’s residence
42. Interest income from foreign currency deposits made abroad by a resident
citizen is subject to
a. 20% final tax b. 7 ½% final tax c. 4 ½% final tax d. regular
tax
43. Royalties on musical composition is subject to

a. 20% final tax b. 10% final tax c. 0% final tax
d. regular tax
44. The interest income on long-term deposit that is pre-terminated on the third
year is subject to
a. 0% b. 12% c. 20% d. 5%
45. Armando is a partner in a business partnership. At the end of 2010, he has a

total of P300,000 profit sharing on the after tax income of the partnership
inclusive of P120,000 salaries as a managing partner. Compute the amount final
tax to be withheld from Armando’s profit sharing.
a. P12,000 c. P30,000
b. P18,000 d. P 0
46. Assuming the same information above except that the partnership is a general
professional partnership, compute the final tax to be withheld? ______
47. Final taxes are generally withheld at source and does not require an income tax
return, which is an exception
a. Final tax on interest income from deposit
b. Final tax on royalties
c. Final tax on capital gain on sale of domestic shares of stock directly to buyer
d. Final tax on dividends
48. Which of the following is not subject to 20% final tax?

a. Interest income on long-term deposit of domestic corporation
b. Interest income on foreign loans
c. Interest income from money market placements or trust funds
d. Lotto winnings
49. Compute the total amount of income subject to final tax.

Yield from deposit substitute P
10,000
Interest income from bonds of a domestic 23,000
corporation
Property dividend declared by a foreign 40,000
corporation
Stock dividend declared by a domestic 50,000
corporation
Compensation income, net of P10,000 80,000
withholding tax
Prize on “Search for Mr. Sexy Body” 15,000
Royalties from books 24,000
Interest income on personal loans granted 8,000
to a friend
Salaries from a general professional 30,000
partnership
Salaries from a business partnership 20,000
a. P89,000 b. P99,000 c. P49,000 d. P69,000
50. Determine the total amount of income tax withheld if the taxpayer received the
following passive income during the year:
Interest on Peso bank deposit P
90,000
Royalties 36,000
Dividends 63,000
Share in the distributive income of a 72,000
joint venture
a. P46,000 b. P53,000 c. P38,700 d. P46,500
51. On January 1, 2008, Kevin purchased 1,000 P1,000 face value bonds of a
domestic corporation at face value. The bonds were dated January 1, 2007 and
mature on January 1, 2011. The bonds pay 12% annual interest every January 1.
If Kevin disposed of this investment directly to buyer on December 31, 2008 at
102, how much is the total final tax due?
a. P24,000 b. P25,000 c. P1,000 d. P0
52. On January 1, 2005, Helen invested P1,000,000 to RCBC Commercial Bank’s 5-

year, tax-free time deposit. The long-term deposit pays 15% annual interest
every January 1. In need of cash, Helen pre-terminated her investment on July 1,
2008. How much is the final tax due and the proceeds of Helen’s investment?
a. P9,000; P1,066,000 c. P18,750; P1,056,250
b. P63,000; P1,012,000 d. P30,000; P1,345,000
53. How much final tax is withheld in the interest income paid by the bank on
January 1, 2006?
a. P0 b. P18,000 c. P30,000 d. P7,500
54. Assuming the same information in the problem above, except that the
investment was made by a domestic corporation, how much final tax is withheld
in the year of pre-termination and the proceeds to the corporation?
a. P15,000; P1,060,000 c. P18,750; P1,056,250
b. P45,000; P1,030,000 d. P30,000; P1,345,000
55. Benito Mojica invested in an 8-year long-term deposit in Rizal Commercial

Banking Corporation amounting to P2,000,000 paying 10% interest semi-
annually. How much is the final tax to be withheld by Rizal Commercial Banking
Corporation if Benito Mojica pre-terminated his investment at the just after the
end of the third year?
a. P0 c. P30,000
b. P72,000 d. P120,000
56. What if Benito Mojica pre-terminates it just after the end of the fifth year?
c. P0 c. P50,000
d. P72,000 d. P200,000
57. Benedict rendered advisory services to Alexander in connection with the latter’s
tax compliance from May 2, to July 2, 2006. In July 2, 2006, Alexander paid him a
note with a face value of P100,000 payable a year after. The same note could be
discounted at the bank for 15% at the time of receipt. How much compensation
income and interest income is to be included in gross income?
e. P85,000; P0 c. P85,000; P7,500
f. P100,000; P15,000 d. P100,000; P0
58. Andromeda, a non-resident alien, rendered professional services to Philippine

company, a domestic corporation. The total consultancy fees agreed were
P1,000,000. How much should Philippine company withhold?
a. P100,000 b. P200,000 c. P250,000 d. P 0
59. Andromeda, a non-resident alien, invests in the 60-day Peso time deposit of
Metro Pilipino Bank. Andromeda earned P100,000 interest income. How much
final tax should Metro Pilipino Bank withhold?
a. P 0 b. P20,000 c. P25,000 d. P 30,000
60. Assuming the same information in the preceding problem except that
Andromeda is a non-resident corporation. How much final tax is to be withheld?
a. P 0 b. P20,000 c. P25,000 d. P 30,000
61. Andromeda, a non-resident alien, deposited $100,000 in the FCDU unit of

Universal Bank, a resident foreign bank. During the period, Andromeda earned
$1,000 total interest. The relevant exchange rate between the Peso and the
Dollar was P50:$1. How much final tax should Metro Pilipino Bank withhold?
b. P50,000 b. P100,000 c. P125,000 d. P 0
62. Sunrise Bank, a non-resident foreign bank, has substantial foreign currency
deposit at the FCDU unit of Banco Italiano, a resident foreign bank, totaling
$5,000,000. Total interest credited to Sunrise Bank was $600,000 equivalent to
P28,800,000 at the time of payment. How much is the final tax on the interest
received by Sunrise Bank?
g. P10,080,000 b. P5,760,000 c. P2,880,000 d. Exempt
63. The Gambling World, Inc. a foreign corporation, Inc. has been trying its luck with
the Philippine Charity Sweepstakes lotto. It spent P800,000 for losing PCSO lotto
tickets. Luckily, one ticket costing P10 won the P218,000,000 Superlotto 6/49
draw on July 24, 2007. How much is the deductible expense and the taxable
amount of winnings?
h. P10; P47,999,990 c. P800,000; P0
i. P800,000; P47,999,990 d. P0; P0
64. Which statement is incorrect?

a. Prize results from an effort.
b. Winning results from transaction dependent upon chance.
c. Prizes is subject to either regular tax or final tax
d. Winnings from the Philippines is always subject to final tax
65. The system of tax compliance wherein the employees does not have to make
computations nor file an income tax return at the end of the year
a. Final withholding tax scheme c. Substituted Filing of Tax Returns
b. Creditable withholding tax scheme d. Self-Assessment Method
66. The substituted Filing of Tax Return is applicable where (choose the exception)
a. The employee earns pure compensation income
b. The employee has only one employer
c. The tax withheld by the employer is correct
d. The employee is also engaged in the exercise of a profession
67. Creditable withholding tax rates shall not be less than ____ but not more than
____
a. 5%; 20% c. 1%; 32%
b. 1%; 20% d. 2%; 15%
68. Which is subject to final withholding taxes?

a. Interest on loans of by banks c. Dividends from foreign corporations
b. Prizes from abroad d. Book royalties
69. Which is subject to creditable withholding taxes?

a. Rent income c. Winnings from PCSO
b. Dividends from domestic corporations d. Interest income from long-term
deposits by corporations
70. The return for final withholding tax by withholding agent shall be filed not later
than
a. 20 days from the close of each calendar quarter
b. 25 days from the close of each calendar quarter
c. 23 days from the close of each calendar quarter
d. 60 days from the close of each calendar quarter
71. The return for creditable withholding tax by withholding agent shall be filed not
later than
a. the first day of the month following the close of the quarter during which
withholding was made
b. the 15th day of the month following the close of the quarter during which
c. the 25th day of the month following the close of the quarter during which
d. the last day of the month following the close of the quarter during which
72. The term “capital assets” includes

a. Stock in trade or other property included in the taxpayer’s inventory.
b. Real property not used in the trade or business of the taxpayer.
c. Real property primarily use for sale to customers in the ordinary course of
trade or business.
d. Property used in the trade or business of the taxpayer and subject to
depreciation.
73. Lots being rented when subsequently sold are classified as

a. Capital assets b. Liquid assets c. Ordinary assets
d. Fixed assets
74. Which is an ordinary asset for a realty developer?

a. Accounts receivables c. Real property held for development
and subsequent sale
b. Construction machineries d. Head office building of the developer
75. Which of the following accounting assets is not an ordinary asset?

c. Investment property c. Property, plant and equipment
d. Inventory d. Trading securities by a stock brokerage
firm
76. On July 1, 2009, Crislyn Riego sold shares of stock for P200,000. The shares
which were acquired for P140,000 acquire on June 1, 2007, have a par value of
P150,000, were held as investment, and were sold to a buyer under the following
terms:
Downpayment, July 1, 2009 P

20,000
Installment due, October 10, 30,000
2009
2010
2011
How much was the capital gains tax due in 2009?

a. P 500.00 b. P 450.00 c. P625.00 d. P750.00
77. How much was the documental stamp tax due?

a. P 600.50 b. P 525.25 c. P 562.50 d. P 612.50
78. To facilitate the disposal of his shares, Freddie sold his shares for P360,000 at
10% discount from its fair value. Even at discounted price, Freddie reports a gain
of P160,000. Compute the capital gains tax on the transaction.
a. P 21,000 b. P 11,000 c. P 16,000 d. P 15,000
79. Which of the following is not a requisite of installment payment of capital gains
tax in installment involving the sale of personal property?
a. Downpayment must not exceed 25% c. The item sold is not inventoriable
b. Selling price must exceed P1,000 d. Initial payment must not
exceed 25%
80. Abdul Rhamanam Ahmin, a non-resident alien disposed his stock investments in
a domestic corporations to Juan dela Cruz, a non-resident citizen, at a gain of
P300,000. Which statement is correct?
j. The sale is not subject to capital gains tax since the property involved is a
personal property is deemed located abroad.
k. The sale is not subject to capital gains tax as Juan dela Cruz, the buyer, is a
non-resident individual.
l. The sale is subject to capital gains tax even if the sale occurred outside the
Philippines.
m. None of these.
81. Meiko Acebo is a stock broker and holds 10,000 ordinary stock of San Miguel
Corporation, a domestic corporation, acquired at P100 per share. His valuation
for San Miguel Corporation indicates that San Miguel’s stocks will decline in the
near future. If Meiko sells his stock investment directly to a buyer, Zeus Millan, at
P115 per share, how much is the capital gains tax payable on the transaction?
a. P5,000 b. P10,000 c. P5,750 d. P 0
82-85. Ms. Shiela Longboan sold her residential house under the following terms:
Cash received, January 10, 2006 100,000
Amount received, June 10, 2006 100,000
Installment due, June 10, 2007 600,000
Additional Information:
Cost of the land 150,000
Mortgage assumed by the buyer 200,000
Mortgage on the land executed by the
buyer in 600,000
favor of the seller to guarantee
payment
Required: Compute the following:
82. Selling price
a. P 750,000 b. P 800,000 c. P 850,000 d. P1,000,000
83. Contract price
a. P 750,000 b. P 800,000 c. P 850,000 d. P1,000,000
84. Initial payments
a. P 100,000 b. P 200,000 c. P 250,000 d. P 150,000
85. Capital gains tax in 2006
a. P15,000 b. P17,647 c. P22,333 d. P 60,000
Univeristy of La Salette, Inc.
College of Accountancy
Dubinan East, Santiago City
PTAX 002 – Business and Transfer Taxation
Midterm Exam
General Instruction: This is a three-type assessment test. Kindly read the directions carefully.
For items requiring computations, no credit will be given for items without solution. This exam
is good for 3 hours only.
I. Multiple Choice. Choose the best possible answer among the choices given. One (1) point for
theory question and two (2) points for item requiring computation. (30 points)
1. Which will not inherit from the following group?

a. Grandchild from a deceased son of the decedent
b. A daughter of the decedent
c. Grandson from a living daughter of the decedent
d. An illegitimate child of the decedent
2. It is a mode of gratuitous acquisition of property out of the generosity of a person.

a. Succession
b. Donation
c. Loan
d. None of the above

a. Estate tax accrues as of the date of the actual possession or enjoyment of the estate by
the beneficiary.
b. Executor is the person appointed by a court to carry out the directions and request of
a decedent in his will and to dispose of his property according to his testamentary
provisions after his death.
c. Intestate succession arises when there is transmission of properties in the absence of a
will, or if there is a will, the same is void or lost its validity, or nobody succeeds in the
will.
d. All of the above.

a. Every will may be in writing and executed in a language not necessarily known to the
testator.
b. A holographic will is a will entirely written by a testator with his own hand and may
be witnessed or attested.
c. A person has unlimited right to make donations in his last will and testament.
d. The will of an alien residing abroad produces effect in the Philippines if made in
conformity with the formalities prescribed by law of the place in which he resides.
https://www.coursehero.com/file/93260719/Midterm-exam-Finaldocx/
5. Mortis causa transfer of property is effected:
a. When the property is received by the heir.
b. When the court awarded the ownership of property to a particular heir.
c. Upon the death of the decedent.
d. Upon payment of estate tax.
6. Statement 1: Inheritance refers to all the property, rights and obligations of a person which
are not extinguished by death and all which have accrued thereto since the opening of
succession.
Statement 2: Rights which are purely personal are not transmissible for they are
extinguished by death.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
7. Which of the following is not a compulsory heir?

a. Legitimate children and descendants, with respect to their legitimate parents or
ascendants
b. In default of letter a, legitimate parents or ascendants, with respect to their legitimate
children or descendants
c. Widow or widower
d. Relative by affinity
8. Which of the following is not a characteristic of donation mortis causa?

a. The transfer to the donee is irrevocable while donor is alive.
b. There is no conveyance of title or ownership to the donee before the death of the donor.
c. The transferor retains the full or naked ownership and control of the property while
alive.
d. The transfer should be void if the donor should survive the donee.
9. What is the maximum extension allowable in filing of the estate tax return?
a. 5 years
b. 2 years
c. 2 months
d. 30 days
10. What is the maximum extension allowable in filing of the estate tax return?
a. 5 years
b. 2 years
c. 2 months
d. 30 days
11. On January 30, 2021, Mr. Mapagbigay donated properties to various donees. When would
be the deadline for filing the return?
a. February 28, 2021
b. February 29, 2021
c. March 1, 2021
d. March 2, 2021

a. When an estate, under administration, has income-producing property, the annual
income of the estate becomes part of the taxable gross estate.
b. When an estate, under administration, has income-producing property and its income
during the year is distributed to the heirs, the income so distributed is taxable to the
heirs as part of their gross income for the year.
c. A special power of appointment authorizes the donee of the power to appoint only
from among a designated class or group of persons other than himself.
d. The donee-decedent of a special power of appointment only holds the property in trust,
hence, the property shall be excluded from the donee-decedent’s gross estate.
13. On June 30, 2020, Juan Dela Cruz passed away. The following unpaid taxes and losses
relate to his property, income on his property, and estate. Estate tax was filed and paid
early on December 31, 2020.
2019 Income tax from practice of profession P300,000; Income tax-practice of profession
from January to June 2020 100,000; Income tax of the estate, July to December 2020
200,000; Real property taxes for 2018 and 2019 150,000; Business taxes for 2019
100,000; Casualty losses due to typhoon on May 2020 85,000; Casualty losses due to
typhoon on August 2021 325,000.
The total allowable deductions from the gross estate of the decedent should be:
a. P550,000
b. P650,000
c. P750,000
d. P850,000
14. Properties owned by the spouses before and brought into the marriage will be classified
as: Under absolute community Under conjugal partnership
a. Community Conjugal
b. Exclusive Exclusive
c. Community Exclusive
d. Exclusive Conjugal
15. The fruits from exclusive property of each spouse due or received during the marriage are
classified as:
Under absolute community Under conjugal partnership
16. The fruits from exclusive property of each spouse due or received during the marriage are
classified as:
Under absolute community Under conjugal partnership
17. A nonresident alien died on March 10, 2018 leaving the following properties and
deductions: Shares, domestic corporation P500,000
Shares, foreign corporation 500,000
Tangible personal property 1,500,000
Deductible losses, indebtedness and taxes 500,000
Assuming there is no reciprocity, the estate tax due is
a. P96,000
b. P1,500,000
c. P66,000
d. P1,600,000
18. A filipino decedent, residing in U.S died in 2020 leasing the following:
Net Estate, Philippines 10,000,000
Net Taxable estate, USA 2,000,000
Estate tax paid in Canada 520,000
The estate tax credit is

a. P480,000
b. P600,000
c. P570,000
d. P630,000
19. Using, the same information above, the estate tax payable is:
a. 480,000
b. 600,000
c. 570,000
d. 630,000
20. Statement 1: Under the system of absolute community of property, the vanishing deduction
shall be charged against community property.
Statement 2: Under the system of conjugal partnership of gains, the vanishing deduction
shall be charged against exclusive property.
a. Both statements are correct
b. Both statements are incorrect
c. Only statement 1 is correct
d. Only statement 2 is correct
21. Statement 1: Judicial expenses for the settlement of the estate are deductible from the
gross estate of a decedent.
Statement 2: Medical expenses incurred before death are deductible from the gross estate of
a decedent.
a. Both statements are correct

b. Both statements are incorrect
c. Only statement 1 is correct
d. Only statement 2 is correct
a. Donation is a transfer of property for a consideration other than money.

b. As a rule, all persons who may contract to dispose of their property may donate.
c. Donor’s tax is imposed to natural and artificial persons.
d. A donation on which the donor's tax is not paid is a valid donation.
a. Any contribution in cash or in kind to a candidate, political party or coalition of parties

for campaign purposes shall be subject to donor’s tax.
b. Donation on account of marriage is not taxable if the marriage did not actually take
place.
c. Agreement between the donor and the donee that the latter shall pay the donor’s tax is
binding on the BIR.
a. Gift splitting is a form of tax evasion.

b. A donation may be exempt from donor’s tax but not necessarily a deduction from the
donor’s gross income.
c. Donation of a personal property worth 5,000 must be in writing.
d. Donation of real property worth P3,000 need not be in writing.
25. When a property is donated, the basis of the donor’s tax is
a. The cost of acquisition if acquired by purchase or the fair market value at acquisition
date, whichever is higher.
b. The agreed value by the donor and the donee.
c. The fair market value at the time of donation.
d. Any of the above
II. Comprehensive Problem. Provide your answers in good form. (40 Points)
Problem 1. Mrs. Itutumba, a resident of Naguilian, Isabela, died on June 8, 2019 exactly 15 years
after she got married to Mr.; Itutumba. Below is the inventory of present properties of the
decedent and her husband at the time of her death:
Cash in bank, savings deposit account P 18,670,000
Cash on hand 700,000
Receivable from their friend 250,000
Agricultural Land, located in Isabela and Cebu 7,850,000
Toyota Vios 2020 780,000
Toyota Wigo 2019 630,000
House and lot, residential 4,500,000
Motorcycle with a zonal value of 100,000. 150,000
Jewelries 2,700,000
Commercial Land located in Cagayan 1,250,000
Apartment in Makati City 4,700,000
Town House in Tagaytay 2,100,000
Total P 42,000,000
Additional information:
 The Commercial land and the town house were inherited by Mrs. Itutumba from her
father who died on February 2018. In the last will of Mrs. Itutumba, the commercial land
was designated to be given to a public high school in their town.
 The agricultural land in Cebu is a gift from Mrs. Itutuma’s grandmother in favor of the
spouses in celebration of their 5th wedding anniversary.
 The house and lot they are residing is an inheritance from her father during her 18th
birthday
 The Toyota Vios was registered in the name of Mrs. Itutumba’s brother Mr. Pengako.
 The land located in Isabela amounts to 1,500,000 and is an inheritance from their mother.
This land was appointed to Mrs. Itutumba as the fiduciary heir in favor of her youngest
brother who is only 15 years old at the time of her death.
 3 months after the death of Mrs. Itutumba, the motorcycle was totally wrecked caused by
a great storm.
 It was known that the receivable from their friend is deemed uncollectible due to the
bankruptcy of the latter.
Requirements:
a. How much is the conjugal properties of the spouse? (5 points)
b. How much is the total ordinary deductions? (5 points)
c. Compute for the net taxable estate (5 points)
d. Compute for the estate tax. (5 points)
Problem 2. Mr. Gibber, a resident citizen, who doesn’t know what to do with his properties made
following donations during the taxable year 2019:
January: To his lovely wife, a piece of land he inherited from his father before they got
married. The Fair value of the land is 1,500,000 at the time it was inherited. Its
current zonal value is 1,200,000.
To Mr. Slapsoil, a car valued at 1,000,000 pesos. The car has unpaid mortgage
amounting to 80,000 which was assumed by the donee.
To her Mistress, cash amounting to 200,000 to be used for her hospitalization as
she is giving birth their first child.
May: To Mr. Dick, 570,000 for his kindness for being his friend for more than 3 years.
To De Vira Medical Hospital, a non-profit hospital, land valued with zonal value
of 2,000,000 and a fair market value of 2,500,000. Such property will be used for
constructing building extension of the hospital.
December: To his Personal Assistant, a motorcycle, with current value of 46,000.

To Integrated Bar of the Philippines, where he is affiliated, cash amounting
200,000.
Also, he made the following transfers during the year:
Date Property Selling Price Fair Market Value
February Car, Makati 200,000 300,000
May Car, Malaysia 300,000 200,000
May Rest House in 1,000,000 2,000,000
Tagaytay
October Rest House in 1,500,000 2,500,000
Malaysia
Requirements:
a. How much is the aggregate gross estate on May Donor’s Tax Return? (10 points)
b. How much is the Donors’ Tax due and payable on December Donor’s Tax Return? (10 points)
III. Case/Essay. Answer the question provided. Give the reasons for your answer. A mere “yes”
or “no” will not be given any credit. Make your answer brief and direct to the point. (20 points)
1. The Congregation of the Mary Immaculate donated a land and dormitory building along
Espanya St. in favor of the Sisters of the Holy Cross, a group of nuns operating a free clinic
and high school teaching basic spiritual values. Is the donation subject to donor’s tax?
Reason briefly (6 points)
2. Miguel, a citizen and redsident of Mexico, donated US$ 1,000.00 worth of stocks in Barack
motors Corporation, a Mexican Company, to his legitimate son, Miguelito, who is residing in
the Philippines and about to be married to a Filipino girlfriend. Mexico does not impose any
transfer tax of whatever nature on all gratuitous transfer of property.
Is Miguel entitled to the rule of reciprocity in order to be exempt from the Philippine Donor’s
Tax? Why or Why not? (6 points)
3. Mr. Agustin 75 years old and suffering from an incurable disease, decided to sell for valuable
and sufficient consideration, a house and lot to his son. He died one year later.
In the settlement of Mr. Agustin’s estate, the BIR argued that the house and lot were
transferred in contemplation of death and should form part of the gross estate tax purposes. Is
the BIR Correct? (8 points)
End of Examination
Proverbs 3:5-6
“Trust in the Lord with all your heart and lean not on your own understanding. In all your
ways submit to him, and He will make your paths straight "
GOD BLESS YOU!!!
QUESTION:
1. Which of the following statements about transfer

tax is false?
A. It is imposed upon gratuitous transfer of property
B. There are 2 kinds of transfer; estate tax & donors’
tax
C. It is national tax
D. It is a property tax
2. Statement 1: Gratuitous transfer or donation is

subject to transfer tax.
Statement 2: A donation which takes effect at the time
of death of the donor is a donation mortis causa subject
to estate tax, while donation which takes effects during
the lifetime of both the donor & the donee is a donation
inter-vivos subject to donor’s tax.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both are correct
D. Both are incorrect
3. Statement 1: A sale is a transfer requiring payment

of transfer tax.
Statement 2 : Transfer tax accrues at the time of transfer
of the decedent’s property or rights to the heir.
A. Only statement 1 is correct
C. Both are correct
D. Both are incorrect
4. The subject matter of transfer taxes is
A. Right to transmit
B. Decedent
C. Properties of decedent
D. Beneficiaries
5. Which is not justification for the imposition of

estate tax?
A. Benefit Received Theory
B. Redistribution of Wealth Theory
C. Ability to Pay Theory
D. State Partnership Theory
E. All of the justifications.
6. Estate Tax is
A. An excise tax, the object pf which is the shifting of
economic benefits & enjoyment of property from
the dead to the living.
B. An indirect tax because the burden of paying the
tax is shifted to the executor or any of the heirs of
the decedent.
C. A poll tax because it is imposed on Filipino
residents, whether citizens or not.
D. All of the above.
7. The taxpayer in estate tax is

A. The decedent
B. The estate as a juridical entity
C. The heirs or successors
D. The administrator or executor
8. Who has the personal liability to pay estate tax?
A. The decedent
B. The estate as a juridical entity
C. The heirs or successors
D. The administrator or executor
9. Estate tax accrues from

A. The moment of death of the decedent
B. The moment the notice of death is filed
C. The moment the estate tax return is filed.
D. The moment the properties are delivered to the
heirs.
10. An executor or administrator, after paying the

estate tax, and to escape future liability for a
deficiency estate tax, must secure a written
discharge from personal liability.
A. The heirs
B. The Commissioner of Internal Revenue
C. The court where the estate was being settled
D. The executor or administrator need not secure a
written discharge as long as he has a receipt on
payment of the estate tax.
11. Definition. It is a mode of acquisition by virtue of

which, the property, rights, and obligations, to the extent
of the value of the inheritance, of a person are
transmitted through his death to another either by his will
or by operation of law.
A. Succession
B. Donation
C. Donatio Mortis Causa
D.Inheritance
12. True or False.

Statement 1: Decedent is the general term applied to the
person whose property is transmitted through succession,
whether or now he left a will.
Statement 2: An heir is a person called to succession
either by provision of a will or operation of law.
A. Only statement 1 is correct.
C. Both statements are correct.
D. Both statements are incorrect.
13. Problem.
Ace’s father died, leaving P13,000,000.00 worth of debt.

His father’s estate comprises of the following:
Cash P4,000,000.00
Residential Lot P2,000,000.00
House P5,000,000.00
Which is correct?
A. The entire debt of P13,000,000.00 must be paid off.
B. Successors are never personally liable. The debt is
extinguished.
C. The sum of P11,000,000.00 must be paid off.
D. None of the above.
14. A person who inherits specific real property through a

will:
A. Devisee
B. Legatee
C. Heir
D. Successor
15. Which of the following could legally effect transfer
of succession?
I. By virtue of will
II. By operation of law
III. By onerous transfer
A. I only
B. I and II only
C. I and III only
D. I, II, and III
16. Definition.
An act whereby a person is permitted, with the
formalities prescribed by law, to control a certain degree
the disposition of his estate, to take effect after his death.
A. Contract
B. Trust
C. Will
D. Legacy
17. Identification.
It is a written will which must be entirely written, dated,
and signed by the hand of the testator himself. It is
subject to no other form and is may be made in or out of
the Philippines and not need be witnessed.
A. Ordinary will
B. Notarial will
C. Holographic will
D. Codicil
18. The persons prohibited by law to make a valid
include:
I. Those below 18 years of age.
II. Those who are not of sound mind as of death
A. I only
B. II only
C. Both I and II
D. Neither I nor II
19. Succession which results from the designation of an

heir made in a will is called:
A. Legal or intestate succession
B. Testamentary succession
C. Mixed succession
D. Ordinary succession
20. The portion of the decedent’s estate which the law

reserves to his compulsory heir is called:
A. Legitime
B. Free portion
C. Bequest
D. Compulsory estate
21. One of the following is subject to estate tax on

properties situated within the Philippines only.
A. Resident citizen
B. Resident alien
C. Non-resident citizen
D. Non-resident alien
22. The personal properties of a non-resident, non-citizen
of the Philippines would not be included in gross estate
if:
A. The intangible personal property is in the Philippines.

B. The tangible personal property is in the Philippines.
C. The intangible personal property is in the Philippines
and the reciprocity clause of the estate tax law applies.
D. The personal property is shares of stock of a domestic
corporation, 90% of whose business is in the Philippines.
23. An intangible property not in the Philippines and

owned by a non-resident alien is
A. Excluded because the state has no jurisdiction or right

whatsoever over the property.
B. Included because there is no reciprocity.
C. Excluded because it is owned by a non-resident alien.
D. Included because it is an intangible property.
24. How much is the gross estate?
Ching, a Filipino, died in China leaving the following

properties:
-House and lot in China P3,000,000.00
-Vacant lot in Philippines P1,500,000.00
-Domestic Corporation shares, 80% of P100,000.00
the business is located in the Philippines
-Foreign corporation shares, 75% of the P200,000.00
Business is located in the Philippines
-Vehicle in the Philippines P800,000.00
A. P5,600,000.00
B. P2,400,000.00
C. P2,300,000.00
D. P1,500,000.00
25. How much is the gross estate?

A non-resident alien died in China leaving the following
properties:

A. P5,600,000.00
B. P2,400,000.00
C. P2,300,000.00
D. P1,500,000.00
26. How much is the gross estate, assuming reciprocity

applies?
A non-resident alien died in China leaving the following

properties:

A. P5,600,000.00
B. P2,400,000.00
C. P2,300,000.00
D. P1,500,000.00
27. Problem.
Peter died on September 1, 2020. The following data

were available in connection to the property–a piece of
land.
 Assessed value, six months before death P2.5M
 Fair market value at the time P3M
of filing estate tax return
 Zonal Value, September 1, 2020 P2M
What is the value of the piece of land in the gross estate?

A. P2,000,000.00
B. P2,500,000.00
C. P3,000,000.00
D. P5,000,000.00
28. Problem.
A decedent left 10,000 PLDT shares. The shares were
traded in the local stock exchange. At the time of death,
the following were available:
 Fair market value P400 per share

 Mean between the highest P500 per share
and lowest quotations
 Book value P350 per share
A. P3,500,000.00
B. P4,000,000.00
C. P5,000,000.00
D. Whichever is highest among the FMV, the mean, and
the book value
29. Part of the estate left by A are preference shares of

MERALCO. The shares are traded in the Philippine
Stock Exchange. Which of the following rules of
valuation is correct?
A. The preference shares will be valued using the

arithmetic mean between the highest and lowest
quotations at the date nearest the date of death, if none is
available on the date of death itself.
B. The preference shares will be valued based on their
book value.
C. The preference shares will be valued based on their
par value.
D. The preference shares will be valued based on their
fair market value.
30. What is the gross estate assuming the decedent is a

non-resident citizen?
 Land in Italy P2,000,000.00
 Land in Manila P500,000.00
 Franchise in the USA P100,000.00
 Face amount of 10% note receivable P62,500.00
granted 2 years ago to Kim, residing in the
Philippines (both principal and interest unpaid)
 Receivable from Frank who lives in the USA P100,000.00
 Bank deposits in the Philippine National P80,000.00
Bank, USA Branch
 Common stocks in the PSE 10,000 shares
(BVPS—P40; Highest –P50; Lowest—P49)
 Zonal Value of the land in Manila P750,000.00
A. P3,505,000.00
B. P3,600,000.00
C. P3,587,500.00
D. P3,492,500.00
31. What is the gross estate assuming the decedent is a non-resident

alien?
Land in Italy 2,000,000
Land in Manila 500,000
Franchise in the USA 100,000
Face amount of 10% note receivable granted 2 years 62, 500
ago Kim, residing in the Philippines (both principal
and interest unpaid
Receivables from Frank who lives in the USA 100,000
Bank deposit in the Philippine National Bank, USA 80,000
branch
Common stocks in the PSE 10,000 shares
(BVPS – P40; Highest – P50; Lowest – P49)
Zonal value of the land in Manila 750,000
A ₱1,320,000 B. ₱1,225,000 C. ₱1,212,500 D ₱1,307,500
32. What is the gross estate assuming the decedent is a nonresident
alien, with reciprocity?
Land in Italy 2,000,000

Land in Manila 500,000
Franchise in the USA 100,000
Face amount of 10% note receivable granted 2 years 62, 500
ago Kim, residing in the Philippines (both principal
and interest unpaid
Receivables from Frank who lives in the USA 100,000
Bank deposit in the Philippine National Bank, USA 80,000
branch
Common stocks in the PSE 10,000 shares
(BVPS – P40; Highest – P50; Lowest – P49)
Zonal value of the land in Manila 750,000
A. P750,000 B. P830,000 C. P1,245,000 D. P812,500
33. Which of the following is not a characteristics of Donation Mortis

Causa?
A. There is no conveyance of title or ownership to the donee before the
death of the donor.
B. The transfer to the donee is irrevocable while donor is still alive.
C. The transferor retains the full or naked ownership and control of the
property while alive.
D. The transfer to the donee is irrevocable while the donor is still alive.
34.Which of the following is incorrect?

A. In a revocable transfer, the decedent during his lifetime, may revoke,
alter, amend, or terminate the terms of enjoyment or ownership of the
property.
B. A revocable transfer is always includible in the gross estate of the
decedent-transferor
C. A revocable transfer shall be included in the gross estate of the
decedent-transferor even though the power to revoke was not exercised.
D. The power of the decedent-transferor to revoke terms may be
excercised only once
35. To prevent undue avoidance of tax, inter vivos disposition in

contemplation of death is subject to
A. Donor’s tax
B. Estate tax
C. Income tax
D. Excise Tax
36. True or False

Statement 1: A SPA authorizes the donee of the power to appoint only
from a designated class or group of persons other than himself.
Statement 2: The donee-decedent of a SPA only holds the property in
trust, hence, the property shall form part of the donee-decedent’s gross
estate.
A. Only statement 1 is correct.
B. Only statement 2 is correct.
C. Both statements are correct.
D. Both statements are incorrect
37. Which is true?

A. The person who creates the power is the donor of the power (donor-
decedent).
B. The person who is given the right to exercise the power of
appointment is the donee (donee-decedent).
C. The property being transferred and the subject of the power of
appointment is the appointed property.
D. All of the above.
38. Which is incorrect?

A. A GPA authorizes the donee of the power to appoint any person to
possess or enjoy the property.
B. A GPA makes the donee of the power the owner of the property.
C. The appointed property passing under a GPA is not includible in the
gross estate of the donee-decedent.
D. None of the above.
39. PROBLEM
On the belief that Rick is about to die, he sold to his daughter land valued
at ₱3,000,000 for the same amount. One year later, he died in a car
accident. At that time, the land appreciated to ₱3,500,000. The amount
includible in gross estate is
A. ₱500,000
B. ₱3,000,000
C. ₱3,500,000
D. None.
40. PROBLEM
Vlad died on September 1, 2020. During his lifetime, upon knowing that
he had stage 4 lung cancer, he sold his Lamborghini to his son for
₱4,000,000. The FMV of the car at the time of sale had been ₱3,000,000,
while it was already valued at ₱5,000,000 as of his death. The amount to
be added to gross estate is
A. ₱0
B. ₱500,000
C. ₱800,000
D. ₱1,200,000
41. PROBLEM
Vlad died on September 1, 2020. During his lifetime, upon knowing that
he had stage 4 lung cancer, he sold his Lamborghini to his son for
₱4,000,000. The FMV of the car at the time of sale had been ₱3,000,000,
while it was already valued at ₱5,000,000 as of his death. Assuming the
consideration is fictitious, the amount to be added to gross estate is
A. ₱1,000,000
B. ₱2,000,000
C. ₱5,000,000
D. ₱0
42. PROBLEM
Cake died with an existing collectible of ₱5,000,000 against Fionna.
Since Fionna had been financially stable, Cake exerted all possible efforts
to collect the same during her lifetime. However, Fionna failed to settle
the same before Cake’s death. Fionna had ₱50,000 worth of debt to other
creditors as of Cake’s death.
How much should be included in the gross estate of Cake?
A. ₱0
B. ₱5,000,000
C. ₱4,950,000
D. ₱50,000
43. PROBLEM
Cake died with an existing collectible of ₱5,000,000 against Fionna.
Since Fionna had been financially stable, Cake exerted all possible efforts
to collect the same during her lifetime. However, Fionna failed to settle
the same before Cake’s death. Fionna had ₱50,000 worth of debt to other
creditors as of Cake’s death.
How much should be included as deductions from Cake’s gross estate?
A. ₱0
B. ₱5,000,000
C. ₱4,950,000
D. ₱50,000
44. PROBLEM
Patty died with an existing collectible of ₱5,000,000 against Tin. The
latter’s properties are not sufficient to satisfy her debts. Her properties are
valued at ₱6,000,000, while her liabilities amounted to ₱10,000,000.
How much should be included in the gross estate of Patty?
A. ₱5,000,000
B. ₱3,000,000
C. ₱2,000,000
D. ₱4,000,000
45. PROBLEM
How much is the deduction from the gross estate of Patty?
A. ₱5,000,000
B. ₱3,000,000
C. ₱2,000,000
D. ₱4,000,000
46. PROBLEM
Assume that ₱2,000,000 of Tin’s liabilities are unpaid taxes. How much
is the deduction from the gross estate of Patty?
A. ₱5,000,000
B. ₱3,500,000
C. ₱2,000,000
D. ₱2,500,000
47. Proceeds of the life insurance shall be included in the gross estate if
the beneficiary designated is the estate and the designation is
A. Revocable
B. Whether revocable or irrevocable
C. Irrevocable
D. Partly revocable, partly irrevocable
the beneficiary designated is the executor and the designation is
A. Revocable
C. Irrevocable
49. . Proceeds of the life insurance shall be included in the gross estate if
the beneficiary designated is the administrator and the designation is
A. Revocable
C. Irrevocable
the beneficiary designated is a person other than estate, executor, and
administrator, and the designation is
A. Revocable
C. Irrevocable
Chapter 7-Introduction to Regular Income Tax 7
True or False 1
1. There are two types of regular income tax: proportional income tax for corporations and
progressive income tax for individuals. T
2. NRA-NETBS and NRFCs are also subject to regular income tax. F
3. All taxpayers are subject to final tax. F
4. Taxable income is synonymous to net income. F
5. For all taxpayers, taxable income means the pertinent items of gross income not subject
to capital gains tax and final tax less allowable deductions. F
6. All taxpayers are subject to regular income tax. T
7. Employed taxpayers can claim expenses from their employment as deductions against
their compensation income. F
8. Items of gross income subject to final tax and capital gains tax are excluded in gross
income subject to regular income tax. T
9. The P250,000 income tax exemption for individuals is designed to be in lieu of their
personal and business expenses. F
10. Non-taxable compensation are items of compensation that are excluded against gross
income. T
True or False 2
1. The taxable compensation income is computed as gross compensation les non-taxable
compensation income. T
2. The deadline of filing the corporate quarterly income tax return is the same with the
deadline of the quarterly income tax return of individuals. F
3. Business expenses can be deducted against all types of gross income subject regular tax. F
4. No deduction shall be allowed against taxable income. T
5. Only corporations may incur deductions against gross income. F
6. The gross income from business is measured as sales or gross receipts less cost of sales or
cost of services. T
7. The tax due of individuals is determined by means of a schedules of tax rates. T
8. The tax due of corporations is determined by multiplying their gross income by 30%. T
9. The deadline of the annual income tax return of corporations using the calendar year is
similar to the deadline fixed for individual taxpayers. T
10. Every individual taxpayer is exempt from income tax on compensation up to P250,000
annually but the same exemption does not apply to business income. T
Multiple Choice – Theory: Part 1
1. The general rule in income taxation is
c. Regular income taxation
2. Active income is subject to

a. Regular tax.
Question 3 and 4 are based on the following:
A. Regular tax B. Final tax C. Capital gains tax
Which of the foregoing are passive incomes are subject to?
a. Either A or B
4. Which of the foregoing are capital gains subject to?

b. Both A and C
5. The net amount of regular income subject to regular tax is called

a. taxable income.
6. Which is not generally subject to regular income tax?

d. Passive income
7. What are allowable deductions against gross income?

a. Business expenses
8. Deductions are allowed to employed taxpayers.

d. Taxpayers engaged in business.
9. Personal exemptions are allowed to

b.individual tax payer only
10. Which is not a feature of the regular income tax?

c. Final withholding tax
11. Which is true with the final withholding tax?

It applies to certain passive income.
12. Which is not true with the creditable withholding tax?

d. No need to pay further taxes.
13. Progressive income tax is applicable to
B. individual taxpayers.
14. Proportional regular income tax is applicable to

A. corporations only.
15. Which of the following individual taxpayers is not subject to tax on taxable income?
e. NRA-NETB
16. Which of the following corporate taxpayers is not subject to tax on taxable income?
d. Resident foreign corporation
17. Which is a source of income subject to regular income tax?
c. Trade or business or exercise of a profession
18. Which interest Income will not be included Interest income from bank deposits
d. Interest income from employees
19. Which is not subject to final tax?

A. Prizes amounting to P11,000
20. Which of the following is a passive income but is nevertheless subject to regular tax by
virtue of exclusion under final income taxation?
a. Prizes amounting to P10,000
Multiple Choice – Theory: Part 2
1. The following may be relevant in the determination of taxable income:
A. Gross income subject to regular tax
B. Gross income subject to final tax
C. Deductions from gross income
D. Personal exemption
Which is not considered in the determination of taxable income?
d. B and D only
2. Which is a correct statement regarding exclusion in gross income?
a. They are included in gross income subject to regular income tax.
b. They are ignored in the determination of gross income.
c. They are presented in gross income but are presented as deductions.
d. They are subject to final tax.
3. Which of these types of employees may be subject to final fringe benefit tax?
a. Managerial employees
b. Supervisory employees
c. Rank and file employees
d. A and B
4. Which is not considered an operating income?
a. Consignment commission income by a retail store
b. Fees from rendering of services
c. Interest income from advances to employees
d. Sale of scrap
5. Which is a non-operating income?
A. Gain on sale of office building
B. Sale of goods by a retail store
C. Gate receipts of cockpits
D. Gate receipts of cinemas
6. Which is an incorrect statement?

A. Business expenses are deductible by individuals and corporations.
B. Personal exemptions are deductible by individuals and corporations.
C. Personal exemptions are deductible by individuals, estates and trusts.
D. Deductions are considered in the determination of net income.
7. Which of the following will least likely to be considered an operating income of a

security dealer?
a. Gain on sale of stocks
b. Gain on sale of bonds
c. Dividend income from Domestic Corporation
d. Interest income from bonds
8. The distinction between operating and non-operating income is not required in the income tax
return of
a. Self-employed individuals in business
b. Mixed income earners
c. Self-employed professionals
d. Purely employed individuals
9. The reporting classification of gross income into operating and non-operating is unnecessary
for
a. Corporate taxpayers
b. Individual taxpayers
c. Both A and B
d. Neither A nor B
10. Which is not part of compensation income?

A. Basic pay of rank and file employees
B. Fringe benefits of managerial and supervisory employees
C. Basic pay of managerial or supervisory employees
D. Fringe benefits of rank and file employees
11. Who cannot claim deductions?

a. Employed taxpayers
b. Self-employed taxpayers in business
c. Self-employed professional taxpayers
d. B and C
12. Who are required to file quarterly declaration of income?

A. Individuals engaged in business
B. Corporations and individuals engaged in business
C. Corporations
D. All individual and corporations
13. Mr. Jones wishes to file his 2019 income tax return. To avoid penalty, he must his return on
or before
a. April 15, 2019.
b. April 15, 2020.
c. August 15, 2020.
d. November 15, 2020.
14. An individual taxpayer must file his income tax return for the third quarter of 2019 on or
before
a. April 15, 2020.
b. August 15,2019.
c. November 15, 2020.
d. November 15, 2019.
15. Avida Corporation is filing its income tax return for the quarter ending February 28, 2019.
The return must be filed on or before
a. April 15, 2020
b. August 15, 2019
c. April 30, 2019
d. March 30, 2019
16. Which of these taxpayers is required to file an income tax return?

A. An employee covered by the substituted filing system.
B. A taxpayer deriving purely passive income subject to final tax.
C. A special alien with respect to his compensation income.
D. A resident citizen who derives his entire income from sources outside the Philippines.
17. The taxable income of corporate taxpayers is the

a. net income from business.
b. net income from business less personal exemption.
c. Taxable compensation income.
d. taxable compensation income plus net income from business.
18. The taxable income of a pure compensation income earner is the
a. net income from business less personal exemption.
b. taxable compensation income plus net income from business.
d. Net income from business.
19. The taxable income of a mixed income earner is the net income from business less personal
exemption.
a. net income from business less exception
b. net income from business.
d. taxable compensation income plus net income from business.
20. The taxable income of a pure professional income earner is the

a. Net income from business,
b. Taxable compensation income.
c. Taxable compensation income plus net income from business.
d. Net income from profession less personal exemption.
21. Which of the following statements is incorrect with respect to the determination of the
taxable income of individual taxpayers with other income?
A. The other income of pure compensation earners is simply included in taxable compensation
income.
B. The other income of a professional income earner is included as part of non operating income
and is included in net income.
C. The other income of a mixed income earner is also treated as part of non-Operating income
and is included in net income.
D. The other income is simply ignored in the computation of taxable income.
Statement 1: Individuals with higher income are subject to higher tax rates.
Statement 2: Corporations with higher income are subject to higher tax rates.
Which is correct regarding the regular income tax?
A Statement 1 only
b Statement 2 only
c. Both statements 1 and 2
d. Neither statement 1 nor 2
23. Which is incorrect in the determination of the taxable income of individual taxpayers?
A Under the TRAIN law, there is no instance where the compensation income of taxpayers
could become zero.
B. A net operating loss is deductible against taxable compensation income.
C. The taxable compensation income is added to the net income from business.
D. Personal exemption is no longer deductible against compensation income.
24. Statement 1: Corporations with the same net income may not have the same tax due.
Statement 2: Individuals with the same net income may not have the same tax due.
Which statement is incorrect regarding the regular income tax?
a. Statement 1
b. Statement 2
c. Both
d. None
25. A purely engaged in business individual taxpayer shall use

A BIR Form 1701A
b. BIR Form 1701
c. BIR Form 1700
d. BIR Form 1702
26. BIR Form 1701 is not intended for

a. Estate
b. b. Trust
c. Pure professional income earner
d. Mixed income earner
27. BIR Form 1700 is not intended for

a. Estate
b. b. Trust
c. Pure professional income earner
d. Mixed income earner
28. A corporation subject to different tax rates shall use

a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
29. Non-profit corporation with a taxable income shall use

a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
30. A school is subjected to a preferential or special tax rate shall use

a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
31. A corporation that is subject only to a 30% income tax rate shall use
a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
Multiple Choice – Problems 1
1. Mrs. Sanchez Mira had a gross taxable compensation income of P400,000. She also earned
an additional P2,000 by investing her money in time deposits plus P3,000 interest income from
lending money to a friend. Compute her taxable income.
a. P303,000
b. P302,000
c. P300,000
d. P403,000
2. Mrs. Claveria had a business net income of P300,000. She also earned P5,000 commission
from selling cellular cards and P12,000 dividends from a domestic corporation. Compute
her taxable income.
a. P300,000
b. P312,000
c. P305,000
d. P317,000
3. Mr. Pamplona earned total gross receipts of P800,000 and paid P300,000 is expenses in his
accounting practice. During the same year, he also earned a total of P60,000 net gain from
the sale of domestic stocks directly to a buyer. He also disposed a vacant lot at a net gain of
P140,000. What is the taxable income of Mr. Pamplona?
a. P 400,000
b. P460,000
c. P 500,000
d. P 600,000
4. Mr. Monreal earned a gross compensation income of P200,000, exclusive of P20,000
non-taxable compensation income, and gross business income of P500,000 before
expenses of P200,000. He also earned book royalties of P10,000 and P8,000
interest income from clients’ promissory notes. Mr. Monreal ha personal expenses
of P170,000 during the year. What is Mr. Monreal’s taxable compensation
income?
a. P 30,000
b. P 180,000
c. P 200,000
d. P 220,000
5. Monreal’s net income from business?
a. P 300,000
b. P 308,000
c. P 310,000
d. P 518,000
6. What is Mr. Monreal’s the taxable income?

a. P508,000
b. P450,000
c. P558,000
d. P468,000
7. Mr. Bangul earned a compensation income of P120,000 and net income from business of
P300,000. He also earned P8,000 prizes from a dancing competition and P45,000 royalties
from his musical composition. Mr. Bangul has P150,000 personal expenses. Compute the
taxable income.
a. P 473,000
b. P 465,000
c. P 428,000
d. P 420,000
8. In 2015, Ms. Balayan earned P450,000 compensation income but incurredP120,000 net
loss in her business. What is her taxable income assuming she incurred personal of
P100,000?
A P 450,000
b. P 550,000
C. P 330,000
D. P 450,000
9. Mr. Gudani, with a P75,000 personal exemption, had the following data in 2019:
Philippines Abroad
Gross income from sales P 4,000,000 P 6,000,000

Interest income on deposits 40,000 80,000
Less: Deductions 2,000,000 3,600,000
Compute the taxable income if Mr. Gudani is a resident citizen.

A P 4,480,000
B P4,520,000
C P 2,040,000
D P 2,000,000
10. In the immediately preceding problem, compute the taxable income if Mr. Gudani if he
is a non-resident citizen.
A P4,520,000
B P 4,480,000
C P 2,040,000
D P 2,000,000
Multiple Choices – Problems 2
Lesde, Inc. had the following income in 2019
Philippines Abroad
Rent income 10,000,000 12,000,000
Dividend – domestic Royalties 50,000
Royalties 80,000 200,000
Business expenses 8,700,000 9,800,000
Compute the taxable income if Lesde, Inc. was a domestic corporation
A P3,500,000
B P3,700,000
c. P1,380,000
d. P1,300,000
2. Compute the income tax due in the immediately preceding problem.

a. P1,149,000
b. P390,000
c. P1,110,000
d. P381,000
3. Compute the taxable income assuming Lesde Corporation was a resident foreign corporation
A P3,700,000
B. P3,500,000
C P1,380,000
D P1,300,000
4. Compute the income tax due in the immediately preceding problem.
a. P390,000
b. P1,110,000
c. P1,149,000
d. P381,000
5. Compute the tax due if Lesde, Inc. was a non-resident foreign corporation. Assuming that the
tax sparing is not applicable to Cavite.
a. P 3,015,000
b. P 3,039,000
c. P 3,000,000
d. P 429,000
6. Mr. Allan derived the following income in 2019:
Business income 200,000
Compensation income 300,000
Interest income from 5/6 lending to clients 100,000
Interest income from bank deposits 20,000
Royalty income 100,000
Capital gain on sale of personal car 20,000
Capital gain on the sale of stocks directly to a 40,000
buyer
Ordinary gain on sale of old office furniture 10,000
Dividend income 50,000
Compute the total passive subject to final tax
A P170,000
B P1,370,000
C P270,000
D P1,470,000
Compute the total income subject to regular tax.

A. P1,730,000
B. P630,000
C. P270,000
D. P1,470,000
Compute the capital gain subject to subject to capital gains tax.

A P70,000
B P40,000
C 60,000
D0
CHAPTER 8: REGULAR INCOME TAX: EXCLUSION FROM GROSS INCOME
True or False 1
1. The proceeds of life insurance received by the heirs of the insured upon his death is excluded
in gross income. T
2. The amount received in excess of the premium paid in an insurance contract constitutes an
item of gross income. T
3. Donated income is included in the gross income of the donee. F
4. Compensation for injuries and sickness constitutes profit; hence, an inclusion in gross income.
F
5. It is sufficient that the employee rendered more than 10 years of service for his retirement
benefit to be exempt. F
6. An employee can secure retirement benefit exemption only once in a lifetime. T
7. It is a must that the employer maintains a reasonable pension benefit plan for the retirement
benefit to be exempt. T
8. An employee must have rendered more than 10 years of service before claiming exemption for
his termination benefits. F
9. The income of the Philippine government from essential public functions is exempt from any
income tax. T
10. Prizes paid to corporations are an inclusion in gross income subject to final tax. T
11. Only the mandatory portion of GSIS, SSS, PhilHealth, and union dues can be excluded in
gross compensation income. T
12. Social security benefits, retirement gratuities, and other benefits from foreign governments
are excluded in gross income. T
13. Social security benefits, retirement gratuities, other benefits from foreign governments are
excluded in gross income private entities are included in gross income. F
14. The gain from redemption of shares in mutual fund is an exclusion in gross income subject to
regular tax because it is an inclusion in gross income subject to capital gains tax. F
15. 13th month pay and other benefits are taxable only up to P 90,000. F
True or False 2
1. GSIS and SSS benefits are included in gross income to the extent they exceed
P90,000. F
2. Prizes awarded upon the condition that the recipient shall render specified future
services is an item of gross income. T
3. Prizes from contests are included in gross income subject to regular income tax. F
4. The income of government-owned and controlled corporations is an item of gross
income. T
5. Benefits of veterans of war or retired US army personnel are excluded in gross
income. T
6. The employer's share to SSS, PhilHealth and Pag-Ibig contributions are an
exclusion in gross income. F
7. Compared to exclusion, deduction is included in the amount of gross income but
both exclusion and deductions are not reflected in the amount of taxable income. T
8. The interest income from any bond or debentures, short-term or long-term, is an
item of gross income. T
9. Cooperatives that transact business only with members will, in no case, be subject
to income tax. F
10. Cooperatives, regardless of their classification, are taxable on income from their
unrelated activities. T
11. The gain on the sale of long-term bonds with a maturity of five years is an
exclusion in gross income. F
12. A non-stock, non-profit entity is subject to tax on income from unrelated activities. T
13. A general professional partnership can be registered as a BMBE. F
14. Items of income subject to final tax or capital gains tax are exclusions in gross
15. A BMBE must have a net asset not exceeding P3,000,000 to be exempt. F
Multiple Choice - Theory 1

1. Statement 1: Items of passive income from abroad are subject to regular income tax.
Statement 2: Items of passive income from the Philippines are generally subject to final income
tax.
Which statement is generally correct?

a. Statement 1
c. Both statements
b. Statement 2
d. Neither statement
2. Which is true with the regular income tax?

a. Certain items of income are subject to final withholding tax.
b. Tax is payable at regular intervals.
C. Income tax returns are not required.
d. All of these
3. Which is not a feature of regular income tax?

a. It generally applies to all items of gross income not subject to final
b. Creditable withholding tax
c. Gross income tax
d. Accounting period
4. Statement 1: Capital gains are generally subject to capital gains tax.

Statement 2: Items of passive income in the Philippines are generally subject to
regular income tax.
a. Statement 1 is true.
c. Both statements 1 and 2 are true.
b. Statement 2 is true.
d. Neither statement 1 nor 2 is true.
5. Deductions from gross income are
a. Personal expenses
c. Either A or B
b. Business expenses
d. Neither A nor B
6. Which of the following statement best distinguishes deductions from exclusions had from
gross income?
a. Deductions can be claimed by citizens while P250,000 income exemption cannot be claimed
by aliens.
b. Deductions are outflows from gross incomes while exclusions are not outflows from gross
income.
C. Both deductions and exclusions are deducted from gross income.
d. All of these.
7. Progressive income tax does not apply to a

A. Non-resident alien.
c. non-resident citizen.
b. resident alien.
d. resident citizen.
8. Proportional income tax does not apply to a

a. Domestic corporation
b. Resident foreign corporation on vielo ametl 12
c. Business partnership
d. General professional partnership
9. Which is not included under the term "corporation"?

a Business partnership
c. Non-profit charitable institution
b. Co-ownership
d. Joint venture
10. The highest marginal tax rate for individual income taxpayers is
a. 25%
c. 35%
b. 30%
d. 32%
11. Which corporate taxpayer is not subject to regular income tax?

a. Non-resident foreign corporation
c. Resident foreign corporation
b. Domestic corporation
d. Business partnership
12. Which individual income taxpayer is not subject to regular tax?
a. Resident alien not engaged in trade or business
b. Non-resident citizen not engaged in trade or business
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
13. Which is correct with respect to exclusions from gross income? moko
a. They are included as part of gross income but are subsequently deducted.
b. They are not included in gross income but are added to the taxable income.
c. They are not considered in the computation of taxable income.
d. They are synonymous with deductions.
14. Which is correct with respect to deductions from gross income?

a. They pertain to expenses of generating items of business or professional
gross income.
b. They are excluded from the determination of taxable income.
C. They include all expenses incurred in the generation of any income.
d. They include P250,000 annual income exemption.
15. Which constitute a taxable item of gross income?

a. Compensation for personal injuries
b. Gain from sale of shares in mutual funds
c. Gain from sale of government bonds
d. Income exempt under treaty
Multiple Choice - Theory 2

1. The proceeds of an insurance policy received by the corporation as beneficiary on the life
insurance of its officer is
a. a gift
c. an inheritance.
b. a taxable income.
d. exempt from income tax.
2. Mr. Buguey was insured in a life insurance with his daughter, Ybon, as the irrevocable
beneficiary. Ybon was paid the entire proceeds when Mr. Buguey died. The proceeds constitute
a taxable inheritance.
b. a taxable gift.
c. taxable income.
d. an exclusion from gross income.
3. A policy holder who outlived the policy and received a cash surrender value in excess of
premiums paid is exempt upon
a. the amount representing a return of premiums.
b. the entire amount received.
c. the excess of the amount received over the premiums paid.
d. None of these
4. The assignment of an insurance policy at an amount in excess of the premiums paid on the
policy is subject to
a. donor's tax
b. income tax.
c. estate tax.
d. any of these
5. A widow who collected the life insurance proceeds of her decease husband is
a. exempt to the entire amount of the proceeds.
b. taxable to the excess of the proceeds over the premiums paid by the widow.
c. taxable to the excess of the proceeds over the premiums paid by the husband.
d. exempt with respect to the portion of the proceeds representing returns of
premium.
6. The policyholder of a life insurance contract outlived his insurance policy. He was paid
P300,000 upon maturity of the policy. He paid P250,000 total premium. What is the inclusion in
gross income?
a. P300,000
c. P50,000
b. P250,000
d. 0
7. Which of the following is subject to tax?

a. Proceeds of crop insurance
b. Proceeds of livestock insurance
c. Indemnity under patent infringement suit
d. All of these
8. Which is not a requisite of exemption of a retirement benefit plan?

a. 10 years of employment
b. The employer maintains a reasonable pension benefit plan.
c. The retiree must be a senior citizen.
d. First time availment of retirement exemption
9. Termination benefits are exempt from income tax provided that the reason for termination is
a. beyond the employee's control.
c. within the employee's control.
b. within the employer's control.
d. beyond the employer's control.
10. Which is not an item of exclusion from gross income?

a. SSS benefits
b. Income of the government and its political subdivisions des
c. Income of government-owned and controlled corporations
d. Income of foreign governments
11. Which of the following government-owned and controlled corporations is subject to income
tax?
a. Social Security System
b. National Development Corporation (Old question, C is also acceptable.)
c. Philippine Charity Sweepstakes Office
d. Philippines Health Insurance
12. Which is not an acceptable ground for exemption of termination pay?

a. Mass employee lay-off
b. Closure of employer's business
c. Grave misconduct and neglect of duty
d. Retrenchment of employer's business
13. Which is not an item of gross income for taxation purposes?

a. Unrealized income
c. Income earned between related parties
b. Advanced income
d. All of these
14. Which is subject to income tax?

a. Gain on sale of 6-year bonds.
a. Gain on sale of shares in mutual fund.
c. Interest income on long-term bonds with a maturity period exceeding five years.
d. Interest income on long-term deposits by individual taxpayers.
15. Which of the following is not an exclusion from gross income?

a. Income of government properties
b. Income taxes collected by the Bureau of Internal Revenue
c. Dividend income payable to a foreign government
d. Social Security benefits
Multiple Choice - Problem: Part 1

1. Mr. Bisligo collected the P1,000,000 insurance proceeds of Mr. Pantukan which he
inbought from the latter for P400,000. Before the death of Mr. Pantukan, Mr. Bisligo
od paid total premiums of P200,000, Determine respectively the exclusion in gross
income and the inclusion in gross income.
a. P1,000,000; PO
c. P400,000; P600,000
b. PO; P1,000,000
d. P600,000; P400,000
2. Mr. Kabacan surrendered his life insurance policy and received a cash surrender 20000
value of P800,000 after contributing P700,000 in annual premiums. Determine respectively the
total exclusion in gross income and the inclusion in gross income.
a. P800,000; PO
c. P100,000; P700,000
b. PO; P800,000
d. P700,000; P100,000
3. Mr. Tarragoza died. His heirs collected the P2,000,000 proceeds of his life
insurance policy. Mr. Tarragoza previously paid a total payment of P500,000 in premiums.
Determine respectively the exclusion in gross income and the inclusion in gross income.
a. P2,000,000; PO
c. P2,000,000; PO
b. P500,000; P1,500,000
d. PO; P2,000,000
4. Mr. Malalag collected the P5,000,000 fire insurance proceeds of his building which
was destroyed by fire. The building had a tax basis of P4,500,000 at the occurrence of the fire.
Determine respectively the total exclusion in gross income.
a. P5,000,000; PO
C. P4,500,000; P500,000
b. PO; P5,000,000
d. P500,000; P4,500,000
5. Mr. Cateel insured his crops for a P1,000,000 insurance cover against calamities,
He paid and expensed P100,000 insurance premium. How much will be included in gross
income.
a. P900,000
b. P1,000,000
c. P100,000
d. PO
6. Ms. Sindangan received a condominium including its accrued income as inheritance from her
deceased grandfather on April 1, 2014. The following data relates to the property:
Fair value of property P125,000,000
Rent income earned before death of decedent 4,000,000
Rent income earned after death of decedent 6,000,000
Interest on deposits of rentals (40% accruing after death) 100,000
How much of the above income will be included in the gross income of Mr. Sindangan and in the
gross income of the decedent?
a. P6,040,000; P4,060,000
c. P4,060,000; P6,040,000
b. P6,000,000; P4,000,000
d. P4,000,000; P6,000,000
7. Mr. Dimataling was hurt in a bus accident. He received a total indemnity of P800,000 from the
insurer of the bus. Mr. Dimataling paid P250,000 in hospital bills due to the accident. Compute
the total amount to be excluded in gross
income.
a. Р0
c. P550,000
b. P250,000
d. P800,000
8. At the age of 54, Mrs. Sindangan was awarded a retirement gratuity of P2,000,000 a for her 30
years of service in the Sirawai Company. The employer's retirement benefit plan was with an
employee participation feature where Mrs. Sindangan contributed a total premium of P800,000
in the fund. Mrs. Sindangan also received P500,000 benefit from the SSS.
1000000
Compute the total exclusion in gross income.
a. P1,700,000
b. P1,300,000
c. P800,000
d. P2,500,000
9. Mrs. Candoni retired from the government after 30 years of service at the age of 55. He
received a total retirement pay of P1,800,000 plus P400,000 GSIS benefits.
How much will be excluded in gross income?

a. 0
c. P2,200,000
b. P400,000
d. P1,800,000
10. The Professional Regulations Commission collected a total sum of P100,000,000 from
professional license fees. It also collected P5,000,000 from rentals of government properties.
What is the total exclusion in gross income?
a. P0
c. P100,000,000
b. P5,000,000
d. P105,000,000
11. Mr. Alvarez had the following income during the year:
Gross compensation income including P25,000

13th month pay P 325,000
Less: Tardiness or absences (10,000)
Net compensation income P 315,000
SSS deductions 12,000
PhilHealth deductions 9,000
Pag-Ibig deductions 10,000
Union dues 5,000
Withholding tax 40,000
Net pay P239.000
Compute the total exclusions from gross income.
a, P36,000
c. P66,000
b. P61,000
d. P71,000
12. Mr. Henares received the following during the year:
Donated properties P 200,000

Income of donated property before donation 50,000
Income of donated property after donation 30,000
Inherited properties 100,000
How much is taxable to Mr. Henares?

a. P380,000
C. P30,000
d. P50,000
b. P80,000
13. Mr. Tacurong has the following data during the year:
Basic salary 1,200,000
Income tax withheld 50000
13th month pay to outlet 100000
SSS 2000
PhilHealth 1800
Pag-Ibig 1700
Union dues 500
Capital build up contribution in a social fund 2000
Compute the total exemptions and exclusions from gross income:

a. P106,000
C. P 96,000
b. P100,000
d. P 88,000
14. Mang Antonio collected P2,000,000 from the fire insurance company that insured his
building which had a tax basis of P1,800,000 when the fire occurred. During the same period, he
also collected P300,000 crop insurance proceeds pertaining to his crops destroyed by frost. The
total item of gross income is
c. P300,000.
a. P2,300,000.
b. P200,000.
d. P500,000.
Multiple Choice - Problems: Part 2
1. Wary of his deteriorating health conditions, Mr. Benigno resigned from his job at age 40 after
working as a supervisor for 12 years. He was paid P2,000,000 as separation pay. Is the
P2,000,000 separation pay subject to income tax?
a. No, because the reason for Mr. Benigno's termination was beyond his control.
b. Yes, because Mr. Benigno resigned.
No, because Mr. Benigno worked for the company for more than 10 years.
d. Yes, because Mr. Benigno is not yet 50 years old.
2. On December 25, 2014, Mr. Reynon was terminated by his employer at age 60 due to his
failing eyesight. He joined the company in February 2006 and has since then worked as treasurer
of the company. Is Mr. Reynon's retirement pay exempt from income tax?
a. Yes, because his termination was beyond his control.
b. No, because he was employed for less than 10 years.
c. Yes, because he is over 50 years old.
d. No, because the employee is already a senior citizen.
3. Ms. Henson retired from her job after 25 years of service. She joined the company at the age
of 23 and was promoted from an accounting clerk to VP Finance. She was paid P2,000,000 total
retirement pay from the employer's contributory pension plan which was duly registered with the
BIR. Out of the total proceeds, Ms. Henson contributed P600,000. This was Ms. Henson's first
retirement from employment. How much is excluded from gross income?
a. P600,000
c. P2,000,000
b. P1,400,000
d. P0
4. Assuming Ms. Henson transferred to another company and was retired after 15 years of
service. The second employer paid P1,500,000 out of its non-contributory pension fund as
retirement pay to Ms. Henson. The pension fund was also duly registered with the BIR.
Is the second retirement pay exempt from income tax?
a. No, because this is the second time Ms. Henson retired from employment.
b. Yes, because Ms. Henson is already a senior citizen.
c. Yes, because this is the first time Ms. Henson qualifies for retirement pay exemption.
d. No, because an employee must work under one employer until retirement to qualify for
retirement exemption.
5. Mr. Baracho won P500,000 in a local chess competition that was sanctioned by a sports
organization that is currently applying for accreditation from the national sports association. Is
the P500,000 prize considered an item of gross income?
a. Yes, because all prizes are subject to income tax.
b. No, because the chess competition is not an international competition.
c. No, because the sport competition is a local competition.
d. Yes, because the organizer is not an accredited sports organization.
6. Mr. Sibuco discovered teleport technology where people can be transported over thousand
miles in seconds. Due to this, he was awarded by the scientific community the most coveted
Nobel Prize award in 2015. The total award was $150,000,000.
What is the most correct statement regarding the taxation of the award?
a. The award is an inclusion in gross income subject to regular income tax since final taxes do
not apply abroad.
b. The award is an inclusion in gross income subject to final tax since it is more than P10,000.00
c. The award is an exclusion in gross income subject to regular tax since it is an inclusion in
items of gross income subject to final tax.
d. The award is an exclusion in gross income.
7. The following relates to the compensation income of Ms. Lamitan in 2017:

Compensation P 2,400,000
Contributions to SSS, PhilHealth, and HDMF:
Mandatory contributions 125,000
Voluntary contributions 150,000
Contribution to PERA 120,000
Creditable withholding taxes 190,000
Employer's share in SSS, PhilHealth and HDMF 105,000

a. P225,000
c. P395,000
b. P230,000
d. P465,000
8. In 2014, Ms. Kabacan invested P8,000,000 in the 10-year bonds of Mining Corporation. She
disposed the investment in 2016 for a total consideration respectively of P8,500,000 inclusive of
the P400,000 accrued interest. What are the inclusion in gross income and the exclusion in gross
income?
a. P500,000; PO
c. P400,000; P100,000
b. P100,000; P400,000
d. PO; P500,000
9. Ms. Sibuco invested in the mutual fund and savings deposit of BCBC Bank. was P101.00. Ms.
Sibuco also had P100,000 accrued interest in her savings per unit fund was P98.00. She pulled
out her investment when the net asset value per ynut was P101.00. Ms. Sibuco also had P100,000
accrued interest in hersavings deposit.
Which statement is incorrect?

a. The P300,000 gain is an exclusion in gross income.
b. The P100,000 interest income is an exclusion in gross income subject to regular tax
C. The P100,000 interest income is an inclusion in gross income subject to final tax
d. The P300,000 is an inclusion in gross income subject to regular tax, but the P100,000 is
an exclusion in gross income subject to final tax.
10. The following income relates to a proprietorship registered as a BMBE:
Gross income from sales Р400,000

Dividend income - domestic 9,000
Interest on deposits 6,800
Compute the total exclusion in gross income subject to regular tax.

a. P400,000
c. P15,800
b. P415,800
d. P0
11. In the immediately preceding problem, compute the total inclusions in gross income subject
to final tax.
a. P0
c. P6,800
b. P15,800
d. P9,000
12. KKB, a multi-purpose credit cooperative, had the following income in 2015:
Income from related activities P 400,000

Income from unrelated activities:
Dividends from stocks 20,000
Income from time deposits 18,000
Rent income 60,000
Compute the total exclusion from gross income subject to regular tax of the cooperative
a. P0
b. P38,000
c. P438,000
d. P38,000
13. In the immediately preceding problem, compute the total inclusion in gross income subject to
regular tax.
a. 60,000
b. 98,000
c. P460,000
d. P38,000
14. A non-stock, non-profit charitable entity received the following during 2015:
Contributions from the public P1,400,000
Income from the sale of merchandise 500,000
Gain on the sale of properties P300,000
What is the total exclusion from gross income subject to regular tax?
a. P2,200,000
c. P1,400,000
b. P1,900,000
d. P1,300,000
15. Mr. Santiago purchased a life annuity for P100,000 which will pay him P10,000 a year. The
life expectancy of Mr. Santiago is 12 years. Which of the following can Mr. Santiago exclude
from his gross income?
a. P10,000
c. P 120,000
b. P20,000
d. P 100,000
CHAPTER 9: REGULAR INCOME TAX: INCLUSION IN GROSS INCOME

True or False 1
1. Items of gross income subject to regular income tax and capital gains tax are reportable to the
government. T
2. Rent is a passive income, but is not subject to final tax. T
3. The interest income from bonds issued by banks is subject to final tax. F
4. Gains from dealings in capital assets are generally subject to the regular income tax. T
5. The gross income from operations enjoying a tax holiday are included in gross income subject
to regular tax, but are presented as deductions in the income tax return. F
6. The share in a business partnership is subject to final tax, but the share in a general
professional partnership is subject to regular income tax. T
7. Gains from dealings in ordinary assets are subject to regular income tax. T
8. Items of passive royalty income are subject to final income tax while items of active royalty
income are subject to regular income tax. T
9. Compensation income is an inclusion in gross income subject to regular tax except
compensation income of special aliens. T
10. The reportable gross income from business or the exercise of a profession is net of the cost of
goods sold or cost of services. T
11. Items of income which are included in gross income subject to final tax are excluded in gross
12. Imputed interest income is an item of gross income subject to regular income tax. F
13. Advanced rentals are income in the year received. T
14. Real property tax and insurance on the property if assumed by the lessee constitute income to
the lessor. T
15. Corporate winnings are exclusions in gross income; hence, they are exempt
from income tax. F
16. Stock dividends are never subject to income tax. F
17. Pensions or retirement benefits are inclusions in gross income subject to regular income tax if
the employee is terminated due to any cause within his control. T
18. Prizes in athletic competitions sanctioned by the Philippine government are exclusions in
gross income subject to final tax, but are inclusions in gross income subject to regular income
tax. F
19. Corporate prizes are exclusions in gross income subject to final tax but are inclusions in
gross income subject to regular income tax. T
20. Stock splits are never subject to income tax. T
True or False 2
1. The distributable net income of a general professional partnership is subject to creditable
withholding tax. T
2. Exempt joint ventures and co-ownerships are treated as pass-through entities and are subject to
income tax. F
3. The distribution by the GPP of items of passive income is an inclusion in gross income of the
partner subject to regular income tax. T
4. General professional partnerships are exempt from tax and hence, exempt from withholding. T
5. The share from the net income of a joint venture organized abroad is subject to 10% final
withholding tax. F
6. Income distribution from taxable estates and trusts is an inclusion in gross income subject to
regular tax by the heir or beneficiary. T
7. The recovery of past deduction must be reverted back to gross income of taxpayers using the
accrual basis. T
8. The recovery of bad debts need not be reverted back to gross income of taxpayers using the
cash basis. F
9. The recovery of deduction from an exempt year is subject to tax. F
10. General professional partnerships are not exempt from regular tax but are subject to final tax
and capital gains tax. F
11. An indebtedness cancelled by the creditor out of mercy is an income to the debtor. F
12. When there is a net loss in the period the deduction is taken, the subsequent recovery of the
deduction will not have any tax benefit. F
13. The refund or recovery of non-deductible taxes shall not be reverted back to gross income.T
14. The loss of the partnership can be claimed by the partners as deduction in their income tax
returns. F
15. The accounting period of the taxpayer has a direct impact upon the amount of gross income
to be reported. F
16. The power of the CIR to redistribute income and expense includes the power to impute
income between affiliated enterprises. F
17. The situs of taxation has an impact on the extent of the reportable gross income. T
18. Creditable withholding taxes are added back to the amount of reportable gross
income. T
19. The output VAT must be included as part of gross income of VAT taxpayers. F
20. The requirement to revert back to gross income the amount of withheld taxes
applies only to VAT taxpayers. F
21. Generally, all items of income of NRA-NETB and NRFCs from the Philippines are
inclusions in gross income subject to final tax. T
22. The taxpayer must enter into an advanced pricing agreement with the BIR for its
cross-border transfer pricing with associated enterprises. F
23. Transfer pricing between associated enterprises must be made at arm's length. T
24. The transfer pricing regulations apply only to cross-border transfers of goods and services
between associated enterprises. F
25. Corporations under the direct and indirect control of the same controlling individual or
corporation are associated enterprises. T
26. Under the accrual basis of accounting, items of gross income are reported in the period they
are received. F
27. Basically, transfer pricing adjustment is needed when the income reported for
Philippine taxation is understated. T
Multiple Choice - Theory: Part 1

1. Which is not subject to income tax?
a. gain from sale of shares in mutual funds by the investor
b. Prizes in recognition of civic, religious, and artistic achievements
PCSO and lotto winnings, not exceeding P20,000
d. All of these
2. Which is an item of gross income subject to regular tax?

a. Gain on sale of lot by a realty dealer
b. Interest income from bank deposits
c. Passive royalty income
d. Capital gain on the sale of domestic stocks
3. Which is not an item of gross income subject to final tax?

Dividends from a domestic corporation
b. Prizes in excess of P10,000 by an individual
c. Share in the income of a general professional partnership
d. Winnings
4. Which of these employee benefits is subject to final tax?

a. Fringe benefits to rank and file employees
b. Regular pay of supervisory and managerial employees
c. Fringe benefits to supervisory and managerial employees
d. Regular pay of rank and file employees du
5. All of these are items of gross income subject to regular tax except one. Select the exception.
a. Compensation income
b. Interest income from long-term bank deposits
c. Ordinary gain on sale of properties
d. Interest on notes receivables
6. Which is an income exempt from income tax?

a. Income of a general professional partnership.
b. Foreign dividends
c. Taxes collected by the government
d. Income of government-owned and controlled corporations
7. All of these are subject to regular income tax, except

a. Professional fees
b. Wages and commissions
c. Business income
d. Capital gain from the sale of real property located in the Philippines
8. Which is exempt from regular tax?

a. Income from construction
b. Income of qualified pension plans
c. Income from merchandising or trading
d. Income from financing or leasing
9. Which item of gross income is not subject to regular tax?

a. Interest income from foreign bank deposits
b. Capital gain on the sale of bonds with more than years maturity
c. Gain on sale of domestic stocks by a security dealer
d. Capital gain on sale of patent
10. Which is not part of compensation income subject to regular tax?

a. Director's fees
b. Bonuses and fixed allowances.
c. Portion of salary contributed to SSS
d. Portion of salary used to pay salary loans to show
11. Which is included in the gross income subject to regular tax of a resident alien?
a. Gross income from the sale of goods abroad
b. Interest income from promissory notes of resident clients
C. Interest income from relatives abroad
d. Gain from the sale of domestic stocks directly to a buyer
12. Which of the following deductions from gross compensation income is included as
part of gross income subject to regular tax?
a. Pag-Ibig Contributions
c. PhilHealth Contributions
b. Contributions to union
d. dues Withholding tax
13. Which interest income is subject to regular tax?

a. Interest income from notes
c. Interest income from lending
b. Interest income from bonds
d. All of these
14. Dividends subject to regular tax includes

a. Foreign dividends
c. Both a and b
b. Domestic dividends
d. Neither
15. Statement 1: All prizes earned abroad are subject to regular tax.
Statement 2: All prizes in the Philippines are subject to final tax.
Which statement is generally correct?
a. Statement 1
c. Both statements 1 and 2
b. Statement 2
d. Neither statement is true.
16. Which is an item of gross income subject to regular tax?

a. Lottery winnings from abroad
b. Imputed interest income
c. Advanced rent representing security deposit for contingency which may or
may not happen
d. Leasehold improvements with useful life not extending beyond the lease term
17. Which of the following is not subject to regular tax of a domestic corporation or
resident citizen?
a. Deposit interest income from abroad
b. Prize not exceeding P10,000 from the Philippines
c. Income from abroad exempt under treaty
d. Royalties from abroad
18. Which is subject to regular tax to a non-resident foreign corporation or non-

resident alien not engaged in trade or business?
a. Business income from the Philippines
b. Capital gain from the sale of stocks directly to a buyer in the Philippines
c. Dividends from domestic corporations
d. None of these
19. Which is subject to regular tax to a resident foreign corporation?
a. Service fees abroad
b. Gain from sale of real property capital assets in the Philippines
c. Dividends from a domestic corporation
d. Gain from dealings in properties abroad
20. The proceeds of life insurance received by the wife of the insured is
a. exempt from income tax.
c. part of taxable income.
b. subject to final tax.
d. partly exempt and partly taxable.
Multiple Choice - Theory: Part 2

1. Which of the following will not be reported in gross income?
a. Receipt of inheritance
b. Share in the net income of a foreign partnership
c. Royalties from foreign sources
d. Income distribution from a taxable estate
2. Which is not a reportable type of gross income?

a. passive royalties
b. Dividends from a foreign corporation
c. Rent income
d. Capital gains from the sale of domestic stocks through the PSE
3. Which of the following is included in gross income subject to regular tax?

a. Sub-contract income from petroleum service contractors
b. Interest income from government securities
c. Share in the net income of a taxable co-ownership
d. Farming income
4. All income earned abroad that would otherwise be subject to final taxes if earned within the
Philippines shall be subject to progressive tax of
a. domestic corporation.
c. resident alien.
b. resident citizen.
d. all taxpayers.
5. All items of passive income earned abroad are subject to regular tax to
a. resident citizen only.
b. a domestic corporation only.
c. resident citizens and domestic corporations.
d. all taxpayers.
6. Which individual taxpayer is not subject to progressive tax?
a. NRA-ETB
c. Resident alien
b. Special aliens
d. Resident citizen
7. Which corporate taxpayer is not subject to regular tax?

a. Domestic corporation
c. Business partnership
b. Resident corporation
d. Non-resident foreign corporation
8. Individual taxpayers shall report their income on

a. a fiscal year.
c. either a fiscal or calendar year.
b. a calendar year.
d. a crop year.
9. Corporations are allowed to report their income on

c. either a fiscal year or calendar year.
a fiscal year.
d. a crop year.
b. a calendar year.
10. Which is subject to progressive tax to an individual taxpayer?

a. Proceeds of life insurance policy
b. Gift
c. Amounts received by the insured in excess of premiums paid
d. Compensation for personal injuries angol mort
11. Which of these is subject to Philippine regular income tax to a foreigner?

a. rent income on properties located abroad
b. Dividend income from a domestic corporation
c. Interest income on a deposit abroad
d. Interest income from domestic bonds
12. If not covered by the substituted filing system, employed individual taxpayers
shall report their regular income bon
a. monthly
c. quarterly.
b. annually
d. quarterly and annually.
13. Corporations and individuals engaged in business or in the exercise of a profession are
required to report their regular income
a. monthly.
c. annually.
b. quarterly.
d. quarterly and annually.
14. Which is incorrect concerning transactions between associated enterprises?

a. Transactions between related parties should not be controlled.
b. Pricing should be determined by free market forces.
c. Pricing should be motivated by the need to save from total income tax.
d. Non-arms' length pricing between related parties may be restated by the BIR to reflect the
arms' length value of transactions.
15. Which is not an associated enterprise to the controlling individual of a holding company?
a. An associate of a subsidiary in the group
b. The parent company
c. A direct subsidiary company
d. A subsidiary of a subsidiary in the groups

1. Mr. Lolong, a supervisory employee, received the following income in 2015:
Gross compensation income, before contributions
to SSS, PhilHealth, and HDMF totaling P124,000 P 800,000
Fringe benefits 200,000
Gain from redemption of shares in a mutual fund 100,000
Commission income 150,000
Gain on sale of stocks through the PSE 400,000
Determine the total income to be reported by Mr. Lolong in gross income.

a. P1,526,000
c. P1,026,000
b. P1,426,000
d. P 826,000
2. Calixto, employed, derived the following income during the year:

Gross salaries P 400,000
13th month pay and other benefits 40,000
SSS, PhilHealth, and Pag-Ibig contributions 20,000
Deductions for loans repayments 50,000
Deductions for withholding tax 60,000
Compute the compensation income to be reported in the annual income tax return.
a. P440,000
c. P380,000
b. P330,000
d. P390,000
3. Corazon resigned in 2015 after 12 years of service. She had the following income
during the year:
Salary, net of P80,000 withholding tax, P20,000 SSS,
P18,000 Philhealth and P40,000 13th month pay P 480,000
Separation pay 1,000,000
Compute the gross income subject to progressive (regular) tax.

a. P1,480,000
c. P560,000
b. P1,560,000
d. P480,000
4. Iriga Corporation is engaged in the sales of goods. It reported the following

summarized financial statements during the year:
Sales 3500000
Less: cost of sales 2000000
Gross profit 1500000
Commission income on consignment 200000
Interest income from customers 20000
Interest income, net of final tax 10000
Dividend income 50000
Total Income 1780000
Less: Admin & Selling Expenses 1000000
Net income 780000
Compute the total gross income subject to regular tax.

a. P1,720,000
c. P1,780,000
b. P1,770,000
d. P 840,000
5. Precy, Inc., a domestic corporation, reported the following income in 2014:

Philippines Abroad
Service fees
P 400,000 P 300,000
Interest income-bank
40,000 70,000
Royalties - franchise
80,000 30,000
Compute the total gross income subject to regular income tax.

a. P920,000
c. P800,000
b. P860,000
d. P700,000
6. If Precy Inc. is a resident foreign corporation, compute the gross income subject to
regular tax.
a. P520,000
c. P400,000
b. P480,000
d. P440,000
7. Andres leases a building to a client. During the year, he received the following remittance
from the lessee:
Rental, net of 5% creditable withholding tax P 1,900,000
Real property tax of the leased building
50,000
Reimbursement for utilities used
by the lessee paid by Andres
200,000
How much will be included in gross income subject to regular tax?

a. P2,050,000
c. P2,000,000
b. P2,250,000
d. P1,950,000
8. Mr. Croki, a professional practitioner, received the following from his clients:
Advances for future services to be rendered
P 30,000
Collections for past services rendered
70,000
Reimbursements for client expenses
40,000
Reimbursement for out-of-pocket expenses 10,000
How much will be included in Croki's gross income for regular income tax purposes?
a. P150,000
c. P110,000
b. P140,000
d. P100,000
9. The Big Bird Security Agency (BBSA) received P3,000,000 from its clients P2,400,000 of this
was designated for salaries of guards assigned to various client establishments.
How much will be included in the gross income of BBSA?
a. P600,000
c. P3,000,000
b. P2,400,000
d. PO
10. Farmers, Inc. purchased an agricultural lot for P1,000,000. It was later discovered that the lot
had gold deposits. Thus its fair value increased to P4,000,000. This increase in fair value is
a. exempt from income tax.
c. partially exempt and partially taxable
b. subject to income tax.
d. Any of these
11. Northern Cattle Company produces beef meat. In 2015, it reported the following:
Sales of live cattle P 600,000

Sale of young feeders 200,000
Best Increase in value of cattle inventory 300,000
Compute the income subject to regular tax.
a. P1,100,000
c. P900,000
b. P800,000
d. P600,000
12. Don Juanito has the following income in 2015:
Sales from vegetables P 400,000

Sales from fruits 200,000
sbor Sales of carabao (acquired for P30,000 in 2015) 35,000
Interest income from tenants on the sale of agricultural land pursuant to the Agrarian Reform
Program 12,000
The gross income subject to progressive tax is

a. P647,000
c. P600,000
b. P617,000
d. P605,000
13. Mr. Conner purchased a life annuity for P1,000,000 which will pay him P100,000 a
year. What will Mr. Conner include in his gross income on the 11 th year of the policy?
a. P1,000,000
c. P200,000
b. P100,000
d. P1,200,000
14. Edwin purchased the life insurance policy of Paulo for P50,000. He continued the policy by
paying P20,000 premium after which Paulo died. Edwin collected the P500,000 proceeds of the
policy.
How much will Edwin exclude from his gross income?
a. P500,000
c. P70,000
b. P430,000
d. PO
15. Mr. Benson insured his life with his children as beneficiaries. He died after paying P200,000
premiums. His children collected the P1,000,000 life insurance proceeds. How much will be
excluded from Mr. Benson's gross income?
a. P800,000
c. P200,000
b. P1,000,000
d.PO
16. Pedro's crop was destroyed by incessant rains. He received P200,000 from an insurer that
insured his crop. The proceeds of the insurance is an
a. item of gross income subject to regular tax.
b. item of gross income subject to final tax.
c. exclusion from gross income.
d. exempt income.
17. In 2016, Northern Crest Corporation (NCC) reported a P40,000 recovery from bad debts that
was claimed as deduction against gross income in 2012. In 2012, the write-off increased the
operating loss of NCC to P50,000. NCC was very profitable from 2013 to the present. How
much of the P40,000 recovery is subject to tax?
a. P60,000
c. P40,000
b. P10,000
d.PO
18. West Oil abandoned an oil facility in 2012 and expensed the P300,000 unrecovered
investment in the facility as abandonment loss. The 2012 taxable
income before provision for the loss was P100,000. West posted continuous losses until 2015.
With increasing prices of crude oil in 2016, West re-commissioned the facility for use. How
much will be included in its gross income in 2016?
a. P300,000
c. P100,000
b. P200,000
d. PO
19. Sarah Baby International graduated from its income tax holiday incentive and is effectively
subject to tax beginning 2015. In 2016, it collected a P4M from a P6M receivable which was
written off as bad debt expense in 2013. Before the write-off, Sarah International had P1M profit.
Sarah posted profits in 2014 and 2015 in
excess of its operating loss in 2013.
Compute the amount of recovery subject to regular income tax.
a. P6,000,000
c. P4,000,000
b. P1,000,000
d. P0
20. In 2015, an accrual basis taxpayer received a cash refund for an income tax assessment which
he paid in 2011 consisting of the following:
Basic tax P 40,000

Surcharge 10,000
Interest 4,000
Total taxes paid P54,000
How much must be reverted back to gross income in 2015?
a. P0
c. P10,000
b. P4,000
d. P44,000
21. In the immediately preceding problem, compute the tax benefit if the refund was
of local tax instead of income tax.
a. P44,000
c. P10,000
b. 4,000
d. PO
22. An accrual basis taxpayer recovered a P20,000 local tax expense which was refunded by the
local government in 2015. The local tax expense was paid in 2013 when the taxpayer sustained a
P5,000 net operating loss. How much shall be
reverted to income?
a. PO
c. P20,000.
b. P5,000
d. P15,000
23. A taxpayer under the cash basis wrote-off P50,000 receivables in 2010. In 2015, P30,000 of
the receivables was recovered.
Determine the amount to be included in gross income in 2015 assuming that the taxpayer
incurred a net operating loss of P40,000 in 2010.
a. PO
c. P30,000
b. P10,000
d. P40,000
1. Mr. Cordillera owns 20% interest in a joint venture engaged in construction projects. In 2015,
the joint venture reported profits of P500,000, inclusive of P20,000 from time deposits.
Compute the total income to be reported in gross income of Mr. Cordillera?

a. P0
c. P96,000
b. P4,000
d. 100,000
2. Mr. Buaya, with 14 dependent children, had the following data for his income tax return in
2018:
Sales P490,000
Gross compensation income 120,000
Cost of sales 200,000
Non-taxable compensation 30,000
Administrative and selling expenses 120000
Personal expenses 70,000
What is the net income?

a. P 170,000
c. P 100,000
b. P 290,000
d. P20,000
3. Compute the taxable compensation income.

a. (P150,000)
c. P 90,000
b. (P30,000)
d. P 120,000
4. Compute the taxable income.

a. P 10,000
c. P 140,000
b. P100,000
d. P 260,000
5. Raymund and Zeus practice their accounting profession through professional partnership.
They contributed equal capital and agreed to share in the profits equally. The following relates to
their gross receipts and expenses:
Gross receipts P 4,000,000
Less: Cost of services 1.800.000
Gross income from operations P 2,200,000
Add: Other non-operating income
Gain on sale of equipment 100000
Interest on time deposits 40,000 - 140,000
Total gross income P 2,340,000
Less: Allowable deductions 1,200,000
Net profits P 1.140,000
What is the reportable income in the tax return of Raymund?

P1,170,000
c. P550,000
b. P500,000
d. P570,000
6. In the immediately preceding problem, determine the amount of income to be reported by

Zeus assuming that their partnership is a beauty parlor.
a. Р0
c. P550,000
b. P570,000
d. P500,000
7. An alien employee in an RHQ had the following in 2015:
Gross compensation income nobilita P 1,500,000

Contributions to SSS, PhilHealth, and HDMF 150,000
Creditable withholding tax 202,500
What is the total amount to include in gross income subject to regular income tax?
a. P0
c. P1,350,000
b. P1,147,500
d. P1,500,000
8. In the immediately preceding problem, what is the amount to include in gross income
assuming the employee is a Filipino rank and file employee?
a. PO
c. P1,500,000
b. P 1,147,500
d. P 1,350,000
9. A corporation had the following gains from dealings in properties:
Sale of delivery truck P 150,000

Sale of domestic stocks 50,000
Sale of 3-year corporate bonds 12,500
Sale of 6-year corporate bonds 7,500
What is the total amount of gain to be included in gross income?

a. P 150,000
c. P 170,000
b. P162,500
d. P 212,500
10. Shown below is a compilation of the gain on the sale of real properties: Real properties
classified as
Philippines Abroad
Ordinary assets P 300,000 P800,000
Capital assets 400,000 000 200,000
What is the amount of income to be included in gross income subject to regular income tax
assuming the taxpayer is a domestic corporation?
a. P 1,300,000
c. P 1,700,000
b. P 1,100,000
d. P 300,000
11. What is the gain to be included in gross income subject to regular income tax if the
on taxpayer is a resident foreign corporation?
a. P 300,000
c. P 700,000
b. P 400,000
d. P 1,100,000
12. What is the gain to be included in gross income if the taxpayer is a resident alien?
P700,000
c. P 300,000
b. P 400,000
d. P 1,100,000
13. A taxpayer collected the following passive income during the year:
Passive income
Philippines Abroad
Interest income from banks
300,000 P 800,000
Royalties from books
200,000 100,000
Rent of properties
400,000 200,000
What is the amount to be reported in gross income if the taxpayer is a resident

citizen?
a. P 900,000
c. P 1,500,000
b. P 1,100,000
d. P 2,000,000
14. In the immediately preceding problem, what is the reportable gross income assuming the
taxpayer is a resident alien?
a. P0
c. P 600,000
b. P 900,000
d. P 400,000
15. In 2020, the taxpayer received the following prizes and winnings:
Philippines
Abroad
Passive income
Prizes P 10,000 P 400,000
Winnings 400,000 100,000
What is the reportable item of gross income if the taxpayer respectively is a resident citizen and a
non-resident citizen?
a. P500,000; PO
c. P0; P 500,000
b. P 510,000; P 10,000
d. P 910,000; P 410,000
16. What is the reportable item of gross income if the taxpayer is a domestic corporation and a
resident foreign corporation, respectively?
a. P 500,000; PO 00
c. P 910,000; P 410,000
b. P510,000; P 10,000
d. P 500,000; P 10,000
17. Mang Sipalay registered his business as a BMBE. He made a total sales of P500,000 and
incurred cost of sales of P400,000. He also earned P10,000 interest income from time deposits.
What is the total reportable gross income?
a. P0
c. P 100,000
b. P 10,000
d. P 110,000
18. Boracay Company is registered as a TIEZA locator subject to 5% gross income tax. During
the year, it made a total P400,000 gross receipts from various tourist assistance services. It also
incurred P210,000 in direct services.
What is the amount to be included in gross income subject to regular income tax?
a. P0
c. P 210,000
b. P 190,000
d. P 400,000
19. Mr. Siayan is a 5-6 lender. During the year, he granted loans totaling P2,000,000 and
collected P400,000 in interest. He also earned P8,000 in temporary investments in domestic
bonds plus additional P6,000 from bank deposit substitutes. Direct cost of lending was P100,000.
What is the total amount to be reported in gross income subject to regular tax?
a. P0
c. P 414,000
b. P 300,000
d. P 308,000
20. Mr. Asuncion received the following royalties from the following sources:
Mining claims P 150,000
Novel, “Alicia in Wonderland" 250,000
Basic Accounting textbook 80,000
Musical composition "Dayang-dayang" 40,000
What is the total amount to be reported in gross income?

c. P400,000
d. P520,000
a. PO
b. P150,000

1. Mrs. Kapalong has several interests in various businesses and partnerships. He received the
following income during the year:
Dividends from a domestic corporation 120,000

Dividends from a resident foreign corporation 80,000
Share in net income of a business partnership 200,000
Share in the net income of a professional partnership 100,000
What is the total income to be reported in gross income?

a. РО
c. P300,000
b. P380,000
d. P180,000
2. Ms. Panabo received a total P200,000 from her father for her support. During the
year, she also received a P150,000 total distribution from the trust irrevocably
designated by her grandfather in her favor. She also received P120,000 income distribution from
the estate of her grandmother undergoing judicial settlement.
What is the total amount to be included in her gross income?

P200,000
c. P350,000
b. P270,000
P470,000
3. A non-VAT taxpayer collected P45,000 net of P5,000 withholding tax. Compute the gross
income subject to regular tax.
a. P 5,000
c. P 45,000
b. P 40,000
d. P 50,000
4. A VAT taxpayer collected P66,600, inclusive of P7,200 VAT and net of P600 withholding tax.
Compute the gross income subject regular income tax.
a. P 59,400
c P 66,000
b. P 67,200
d. P 60,000
5. A non-VAT taxpayer collected P79,200, net of 1% withholding tax. What is the amount subject
to regular income tax?
a. P71,351
c. P 80,000
b. P 71,429
d. P 79,200
6. A VAT taxpayer received P45,900 inclusive of VAT and net of 10% creditable withholding tax.
Compute the gross income subject to regular tax.
c. P 45,536
d. P 51,000
b. P45,900
a. P 45,000
7. A non-VAT taxpayer received P8,000 interest income, net of 20% final withholding tax.
Compute the amount subject to regular income tax.
a. P0
c. P 8,000
b. P 6,400
d. P10,000
8. A VAT-registered taxpayer received P18,000 dividend, net of 10% final withholding tax.
Compute the amount subject to regular income tax.
a. P0
c. P 17,857
b. P 17,647
d. P 20,000
9. A resident foreign corporate taxpayer entered into an advanced pricing agreement (APA) with
the BIR with respect to the pricing of its export sales to a 1 foreign country. A mark-up ratio of
50% of the cost is set in the APA. During the 2
year, the corporation manufactured goods costing P12,000,000 and exported 80% of the
production to its foreign affiliate at a price ofP12,000,000.
What is the amount of gross income subject to Philippine tax?

a. P 2,000,000
c. P 2,400,000
b. P 4,800,000
d. P 6,000,000
10. Ms. Nene Gosio registered a manufacturing business as a BMBE exempt from tax. She also
owns another taxable business which is engaged in the trading of goods. Ms. Gosio ordered her
BMBE business to sell its production to her trading business at ultimate sales prices.
You were tasked by your audit supervisor to conduct a transfer pricing evaluation of Ms. Gosio's
businesses. Based on your study, you determined that the retail
profit rate (on sales) of trading businesses with similar operations involving similar goods is
40%. During the year, the trading business made a total purchases of P400,000 from the BMBE
and sold 75% of these for P500,000.
What is the gross income of the trading business to be subjected to regular income EM
tax following the arms' length principle?
a. PO
c. P 200,000
b. P100,000
d. P 120,000
Northern CPAR: Taxation – Capital Gains Taxation
NORTHERN CPA REVIEW
th
4 Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail Address: ncpar@yahoo.com
REX B. BANGGAWAN, CPA, MBA
TAXATION
CAPITAL GAINS TAXATION
The assets of the business are classified as:
1. Ordinary assets – includes:
a. stock in trade of the taxpayer, or other property of a kind which would properly be
included in an inventory of the taxpayer if on hand at the end of the taxable year
b. properties held by the taxpayer primarily for sale to customers in the ordinary
course of trade or business;
c. properties used in trade or business of a character which is subject to allowance
for depreciation; and
d. real properties used in trade or business
Examples: inventories, property, plant and equipment
2. Capital assets – any other assets that does not fall under the definition of ordinary
assets
Examples: investment properties, notes receivables and investment in equity or debt
securities (for a non-security dealer taxpayer)
Gains arising from sale of ordinary assets are called “ordinary gains.” Gains arising from
sale of capital assets are called “capital gains.” All ordinary gains are taxable under
regular income taxation. Capital gains are taxable either under final tax or under regular
income tax.
CAPITAL GAINS SUBJECT TO FINAL TAX
A. Capital gains tax on sale, barter, exchange and other disposition of domestic
shares of stock directly to buyer
Requisites:
a. There is a net gain.
b. The capital asset sold is a domestic stock.
c. The sale is made directly to buyer.
Capital Gains Tax Rates:
First P100,000 of the net gain 5%
Excess of the net gain over 10%
P100,000
Note to candidates: This rule on capital gains on sale of domestic stocks directly to
buyer is uniform to all income taxpayers (individuals or corporate) regardless of
classification.
The rule do not applies to:
1. Gains on sale shares of stock is that is traded in the Philippine Stock Exchange
(PSE)
 This is subject to a transaction tax (percentage tax) of ½ of 1% of selling price.
2. Gains under similar conditions by security brokers or dealers
When to file the Capital Gains Tax Returns?
1. Per transaction basis: Within 30 days after each transactions
2. Annual basis:
a. For individuals – On or before April 15 of the following year
b. For corporations – On or before the 15 th day of the fourth month following the
close of the taxable year
When to pay the capital gains tax?
1. Lump sum – Upon date of filing the return with the Bureau (within 30 days from
date of sale)
2. Installment – tax on installments is due within 30 days from receipts of each
installments
Documentary Stamp Tax
1
Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX – 5 Batch – HQ05
th
 Par value stock: P0.75/P200 or fractional part of the par value of due bill,
certificate of obligation or stock
 No-par stock: 25% of the documentary stamp tax paid on the original issue of said
stock. (The documentary stock on original issue of non-par stock is based on actual
consideration for the issuance – Sec. 174 NIRC)
 Limit: Only one tax shall be collected on each sale or transfer of stock or
securities from one person to another regardless of whether or not a certificate of
stock is issued or obligation is issued, indorsed, or delivered in pursuance of such
sale or transfer.
 Deadline: Documentary stamp tax return shall be filed within 10 days after the
close of the month when the taxable document was made, signed, issued, accepted
or transferred, and the tax thereon shall be paid at the same time the return is
paid.
B. Sale, exchange or other disposition of real property in the Philippines
classified as capital asset
Requisites:
a. The real property is located in the Philippines.
b. The property is classified as capital asset.
c. The taxpayer is an individual or a domestic corporation.
d. The taxpayer is other than a foreign corporation.
Tax Rate and Tax Basis: 6% x (the higher of Gross Selling Price or Fair
Market Value)
The fair market value for purposes of the capital gains tax is whichever is higher of:
1. Zonal value as prescribed by the Commissioner of Internal Revenue
2. Assessed value as determined by the Provincial or City Assessor’s Office
Gross selling price – The amount of any money received plus the fair market value of
any property received. Interest on the selling price shall be treated separately as Other
Income taxable under regular income taxation.
Excess Mortgage Assumed
The excess of the mortgage assumed over the cost of the property is included both in
initial payment and selling since it is a constructive receipt of income; in other words,
it represents “extra consideration”.
Note to Candidates: The basis of the tax is on the gross selling price or gross fair
market value. This treatment presumes the existence of gain and is applied regardless
of the existence of actual gain.
SCOPE OF THE 6% CAPITAL GAINS TAX:
Individuals Corporation
Citizen Alien
Location of Non- NR- NR- Domest Reside Non-
Real Reside Reside Reside ETB NETB ic nt residen
Property nt nt nt t
Philippines       Not Applicable
Abroad × × × × × × × ×
Note to Candidate: Regular income taxation, being the general rule, applies where the
6% final capital gains tax do not apply. Under regular taxation, the actual net gain is
subject to regular income tax.
How is the capital gains tax paid?
1. The tax is withheld at source – the seller and buyer files a joint capital gains tax return
(one return per sale or foreclosure sale).
2. Installment (one return for each installment payment receive)
The tax is withheld at source in installments when the taxpayer qualifies and opted to
be taxed on installments.
Alternative Taxation:
The actual net gain on the sale of real property may be included under progressive
income taxation.
Requisites:
a. the seller is an individual
b. the buyer is the government, its political subdivisions or agencies or GOCCs
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Tax Exemption:
The sale may be exempted from the payment of capital gains tax provided the following
conditions are met:
1. The seller is an individual citizen or resident alien.
2. The real property sold is his principal residence.
Principal Residence – the place where an individual person resides comprising of the
house and the lot to where it erects; in case the interest on the land component is held
by other persons, only the dwelling house is considered principal residence.
The residential address indicated in the latest income tax return immediately before
the date of sale is conclusive presumed to be the true residence. The Barangay
Captain Certification or Building Administrator Certification in the case of
condominium residences is no longer honored.
3. The full proceed of the sale is utilized in acquiring another residence.
4. A new residence must be acquired or constructed within 18 calendar months from the
date of sale.
5. The BIR is duly notified by the taxpayer of his intention to avail of the tax exemption
within 30 days from the date of sale through a prescribed return.
6. The capital gains tax thereon is held in escrow in favor of the government.
7. The exemption can only be availed once every 10 years.
8. The historical cost or adjusted basis of the real property (principal residence) sold
shall be carried over to the new principal residence built or acquired
Should there be any portion of the proceeds of sale not utilized for the reconstruction
of a new residence, the same shall be taxable. The tax on the unutilized portion shall
be determined as follows:
Gross selling price or Unutilized portion

Fair Market Value at x x 6%
the date of sale, Gross selling
whichever is higher price
Tax Basis of New Principal Residence:
Tax Basis refers to the cost or adjusted cost of a property for tax purposes and hence the
amount deductible for tax purposes in determining gain or losses in disposal of the
related property if the related transaction is taxable under the progressive system of
taxation. Generally, when a property is acquired by purchase, the cost is the tax basis.
A tax basis reduction may result if the proceeds of the disposition of a principal residence
is not fully utilized in the acquisition or construction of a replacement. Likewise a tax
basis increase results when additional expenditures were incurred by the taxpayer in
securing a replacement principal residence.
Less than full utilization of proceeds:
Utilized Selling
New cost = x Basis of the old
basis Gross Selling principal residence
Price
More than full utilization of proceeds:
Basis of the old Additional expenditure

New cost = principal residence + in excess of the
basis
Documentary Stamp Tax proceeds
 Amount:
 P15 – if selling price after allowance for encumbrances does not exceed P1,000
 P15 – for each P1,000 or fractional excess above P1,000 of such selling price
 Deadline: Documentary stamp tax return shall be filed and the tax thereon paid
within 5 days after the close of the month when the taxable document was made,
signed, issued, accepted or transferred.
DRILL PROBLEMS: ORDINARY OR CAPITAL ASSETS

Realty Security Merchandiser
Developer Dealer
Vacant lot
Office supplies
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Domestic stocks
Bonds
Accounts/notes receivables
Office building
Office equipments
Land where the office building stands
Personal car of the business
proprietor-taxpayer
Personal house and lot of the
proprietor-taxpayer
Jewelry of the proprietor-taxpayer
DRILL PROBLEMS: CAPITAL GAINS ON THE DISPOSAL OF DOMESTIC STOCKS

A. Transactional Capital Gains Tax
For each of the following scenarios, compute the capital gains tax:
Capital
Illustrative Cases Gains Tax
1. Andy sold domestic stocks through the PSE at a gain of P400,000
2. Andy, a security dealer, sold domestic stocks through the PSE at a gain
of P400,000
3. Andy, a security dealer, sold domestic stocks directly to a buyer at a
gain of P400,000
4. Andy, a realty dealer, sold domestic common stock to DEF, Inc. at a
gain of P300,000.
5. ABC, Inc. sold domestic stocks though the PSE at a gain of P400,000
6. ABC, Inc. issued its shares of stock at P300,000 in excess of its par
value.
7. ABC, Inc. exchanged the shares of DEF, Inc. it acquire for P1,000,000
for a lot valued at P1,400,000.
8. Andy sold his investment in domestic stocks to the issuing Company,
ABC, Inc. The transactions realized a gain of P300,000.
9. Andy sold domestic bonds through the PDEX at a gain of P100,000.
10.Andy sold domestic bonds directly to buyer at a gain of P400,000
11.Andy sold his interest in a partnership for P400,000. His interest had a
tax basis of P300,000 at the date of sale.
12.ABC, Inc. acquired DEF stock rights for P200,000. ABC subsequently
disposed this rights for P400,000.
13.Andy purchased a stock option from DEF, Inc. Subsequently, Andy sold
this options at a gain of P50,000.
14.Andy purchased domestic common stock for P100,000 and sold the
same for P180,000. At the date of sale the stock has a fair market
value of P210,000.
15.Andy purchased ordinary shares for P200,000 from DEF, Inc., a
resident corporation operating in the Philippines. After 2 years, it sold
the same directly to buyer for P300,000 when the fair market value
was P280,000.
B. Annualized Capital Gains Tax

Andrix, resident alien, taxpayer made the following dispositions of shares of stock
during 2009:
Capital
Date Security Selling Cost Mode of Gains Tax
price settlement
1/18/9 Domestic common P P120,0 Directly to
stocks 400,000 00 buyer
2/12/9 Domestic bonds 200,000 180,00 Directly to
0 buyer
3/14/9 Domestic preferred 300,000 250,00 Through PSE
stocks 0
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4/22/9 Resident corp. 180,000 120,00 Directly to
stocks 0 buyer
6/18/9 Domestic stock 150,000 120,00 Directly to
options 0 buyer
8/15/9 Resident corp. 200,000 240,00 Directly to
bonds 0 buyer
9/2/9 Domestic common 300,000 320,00 Through PSE
stocks 0
9/24/9 Domestic preferred 280,000 300,00 Directly to
stocks 0 buyer
10/28/9 Domestic stock 100,000 120,00 Directly to
rights 0 buyer
12/11/ Domestic preferred 400,000 380,00 Directly to
9 stocks 0 buyer
Assume all capital gains or losses are long-term and that the taxpayer has other
regular income of P300,000.
1. Capital gains tax payable at year-end ___________
2. Total percentage tax paid ___________
3. Total regular income of the taxpayer ___________
C. Special Cases
1. ABC, Inc., a domestic non-security dealer, had the following transactions involving
the securities of non-listed domestic corporations during 2010:
Date Purchas Sale Price Security Capital Gains
e Tax
2/4/9 10,000 - P GSM common
10 stocks
3/6/9 1,000 - 1,000 PLDT bonds
4/5/9 - 10,000 21 GSM common
stocks
4/15/9 - 600 1,100 PLDT bonds
10/28/ 10,000 - 16 GSM common
9 stocks
11/15/ - 400 980 PLDT bonds
9
11/23/ - 10,000 12 GSM common
9 stocks
12/5/9 500 - 950 PLDT bonds
12/14/ 8,000 - 13 GSM common
9 stocks
ABC, Inc. had P300,000 operating income. GSM and PLDT are both domestic
corporations.
Required: Compute the following
1. Capital gains tax per transactions where applicable
2. Annual capital gains tax payable or (refundable) _________
3. 2010 taxable income of the taxpayer _________
4. Tax basis of the GSM common stocks _________
5. Tax basis of the PLDT bonds _________
2. Andy exchanged his DEF, Inc. shares which he previously acquired at P200,000 for
the shares of ABC, Inc. valued at P300,000 in pursuant to a merger agreement
between DEF, Inc. and ABC, Inc. Compute the capital gains tax. __________
3. On July 1, 2010, Andy sold his domestic stocks with aggregate par value of
P250,000 and acquisition cost of P300,000 to Betty for P500,000. Betty made a
downpayment of P50,000 and signed a note for the balance payable in 9 semi-
annual installments starting December 31, 2010.
Required:
1. Compute the 2010 capital gains tax __________
2. Compute the documentary stamp tax on the sale __________
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DRILL PROBLEMS: CAPTIAL GAINS TAX ON THE DISPOSAL OF REAL
PROPERTY
A. Scope of the 6% Capital Gains Tax

Capital
Illustrative Cases: Gains Tax
1. ABC, Inc. disposed a vacant lot costing P2,000,000 at a gain of
P1,000,000. The lot has a fair value of P2,500,000 at the date of
disposal.
2. ABC, Inc. disposed its old office building with a carrying amount of
P2,000,000 at a gain of P1,000,000. The lot has a fair value of
P2,500,000 at the date of disposal.
3. DEF, Inc., resident foreign corporation, disposed its headquarter with
carrying amount of P2,000,000 at a gain of P1,000,000. The
headquarter has a fair value of P4,000,000 at the date of disposal.
4. Andy sold his old residence for P4,000,000 to finance his business. His
old residence has an appraisal value of P5,000,000, assessed value of
P3,000,000 and zonal value of P4,500,000.
5. Andy, a dealer of personal property, sold a vacant lot in Baguio City at
a gain of P400,000. The lot cost him P600,000 and has an assessed
value and zonal value of P800,000 and P1,200,000, respectively.
6. Andy wishes to expand business. He sold his warehouse consisting of
a lot and building for P5,000,000. The lot and building has assessed
value of P4,000,000 and zonal value of P4,500,000.
7. Andy sold one of his house and lot in Japan at a gain of P2,000,000.
This property has an appraised value of P5,000,000 and were
acquired at P3,000,000.
8. ABC Realty Corporation sold an undeveloped lot in Pangasinan. The
lot cost P2,000,000 and were sold at its current fair value of
P3,000,000.
B. Special Cases
1. Scope of Exemption
Information for the property disposed of:
Zonal value P
3,000,000
Assessed value 2,500,000
Appraised value 3,500,000
Cost 2,000,000
For each of the following independent, indicate the capital gains tax:
Illustrative Cases: CGT
1. Andy sold his principal residence for P4,000,000. He immediately
repurchased a new residence for P4,200,000.
repurchased a new residential lot for P2,000,000.
4. Andy sold one of his residential property for P4,000,000. He
immediately repurchased a new residence for P4,200,000.
5. Andy sold his residence lot for P4,000,000. He immediately
6. DEF, Inc. sold a vacant lot for P4,000,000. Within 18 months, it
used the proceeds to purchased residential houses for its directors
and officers.
7. Andy’s house and lot was one of the several properties to be
expropriated by the government to build on an airport. The
government paid Andy P3,000,000. Andy leases his residence since
then. Andy opted to be subjected to capital gains tax.
8. Andy’s house and lot was foreclosed after his failure to pay the
P2,000,000 mortgage on the property. The bank paid him P500,000
for after the auction sale.
2. With mortgage
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Andy sold his house and lot with fair value of P2,500,000 for P3,000,000 on July 1,
2010. The house and lot, which was subject to P2,000,000 mortgage was acquired
for P1,500,000 in 2005. The buyer assumed the mortgage on the property and
signed a note payable for the balance payable in 5 semi-annual installments.
1. Initial payment _________
2. Contract price _________
3. Capital gains tax in 2010 _________
3. Installment
Ms. Shiela Longboan sold her residential house under the following terms:
Cash received, January 10, 2006 P
100,000
Amount received, June 10, 2006 100,000
Installment due, June 10, 2007 600,000
Additional Information:
Cost of the land P
150,000
Mortgage assumed by the buyer 200,000
Mortgage on the land executed by the
buyer in 600,000
favor of the seller to guarantee
payment
1. Selling price
a. P 750,000 b. P 800,000 c. P 850,000 d. P1,000,000
2. Contract price
a. P 750,000 b. P 800,000 c. P 850,000 d. P1,000,000
3. Initial payments
a. P 100,000 b. P 200,000 c. P 250,000 d. P 150,000
4. Capital gains tax in 2006
a. P15,000 b. P17,647 c. P22,333 d. P 60,000
5. Documentary stamp tax
a. P12,000 b. P12,750 c. P14,325 d. P15,000
CPA EXAM DRILL PROBLEMS:

1. The term “capital assets” includes
a. Stock in trade or other property included in the taxpayer’s inventory.
b. Real property not used in the trade or business of the taxpayer.
c. Real property primarily use for sale to customers in the ordinary course of trade or
business.
d. Property used in the trade or business of the taxpayer and subject to depreciation.
2. Lots being rented when subsequently sold are classified as
a. Capital assets c. Ordinary assets
b. Liquid assets d. Fixed assets
3. Which is an ordinary asset for a realty developer?
a. Accounts receivables c. Real property held for development and
subsequent sale
b. Construction machineries d. Head office building of the developer
4. Which of the following accounting assets is not an ordinary asset?
a. Investment property c. Property, plant and equipment
b. Inventory d. Trading securities by a stock brokerage firm
5. On July 1, 2009, Crislyn Riego sold shares of stock for P200,000. The shares which
were acquired for P140,000 acquire on June 1, 2007, have a par value of P150,000,
were held as investment, and were sold to a buyer under the following terms:
Downpayment, July 1, 2009 P
20,000
2009
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2010
2011
How much was the capital gains tax due in 2009?
a. P 500.00 c. P625.00
b. P 450.00 d. P750.00
6. How much was the documental stamp tax due?
a. P 600.50 c. P 562.50
b. P 525.25 d. P 612.50
7. To facilitate the disposal of his shares, Freddie sold his shares for P360,000 at 10%
discount from its fair value. Even at discounted price, Freddie reports a gain of
P160,000. Compute the capital gains tax on the transaction.
a. P 21,000 c. P 16,000
b. P 11,000 d. P 15,000
8. Which of the following is not a requisite of installment payment of capital gains tax in
installment involving the sale of personal property?
a. Downpayment must not exceed 25% c. The item sold is not inventoriable
b. Selling price must exceed P1,000 d. Initial payment must not exceed
25%
9. Abdul Rhamanam Ahmin, a non-resident alien disposed his stock investments in a
domestic corporations to Juan dela Cruz, a non-resident citizen, at a gain of P300,000.
Which statement is correct?
a. The sale is not subject to capital gains tax since the property involved is a personal
property is deemed located abroad.
b. The sale is not subject to capital gains tax as Juan dela Cruz, the buyer, is a non-
resident individual.
c. The sale is subject to capital gains tax even if the sale occurred outside the
Philippines.
d. None of these.
10.Meiko Acebo is a stock broker and holds 10,000 ordinary stock of San Miguel
Corporation, a domestic corporation, acquired at P100 per share. His valuation for
San Miguel Corporation indicates that San Miguel’s stocks will decline in the near
future. If Meiko sells his stock investment directly to a buyer, Zeus Millan, at P115 per
share, how much is the capital gains tax payable on the transaction?
a. P5,000 c. P5,750
b. P10,000 d. P 0
11.Mr. Acebo, a non-security broker or dealer, made the following dispositions directly to
buyer:
Date Domestic securities Gain/(Loss)
2/4/8 Abacus ordinary shares P
150,000-
5/8/8 PLDT bonds 150,000-
7/15/8 Globe preferred shares ( 80,0
00)
9/20/8 Globe common shares 50,000-
11/15/8 Metrobank ordinary 80,000-
shares
Compute the amount of capital gains tax payable (refundable) of Mr. Acebo for the
year 2008.
a. (P1,500) c. P 0
b. P15,000 d. P38,000
12.Which of the following entities is not exempt to the final capital gains tax imposed on
the sale, exchange and other disposition of real property?
a. Banks on their sale real and other assets acquired in the Philippines
b. Resident corporations on their land not used in business in the Philippines
c. Real estate developer or dealer on their sale of condo units
d. Resident citizen on his sale of one of his residence under foreclosure sale
13.The actual capital gain derived by an individual taxpayer may be included to all
income subject to progressive income tax when
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a. It involves sales of real property to non-residents
b. It involves sales of real property to the government
c. It involves sales of personal property to non-residents
d. It involves sale of domestic stocks directly to taxpayer
14.Ms. Janet Ranillo, a real estate dealer, sold a real property for P200,000 on October
29, 2007 in installment. The cost of the property was P150,000. The terms of the sale
agreed upon by Ms. Ranillo an the buyer were:
Downpayment P 40,000
of P10,000 160,000
beginning November 29, 2007 until
fully paid
How much income will be reported in 2007?
a. P12,500 b. P15,000 c. P50,000 d. P75,000
15.Ms. Lyn Rosales, a real estate dealer, sold a real estate for P2,000,000 on November
29, 2007. The cost of the property was P1,500,000. The terms of the sale were as
follows:
Downpayment P
400,000
of P100,000 1,600,00
beginning December 29, 2007 until 0
fully paid
How much was the income to be reported in 2007?
a. P100,000 b. P112,000 c. P125,000 d. P140,000
16.Compute the capital gains tax in the above case.
a. P 30,000 b. P 40,000 c. P120,000 d. P 0
The following problems relates to numbers 17 through 20:
17.Raff Escuela sold his principal residence for P5,000,000. His principal residence was
acquired at P2,000,000 and has a fair market value of P6,000,000 at the date of sale.
Within 18 months, Raff reconstructed his new principal residence for P4,500,000.
Compute the capital gains tax to be deposited in escrow.
a. P 270,000 b. P 300,000 c. P360,000 d. P 0
18.The cost basis of the new residence is
a. P1,800,000 b. P1,500,000 c. P3,750,000 d.
P4,500,000
19.The amount of capital gains tax to be released to Raff is
a. P240,000 b. P270,000 c. P300,000 d. P324,000
20.Compute the cost basis of the new residence if it was acquired for P5,200,000.
a. P2,000,000 b. P2,200,000 c. P1,733,333 d.
P4,333,333
21.Which is not a requisite of the wash sales rule of securities?
a. The sale or other disposition of securities resulted to a loss
b. There was an acquisition or contract or option for acquisition of stock or securities
within 30 days before the sale or after the sale.
c. The stock or securities sold were substantially the same as those acquired within
the 61-day period.
d. The seller must be a dealer in securities in a short sale transaction.
22.The following are not substantially identical securities, except one
a. Common stock and preferred stock
b. Voting and non-voting common stock
c. Bonds with different interest rates or secured and unsecured bonds
d. Similar bonds with different maturity dates
23.To which of the following is the capital gains tax required to be filed? (Select the
exception.)
a. Authorized Agent Bank under the jurisdiction of the RDO where the seller is
b. Revenue collection officer
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c. Duly authorized City or Municipal Treasurer of the RDO where the seller is
d. Office of the Commissioner of Internal Revenue
--- End of Handouts ---
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1. A acquired a machine at a cost of P500,000. Scrap value is P40,000 and the estimated useful
life was 25 years. After depreciating the asset for 20 years using the straight-line method, it
was determined that the remaining life is not five years. The annual depreciation from the 21 st
year assuming a remaining life of 10 years without scrap is a. P17,600
b. P20,000
c. P35,200
d. P13,200
2. C Corp. is engaged in the sale of goods and services with net sales and net revenue of P2M
and P1M, respectively. The actual entertainment, amusement and recreation expense
amounted to P18,000. The deductible “EAR” expense is
a. P18,000 b. P19,000 c. P12,000 d. P16,000
3. A, not happy with her present job, resigned and started her own business. The business
requires her to travel so she used her car for the purpose. Assume that A started her business
on April 1 and that she uses the car for business 70% of the time. Assuming total expenses
for the year for the use of the car is P300,000, the deductible expense is a. P210,000
b. P157,500
c. P225,000
d. P175,500
4. A building was destroyed by fire in 2017. The building had a book value of P5M. The
insurance company was willing to pay P4M, which was refused by the owner. Finally, the
claim was settled in 2018 for P4.6M. The proceeds will be a. Exempt from income tax
b. Part of taxable income
c. Subject to final tax
d. Partly exempt, partly taxable
A taxpayer engaged in business incurred a partial loss of property as follows:

Asset 1 Asset 2
Book value of the asset at the asset at the time of loss P 200,000 P 200,000
Cost to restore the property back to its normal operating condition 120,000 300,000
Insurance recovery 50,000 None
Salvage None 40,000
5. The deductible loss for asset 1 is

a. P 120,000 c. P 30,000
b. P 70,000 d. P 80,000
6. The deductible loss for asset 2 is

a. P 300,000
b. P 350,000
c. P 160,000
d. P 240,000
The following amounts were paid for the plan’s operation:

Contribution for Services
Past Years Current Years
First year………………… P 200,000 P 100,000
Third year……………… 50,000 100,000
Sixth year………………… 50,000 100,000
Twelfth year……………… 40,000 100,000
7. The pension expense for the first year if the retirement plan is not BIR-registered is a. P
150,000 b. P 100,000 c. P 60,000 d. P 105,000
8. The pension expense for the sixth year if the retirement plan is BIR-registered is
a. P 200,000 b. P 100,000 c. P 130,000 d. P 70,000
9. The pension expense for the twelfth year if the retirement plan is BIR-registered is
a. P 114,000 b. P 134,000 c. P 100,000 d. P 70,000
10. Mr. Santos, a retailer of goods, uses the accrual method in reporting his income and expenses.
His transactions show:
Jan. 1 to June 30 July 1 to Sept. 30 Oct. 1 to Dec. 31
Gross Sales P 1,000,000 P 700,000 P 900,000
Cost of Sales 600,000 200,000 300,000
Business expenses 100,000 50,000 70,000
Non-operating income
In the ITR 50,000 40,000 10,000
If he avails of the OSD, his annual taxable net income under the graduated rates is: a.
P 1,040,000
b. P 1,660,000
c. P 900,000
11. Using the preceding number, but using ID, his annual taxable net income is: a. P 1,500,000
b. P 1,230,000
c. P 1,380,000
12. Statement 1: Damages for loss of earnings represent taxable income.

Statement 2: Exemplary damages received by the plaintiff do not constitute taxable income
to the plaintiff.
a) Statement 1 is true.
b) Statement 2 is true.
c) Both statements are false.
d) Both statements are true.
13. The following constitute taxable income except:
a) Refund of real property taxes paid in a previous year but disallowed as a deduction in the
year .
b) paid
Recovery
of debts which were previously charged off and deducted in a previous year. c) Casino winnings.
d) Interest income from loan where the interest charged is 100% per annum.
14. Advance rental in the nature of prepaid rental, received by the lessor under a claim or right,
and without restriction as to use is
a.
Taxable Taxable income of the lessor in the year received whether he is on the cash or accrual
method of.
accounting
income of the lessor in the year received if he is on the cash method of accounting. b.
c. Taxable income of the lessor in the year received if he is on the accrual method of accounting.
d. Taxable income of the lessor up to the amount earned in the year the rental is received.
15. One of the following may be a taxable income for a resident individual:
a. Interest on Philippine lotto winnings
b. Property received as gifts donor
c. Cash received as inheritance estate
d. Benefits from the SSS and/or GSIS
16. One of the following represents taxable income:

a. Refund of donors’ tax paid in prior year
b. Refund of overpaid rental expense in prior year
c. Refund of income tax in prior year
d. Refund of special assessment paid in prior year
17. At the testimonial dinner for new CPAs, Christian, a reviewer was requested to sing the
theme song of the movie “Ghost”. Pauline, a new CPA, was so delighted that she felt she
was falling in love with Christian so she decided to cancel Christian’s indebtedness to her.
As a result,
a. If Christian accepts the cancellation, he will pay donor’s tax
b. Christian received a gift from Pauline and therefore is not part of his taxable income
c. Christian realized a taxable income as compensation for services
d. The amount of indebtedness cancelled is partly taxable, partly exempt
The records of ABC Corporation, organized in 2007 showed the following data for 2017.

Less: Allowable business expenses
(other than bad debts) P1,850,000
Bad debts written off 100,000 _1,950,000
Taxable net income P 50,000
In 2018, 80% of the bad debts written off in 2017 was collected
18. In 2018, which of the following statements is correct?

a. There is a deficiency income tax of P24,000 for 2017
b. There is a taxable recovery amounting to P80,000 in 2018
c. The taxable net income should be corrected to P130,000
d. The bad debts expense in 2017 should be reduced to P20,000
19. Dick Tracy Corporation paid the following expenses during the year:
Interest for late payment (delinquent) income tax ₱ 5,000
Surcharge and compromise for late payment of income tax 30,000
Interest on bonds issued 40,000
Interest on money borrowed by the Company from a stockholder
who owns 20% of the outstanding stock of the Company 20,000
What is Dick Tracy Corporation’s deductible expense?

a) ₱45,000 b) ₱75,000 c) ₱65,000 d) ₱60,000
20. Net operating loss of a business or enterprise for taxable years 2020 and 2021 shall be
carried over as a deduction from gross income for the next
a. Three (3) consecutive taxable years immediately following the year of such loss.
b. Five (5) consecutive taxable years immediately following the year of such loss.
c. Eight (8) consecutive taxable years immediately following the year of such loss. d. None
of the above.
21. Statement 1: Passive income derived from investments or deposits in the Philippines by
foreign governments shall be taxable in the Philippines.
Statement 2: Income derived from governmental or proprietary functions by the National
Government of the Philippines or any of its political subdivisions as well as those
corporations owned by the Philippine government, are exempt from tax following the
principle that the government does not tax itself.
a) Statement 1 is true.
b) Statement 2 is true.
c) Both statements are false.
d) Both statements are true.
22. A) The cost of leasehold improvements shall be deductible by the lessee by spreading the
cost of the improvements over the life of the improvements or the remaining term of the lease
whichever period is shorter.
B) Contributions by the employer to a pension trust for past service cost is deductible in full
in the year that the employer made the contributions.
a. True, true
b. True, false
c. False, true
d. False, false
23. I. An expense which is necessary but not ordinary, or ordinary but not necessary is
deductible from gross income.
II. The taxpayer must signify his intention to elect the itemized deduction, otherwise, he is
deemed to have chosen the optional standard deduction.
a. True, true
b. True, false
c. False, true
d. False, false
24. Statement 1: The value of property acquired by gift, bequest, devise, or descent, as well as
the income from such property, shall be excluded from the gross taxable income of the
recipient.
Statement 2: Gains realized from the sale or exchange or retirement of bonds, debentures,
or other certificates of indebtedness with a maturity of at least 5 years, shall not be taxable to
the investor-seller.
a. Statement 1 is true. c) Both statements are false.
b. Statement 2 is true. d) Both statements are true.
25. One of the following is taxable income:

a. Gifts, bequests and devices e
b. Amounts received as rewards from giving information instrumental in the discovery of
violations of the Tax Code and seizure of smuggled goods.
c. Proceeds from life insurance
d. Separation pay received by an employee due to a cause beyond his control.
26. A) PCSO and Philippine lotto winnings (of more than ₱10,000) of citizens and resident
aliens are excluded from gross income in the ITR because they are exempt from tax.
B) All prizes, awards, winnings are excluded from gross income in the ITR because they are
subject to final tax.
a. Both are true

b. Both are false
c. Only the first is true
d. Only the second is true
27. Which of the following is taxable?

a. P 100,000 interest on long-term deposit or investment
b. P 200,000 gain on sale of 10-year bonds
c. P 12,000 prize in supermarket raffle
d. P 10,000 winnings in Philippine Lotto
28. Which payments made by the lessee under such terms of the lease contract should be
considered as additional rent income of the lessor?
A. If a lessee paid directly to the local government the real estate tax on the property of the
lessor
B. If the amount received by the lessor is in the nature of a security deposit for the faithful
compliance by the lessee of the terms of the contract
C. If the amount received by the lessor is in nature of a loan extended by the lessee to the
lessor.
a. Only A
b. Only A and C
c. Only B and C
d. A, B and C
29. Should the lessee make permanent improvements on the property leased under an agreement
that upon the expiration of the lease contract the improvements shall belong to the lessor, the
lessor may recognize income from the leasehold improvements
A. At the time when such improvements are completed, the fair market value of such
improvements.
B. By spreading over the remaining term of the lease the estimated depreciated value of such
improvements at the termination of the lease and report as income for each year of the
lease an aliquot part thereof.
a. A but not B is allowed
b. B but not A is allowed
c. Either A or B is allowed
d. Neither A nor B is allowed
30. A, was adjudged the best boxer in the recently concluded Asian games. In recognition of his
splendid performance, he was awarded a trophy and a cash prize of P1M. As a result, a. The
value of the trophy and the cash prize are part of his taxable income
b. Only the value of the trophy is taxable
c. Only the cash prize is taxable
d. Both are exempt from income tax
31. A purchased a life annuity for P1,000,000 which will pay him P100,000 a year. The life
expectancy of A is 12 years. Which of the following will A be able to exclude from his
income? a. P 1,000,000
b. P 1,200,000
c. P 200,000
d. P 100,000
32. If an individual performs services for a creditor who in consideration therefor cancels the
debt, the cancellation of indebtedness may amount to
a. A gift
b. A donation inter-vivos
c. A capital contribution
d. A payment of income
33. A, dedicated and honest employee of ABC Corp. for the past 20 years was advised that he is
to be retrenched as the company was losing heavily but that he would be given the separation
pay provided by law. To avoid the implication of inefficiency, A was advised to file a letter of
resignation instead of being retrenched. If A files a letter of resignation and receives the
separation pay, such amount is a. Taxable in full
b. Partly taxable, partly exempt
c. Exempt from income tax
d. Subject to final tax
34. Which of the following statements is true?

a. Payments which constitute bribes, kickbacks and others of similar nature which are
necessary to realize profits are allowed as deductions from gross income. f
b. The taxes which are deductible from gross income include the taxes, interest and
penalties incident to tax delinquency. F
c. Deductions are amounts allowed by the Tax Code to be deducted from gross income to
arrive at the income tax liability of a taxpayer.
d. Losses from wagering transactions shall be allowed only up the extent of the gains from
such transactions.
35. A revenue expenditure is

a. Usually incurred in the acquisition, betterment or permanent improvement of the asset.
b. Capitalized and the cost is recovered through annual depreciation.
c. Ordinarily to benefit more than one accounting period.
d. To benefit one accounting period and is a deduction from gross income in the year paid or
incurred.
36. No deductions shall be allowed where the transaction is between “related taxpayers” under
Sec. 36(B) of the Tax Code for
A) Losses from sales or exchanges of property
B) Interest expense
C) Bad debts
a. A and B b. B and C c. A and C d. A, B and C
37. The optional standard deduction for individuals is

a. 10% of the gross income
b. 10% of the gross sales receipts
c. 40% of the gross income
d. 40% of the gross sales/receipts
38. Interest expense incurred to acquire property used in trade or business or exercise of a
profession is
a. Not allowed as a deduction against gross income
b. Required to be treated as a capital expenditure to form part of the cost of the asset
c. Allowed as a deduction, or treated as a capital expenditure at the option of the taxpayer
d. Allowed as a deduction or treated as a capital expenditure at the option of the government
39. One of the following losses cannot be deducted from gross income:
a. To construct a bigger warehouse, a corporation demolished an old warehouse which had a
Expenses of demolition of a building existing on land purchased, where the corporation

had no use for the building at the time of purchase and it was its intention to remove the
building in order to build its.
factory
construction cost of P2 M and a book value of P300,000. b.
c. A corporation retired its machinery from the business because of the increase in the cost of
production and the failure of the machinery to meet the desired number of units of production.
d. A Corp. ascertained that its B Corp. stocks are worthless because of the total insolvency
of B Corp.
40. Examples of non-deductible taxes, except

a. Special assessment
b. Donor’s tax
c. Estate tax
d. Business tax
41. I. Interest paid on preferred stock is deductible from gross income of the paying corporation.
II. A capital expenditure usually benefits more than one accounting period and is deductible
from gross income in the year it is paid or incurred.
a. True, true
b. True, false
c. False, true
d. False, false
42. Beginning 1/1/2018, for individuals with purely gross compensation income, the following
may not be deducted:
a. Personal exemptions
b. Additional exemptions
c. Optional standard deduction
d. Premium payments on health and/or hospitalization insurance
e. All of the above.
43. A took out a life insurance policy of P1,000,000 naming his wife as beneficiary. The policy
provides that the insurance company will pay A and his beneficiary the amount of P1,000,000
after the 25th year of the policy, should he die before this date. The premiums paid on the
policy is P700,000. If A outlived the policy and received the proceeds of P1,000,000, such
proceeds will be:
a. Taxable in full
b. Exempt from income tax
c. Partly taxable, partly exempt
44.
Which ofThe Optional Standard Deduction is an amount equal to forty (40%) of the gross income
the from business or practice of profession of the taxpayer.
following statements is not correct? a.
b. The Optional Standard Deduction is not available against compensation income arising out of
an employer-employee relationship.
c. The election of Optional Standard Deduction is irrevocable for the taxable year for which
the choice is made.
d. Unless the taxpayer signifies in his return his intention to avail of the OSD, he shall be
considered as having availed of the itemized deductions.
45. A Corporation is engaged in the trading business. The reported income and expenses for
taxable year 2019 show:
Sales P 10,000,000
Cost of Sales 6,000,000
General business expenses 1,000,000
Interest on time deposit (gross) 100,000
Interest expense on loans payable 180,000
The net taxable income is

a. P 2,820,000 b. P 2,853,000 c. P 2,862,000 d. P 2,858,000
Nontaxable interest received 250,000
Long term loss accrual in excess of deductible amount 500,000
Tax depreciation in excess of financial depreciation 1,250,000
Income tax rate 30%
ANSWER: B, B, C, A
20) What is the current tax expense?
A. 2,325,000 B. 2,100,000 C. 2,400,000 D. 1,950,000
21) What is the total tax expense?

A. 2,400,000 B. 2,325,000 C. 2,100,000 D. 2,175,000
22) What is the deferred tax liability at year end?

A. 150,000 B. 225,000 C. 375,000 D. 525,000
23) What is the deferred tax asset at year end?

A. 150,000 B. 375,000 C. 225,000 D. 350,000
ANSWER: B, B, C, A
Accounting Income 8,000,000
Permanent differences:
Non Taxable Income (250,000)
Non Deductible Expense --- (250,000)
Accounting Income subject to tax 7,750,000 30% 2,325,000 Total Tax Expense
Temporary Differences (current year):
Deductible Temporary ( + ) 500,000 30% 150,000 B Increase in DTA ( benefit )
Taxable Temporary ( – ) (1,250,000) 30% 375,000 E Increase in DTL ( expense )
Total --- (750,000) % --- 225,000 E Deferred Tax Expense (Benefit)
Taxable Income 7,000,000 30% 2,100,000 Current Tax Expense
Use the following information for the next two (2) questions:
Friday Company, in its first year of operations, had the following differences between carrying amount
and tax base of assets and liabilities at December 31, 2018:
Carrying amount Tax base
Equipment 4,000,000 3,500,000
Warranty liability 1,500,000 0
The warranty liability will be settled in 2019. The difference in equipment will reverse in amounts of P200,000,
P200,000 and P100,000 for years 2019, 2020 and 2021 respectively. The financial income for 2018 is
P5,500,000 and the tax rate is 30% for the years 2018-2020 and 25% for 2021. It is probable that the entity will
report taxable income in the future periods.
24) What is the current tax expense for 2018?

A. 1,950,000 B. 1,625,000 C. 1,350,000 D. 1,500,000
25) What is the total tax expense for 2018?

A. 1,645,000 B. 1,650,000 C. 1,625,000 D. 2,200,000
ANSWER: A, A
Accounting Income 5,500,000
Permanent differences:
This study sourceNon
was Taxable Income
downloaded ---
by 100000846467162 from CourseHero.com on 06-08-2022 07:33:07 GMT -05:00
Non Deductible Expense --- ---
Accounting Income subject to tax 5,500,000 x% 1,645,000 E Total Tax Expense
https://www.coursehero.com/file/88446180/19docx/
Temporary Differences (current year):
Deductible Temporary ( + ) 1,500,000 30% 450,000 B Increase in DTA ( benefit )
Taxable Temporary ( - ) (200,000) 30% 60,000 E Increase in DTA ( benefit )
Taxable Temporary ( - ) (200,000) 30% 60,000 E Increase in DTA ( benefit )
Taxable Temporary ( - ) (100,000) 25% 25,000 E Increase in DTL ( expense )
Total --- 1,000,000 % 305,000 B 305,000 B Deferred Tax Expense (Benefit)
Taxable Income 6,500,000 30% 1,950,000 E Current Tax Expense
Usher Company had a defined benefit plan for the employees. On January 1, 2018, the entity provided
the following
balances related to this plan:
Fair value of the plan assets 2,700,000
J.S. CAYETANO ♣ FAR EASTERN UNIVERSITY FINANCIAL ACCOUNTING II PAGE6OF13

v
language capabilities as they all came from
the English language as their medium of

instruction. Those students from the latter
are
shared often not engaging and interactive during
group activities.
https://www.coursehero.com/file/67931509/Teves-Shara-Mae-Research-Digestpdf/
Therefore, the aforementioned factors—
teaching methods, class size, time constraint
and students’ varying language competence
greatly affect the unemployability of the
university’s graduates, thus, it is
only
imperative that the process must be reviewed 15 pts.
and modified so that new methods which are (for
focused more on oral communication topics, oration)
and activities will be incorporated in the
syllabus to develop both the
employability
and communication skills of the
students.
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syllabus is to focus on oral
communication activities (group
discussions, presentations, open
forums,
roleplays) that would help foster
camaraderie, build teamwork mong
students, develop their team
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imposing changes and incorporating
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into hav ng both employability and
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t aits of an employable graduate that
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shared
https://www.coursehero.com/file/67931509/Teves-Shara-Mae-Research-Digestpdf/
INTEGRATED TAX
I. Individuals
1.Which of the following is not considered as nonresident citizen?

A. A citizen of the Philippines who went on a business trip abroad and stayed therein
most of the time during the year.
https://quizlet.com/594965096/individual-taxation-flash-cards/
2. A Filipino who has been abroad for more than 183 days is classified as a
A. Nonresident citizen
3. Due to his expertise, Engr. Pedro (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, Pedro is a:
4. Statement 1: Final tax is collected at source; hence, there is no need to file an income tax
return.
Statement 2: Foreign income is subjected to final tax if the taxpayer is taxable on global income.
Statement 3: Items of passive income from abroad are subject to final tax.
Statement 4: Interest income on government securities are subject to final tax.
A. Statement 1 and 4
5. Sunny, a resident citizen taxpayer provided the following information for 2021:
Philippine lotto winnings 9,000
Philippine charity sweepstakes winnings 500,000
Singapore sweepstakes winnings 200,000
Other winnings, Philippines 50,000
Raffle draw winnings – Manila, Philippines 8,000
Raffle draw winnings – Q.C., Philippines 20,000
Raffle draw winnings – Beijing China 30,000
What is the final taxes on passive income of Sunny? A. 115,600
6. Shembot, a resident citizen taxpayer provided the following information for 2021:
Prize in a contest he joined in Manila Philippines 9,000
Prize in a contest he joined in Quezon City Philippines 20,000
Prize in a contest he joined in Tokyo Japan 8,000
Prize in a contest he joined in Seoul South Korea 40,000
What is the final taxes on passive income of Shembot?

A. 4,000
7. Samantha, a resident citizen taxpayer provided the following information for 2021:
Dividend received from a domestic corporation 250,000
Dividend received from a foreign corporation 150,000
What is the final taxes on passive income of Samantha?

A. 25,000
8. Nikki acquired her principal residence in 2012 at a cost of P1,000,000. She sold the said
property on January 1, 2018, with a fair market value of P5,000,000 for a consideration of
P4,000,000. Within 18 months period she purchased her new principal residence at a cost of
P7,000,000. How much is the capital gains tax? A. 0
9. Using the above information regarding Nikki, assume instead that the entire proceeds was
not fully utilized because she only used P3,000,000 in acquiring her new principal residence.
How much is the capital gains tax? A. 225,000
Susan operates pet shop and at the same time, offers interior design services to her client. The
following data were provided by Susan for 2018 taxable year:
Pet Shop:
Gross sales 1,800,000
Operating expenses 200,000
Interior design services:

Gross receipts 1,150,000
Cost of direct services 120,000
10. How much is her income tax liability for the year? A. 475,000
11. Assuming Susan signified her intention to be taxed 8% income tax rate on her quarterly
income tax return, how much is her income tax liability for the year? A. 216,000
12. Maleficent is a mixed income earner. He is a self-employed resident citizen and currently
finance manager of Fatherhood Corporation. The following data were provided for 2018 taxable
year:
Compensation income 1,800,000
Sales 2,800,000
Cost of sales 1,125,000
How much is her income tax liability for the year?

A. 754,000
13. How much is total basic tax assuming he opted to be taxed at 8%? A. 654,000
14. The following relates to an annual payroll of the employee:

Compensation income, before of P44,000 SSS, PhilHealth, HDMF and union dues
P1,068,000
Additional compensation 45,000
Compute the taxable compensation income:
A. 1,069,000
15. Mr. Derek had the following income in 2021:

Compensation income, net of P77,000 SSS, PhilHealth, HDMF and union dues
P300,000
Additional compensation (supplemental) 30,000
What is the taxable compensation income?
A. P330,000
16. The following relate to the compensation income of a private rank and file employee during
Annual compensation income P540,000
Total of monthly rice allowance during the year 26,000
Commission from employer 12,000
Christmas gift 8,000
SSS, PhilHealth and HDMF contribution 21,000
Compute the taxable compensation income: A. 541,000
17. A private employee had the following remuneration:

Fixed RATA 12,000
Cost-of-living allowance 24,000
Christmas gift 5,000
Laundry allowance 8,000
What is the taxable compensation income? A. 350,000
18. Karen received the following income from her employment in 2021:
Deductions for
SSS P 10,000
Phil health 8,000
Pagibig 7,000
Union dues 2,000
Withholding tax 67,400
Loan repayment 50,000
Tardiness and absences 15,000 (159,400)
Net pay 240,600
Compute Karen’s taxable compensation income:

A. P 358,000
https://www.coursehero.com/u/file/49627350/IncomeTax-Banggawan2019-Ch14docx/?justUnloc
ked=1#question
19. Nozomi made the following computations of her annual financial savings from employment,
her sole source of income:
A. 380,000
https://www.coursehero.com/u/file/49627350/IncomeTax-Banggawan2019-Ch14docx/?justUnloc
ked=1#question
20. Come on Babe Corporation established in the Philippines provided its employee cash and
non-cash fringe benefits in 2021 as follows:
Amount given to rank and file employees P600,000
Amount given to corporate officers- resident citizen 208,000
Amount given to corporate officers- nonresident aliens
not engaged in business 192,000
Compute the total fringe benefit tax expense of Come On Babe Corporation
A. 1,176,000
21. During the last calendar quarter of 2021, Naval Company granted a Filipino supervisory
employee the following benefits:
Salaries P120,000
Performance bonus P 20,000
13th month pay P 40,000
Excess de minimis P 12,000
Cash price of car given to supervisory employee P300,000
Compute the fringe benefit tax: P 168,000
https://www.studocu.com/ph/document/our-lady-of-perpetual-succor-college/reading-in-phillipine
s/problem-intx/17374728
22. In 2021, ABC Corporation hired Mr. Karen Joy as sales manager for cosmetics. In
accordance with her conditions for employment, she was given the following compensation and
fringe benefit for the whole year:
Annual salary P2,400,000
Salary of personal house maids 288,000
Salary of personal driver 120,000
Association dues 1,200
The fringe benefit tax due is: A. 220,338
23. Talon, Inc. owns a residential property it acquired for P2,000,000. It transferred ownership
thereto to its managerial employee for P1,200,000 when its fair value was P3,000,000. What is
the monetary value of the benefit?
A. 1,800,000
What is the fringe benefit tax? A. 969,230
24. Let Go Corporation designated one condominium unit for the use of its supervisory
employee with fair value and terms of residence as follows:
Unit 1741 Tower 4

Agreed residence time: 1 year
Property value: 4,000,000
Compute the monetary value for the above

A. 100,000
25. In July 2021, Starboy Company purchased a P1,200,000 car for the use of its managerial
employee. Compute the fringe benefit tax to be paid respectively for the calendar quarters
ending September.
A. 16,154
Annual FBT: 64,615
26. Tesla Company paid the P27,200 monthly rental of the residence of its managerial
employee from January to May of 2021. Compute the fringe benefit tax for the first quarter of
2021.
A. 21,962
Annual FBT: 87,877
II. Corporation
1. Which is not a characteristic of corporate income tax:
Progressive tax
2. For the purposes of income taxation, which of the following is not considered as a
corporation?
General professional partnership
3. For the purposes of income taxation, which of the following is considered as a
corporation?
General partnership in trade
4. Statement 1: The term “domestic”, when applied to a corporation, means created or
organized under the Philippines or under its law.
Statement 2: The term “resident foreign corporation” applies to a foreign corporation not
engaged in trade or business within the Philippines.
S1, true. S2, false.
5. Which of the following is taxable based on income from all sources, within and without?
Domestic Corporation
6. The term applies to a foreign corporation engaged in trade or business in the
Philippines.
Resident Foreign Corporation
7. Which of the following corporation shall pay a tax equal to twenty five percent of gross
income during each taxable year from all sources within the Philippines.
Non-Resident Foreign Corporation
8. One of the following is exempt from income tax
Government educational institution
9. Which of the following is subject to income tax?
Philippine Amusement and Gaming Corporation
10. Aside from the ordinary corporation income tax of 25%, what other taxes may be
imposed on corporation under the Philippine income tax law?
A. Minimum corporate income tax
B. Passive income tax
C. Capital gains tax
D. All of the above
11. The following passive income received by a domestic corporation shall be subject to 20%
final withholding tax, except:
Dividend income from another domestic corporation
12. Lenovo. Inc., a domestic corporation, has earned the following income during the period:
Dividend income from:
Microsoft, a non-resident foreign corporation 500,000
Intel, a resident foreign corporation 400,000
Panday, a domestic corporation 300,000
Interest income
Current account, BDO 600,000
Saving deposit, ABN bank, UK 700,000
FCDU deposit 800,000
Royalty income
From various domestic corporation 100,000
The total final tax on passive income assuming the taxable year in 2018 is
A. 260,000
13. Statement 1: Gain on sale of all kinds of capital assets are subject to capital gains tax.
Statement 2: Gain from sale of real property classified as capital asset and located outside of
the Philippines is subject to the final tax on capital gain.
S1, false. S2, true.
14. Kris Inc. sold its vacant lot to Moca Corporation for P10,000,000 which it acquired at a cost
of P5,000,000. The fair market value of the sold property per tax declaration is P12,000,000,
while its zonal value is P15,000,000. How much is the income tax applicable on the transaction?
P900,000 Capital Gains Tax (15MX6%)
Numbers 15-17:
In 2021, East Star Inc., sold shares of stock for P250,000. The shares, acquired in 2018 at a
cost were held as investment, and were sold directly to a buyer.
15. How much was the capital gains tax due? A. 22,500
16. How much is the capital gains tax due assuming the shares were sold by a foreign
corporation? A. 22,500
17. Assuming the shares sold were not held for investment purposes and the seller is a dealer
in securities, how much is the capital gains tax? A. 0
Numbers 18-20
Sobra You Corporation, a domestic corporation engaged in business in the Philippines and
abroad and has the following data for the current year:
Statement of Financial Position:

Current Assets P88,000,000
Noncurrent Assets 14,000,000
Total Assets P102,000,000
Statement of Comprehensive Income

Gross Income, Philippines P9,750,000
Gross Income, Malaysia 7,770,000
Expenses, Philippines 6,750,000
Expenses, Malaysia 5,300,000
Interest income on bank deposit 250,000
18. Determine the income tax payable (due), if the corporation is domestic:
A. 1,367,500
19. Determine the income tax payable (due), if the corporation is resident foreign corporation:
A. 750,000
20. Determine the income tax withheld, if the corporation is non-resident foreign corporation:
A. 2,437,500
Numbers 21-24
Kulang You Corporation, a corporation engaged in the Philippines and abroad and has the
following data for the current year:
Statement of Financial Position:

Current Assets P88,000,000
Noncurrent Assets 14,000,000
Total Assets P102,000,000
Statement of Comprehensive Income

Gross Income, Philippines P5,300,000
Gross Income, Malaysia 3,780,000
Expenses, Philippines 3,750,000
Expenses, Malaysia 3,330,000
21. Determine the income tax payable (due), if the corporation is domestic:
A. 500,000
22. Assume that the Noncurrent Asset includes a land amounting to P5,000,000. Determine the
income tax payable (due), if the corporation is domestic:
A. 400,000
23. Assume that the Noncurrent Asset includes a land amounting to P5,000,000. Determine the
income tax payable (due), if the corporation is resident foreign corporation:
A. 387,500
24. Determine the income tax withheld, if the corporation is non-resident foreign corporation:
A. 1,325,000
25. Statement 1- A domestic corporation that registers with the BIR in the year 2015 shall be
covered by the MCIT starting 2019.
Statement 2- The tax due shall be lower between regular corporate income tax and minimum
corporate income tax
S1, true. S2, false.
26. A domestic corporation was registered with the BIR 2019. What year would the first MCIT
will be imposed on such corporation?
A. 2023
27. Statement 1- The minimum corporation income tax is imposed on all corporations excluding
non-resident foreign corporation.
Statement 2- The 2% MCIT is based on the gross income from Philippines and outside sources
in case of domestic corporation and gross income from Philippines sources in case of resident
foreign corporation.
A. S1, true. S2, false.
28. The following information were taken from the 2021 records of ABC Inc., a domestic
corporation in its 5th year of operations:
Gross income from sales P 25,050,000
Business expenses 24,260,000
Interest on Bank deposit 40,000
Interest on Trade receivable 250,000
Capital gain on sale directly to buyer of shares in a domestic corp. 100,000
The income tax payable at the end of the year:

A. 253,000
RCIT- 208,000
MCIT- 253,000
Excess MCIT- 45k
Numbers 29-30
A domestic corporation, already on its 5th year of operation as of 2022, has the following data:
2021 2022
Sales 1,700,000 2,300,000
Cost of sales 1,050,000 1,425,000
Operating expenses 620,000 800,000
29. The income tax payable in 2021 was:

6,500
30. The income tax payable in 2022 was:
14,500
https://www.coursehero.com/u/file/82004653/Seatwork-02-MCIT-IAET-Answer-Keydoc/?ju
stUnlocked=1#question
31. A domestic corporation, already in its 4th year of operation as of 2024, immediately following
the year in which the corporation commenced its operation. It provided the following data:
2024 2025 2026
Gross sales 2,000,000 2,700,000 4,000,000
Cost of goods sold 1,000,000 700,000 1,500,000
Operating expenses 950,000 2,100,000 1,200,000
The income tax payable for taxable year 2026: 210,000
32. A proprietary private education institution provided the following data for taxable year 2021:
Income from tuition fees P 3,500,000
School miscellaneous fees 1,500,000
Interest income from bank deposit 2,000,000
Interest income from accounts receivable 2,000,000
Rent income 2,000,000
Operating expenses 4,000,000
The income tax payable of the school is:

A. 30,000
33. A proprietary private education institution has presented the following data for the year:
Gross income, related activities 5,000,000
Gross income, unrelated activities 5,000,000
Rental income (not included above) 2,000,000
Expenses, related activities 2,000,000
Expenses, unrelated activities 3,000,000
How much is the income tax payable?

Before CREATE LAW: 2,100,000
Under CREATE LAW: 1,750,000
34. A proprietary hospital had the following data for 2021:

Gross receipt from patients and laboratory services P 8,500,000
Hospital operating expenses 8,200,000
The income tax payable of the hospital for 2021 is: 18,000
SPECIAL RESIDENT CORPORATION:

35. China Airlines Inc., a resident foreign corporation has the following data for the taxable year
2018:
Passenger airfare from China to Philippines 1,800,000
Passenger airfare from Philippines to China 1,500,000
Airfare for cargoes from China to Philippines 700,000
Airfare for cargoes from Philippines to China 1,300,000
How much was the income tax payable? 70,000
Numbers 36-37:
Philippines Airlines, a domestic corporation engaged in local and international operations has
the following data for the current year. Gross income and expenses from international
operations, P 10,000,000 and P 4,000,000 respectively.
36. The income tax due of the corporation is: 1,500,000

37. Assume the carrier is an international carrier (a resident foreign corporation,) the income tax
due is: 250,000
III. GROSS INCOME

1. Which of the following compensation will be subject to graduated rates?
- basic salary of an employee
2. Statement 1: Representation and transportation allowance given regularly on a monthly basis

are not taxable fringe benefits but taxable as compensation income subject to basic tax under
Sec. 24(A) of the tax code.
Statement 2: Expenses in connection with attending business meeting or convention in the

Philippines such as food, beverages and transportation are nontaxable benefits of the
employee.
- Both statements are correct
3. Pedro is a regular college professor of University of the East. All tenured instructors and
professors of the university regularly receive a fixed daily meal allowance of P250 per day for a
total twenty-six (26) working days per month. The meal allowance is:
- Subject to graduated income tax rate
4. Which of the following statements regarding 13th month pay is correct?

- 13th month pay and other received by officials and employees of public and private
entities are exempt from income tax and creditable withholding tax on compensation,
provided that the total exclusions shall not exceed P90,000.
5. Which of the following items that reduces salaries of employees is not an exclusion from
gross income?
A. GSIS/35S contributions
B. Pag-ibig contribution
C. Labor union dues
- D. None of the choices
6. Abby, a resident alien, single had the following during the year:
Salaries net of payroll deductions) P200,000
Payroll deduction
P16,500
Withholding tax on salary

16,000
Contribution SSS, PHIC, Pag-ibig, union dues Advances/Loans
30,000
Allowances 25,000
Christmas cash gift 10,000
Bank interest income, net of 20% final withholding tax 1,400
Compute the compensation income to be reported in the annual income tax return
- 271,500
7. Yunik, resident citizen, single had the following during the year 2021:
Gross compensation income P 480,000

Deductions from compensation income:
SSS contribution 3,600
Pag-ibig contribution 1,200
Philhealth contribution 1,800
Union dues 2,400
13 month pay 45,000
Christmas cash gift 10,000
Mid-year bonus 45,000
Interest on bank deposit (net of 20% final tax) 16,000
Interest on foreign currency deposit (net of 15% final tax) 10,000
How much is the income of Yunik subject to regular income tax?

- 476,000

- Income from business may be subject to capital gains tax
9. The Bid Bird Security Agency (BBSA) received P3,000,000 from its client. P2,400,000 of this
was designated for salaries of guards assigned in various client establishments. How much will
be included in the gross income of BBSA?
- 600,000
10. Which of the following dealings in property is subject to basic income tax?
- Sale of ordinary assets
11. Interest income from peso loans granted by banks is:

- Subject to 25% regular income Tax
12. Royalties considered as active income is subject to:

- Basic income tax
13. If a corporation distributes its asset to its stockholders upon dissolution, this kind of
corporate distribution will result in:
- Liquidating dividend
14. Hyun Bin, a nonresident Korean stockholder, received a dividend income of P300,000 in
2021 from Super Corporation, a foreign corporation doing business in the Philippines. The gross
income of the foreign corporation from within and without the Philippines were as follows:
Philippines 42,000,000
Abroad 38,000,000
Total 80,000,000
The amount of income included in the gross income of Hyun Bin is:
-157,500
15. Assuming Super is a domestic corporation, the amount of income subject to tax of Hyun Bin
should be
- 300,000
16. A cash dividend of P100,000 received by a taxpayer in 2021 from a foreign corporation
whose income from Philippine sources is 40% of its total income is:
Statement 1: Partly taxable if he is a resident citizen
Statement 2: Party taxable if he is a non-resident alien

- Statement 1 and 2 are false
17. One of the following income shall be returned in the year received even if the accounting
method used by
- Rentals
18. Which payment made by the leasee under such terms of the lease contract should be
considered as additional rent income of the lessor?
1-If a leasee paid directly to the government the real estate tax on the property of the lessor.
II-If the amount received by the lessor is in the nature of a security deposit for the faithful
compliance by the lessee of the term of the contract
Ill-if the amount received by the lessor is in nature of a loan extended by the lessee to the
lessor.
- Only I
19. Advance rentals in the nature of prepaid rental, received by the lessor under a claim or right,
and without restriction as to use is
- Taxable income of the lessor in the year received whether he is on the cash or accrual
method of accounting
20. On July 1, 2021, Ms. Britney leased her vacant lot for a period of 12 years to Ms. Lesly at an
annual rate of P2,400,000. It was also agreed that Ms. Britney will pay the following:
- P4,800,000 representing rental payment for two years. Subsequent rental payments will
be made every July 1 of the applicable year.
- Security deposit of P2,400,000
- Annual real property tax of P30,000.
The lease contract provides, among others that the lessee will construct a 5-storey building for
parking purposes at a cost of P36,000,000. Ownership of the building shall belong to the lessor
upon the expiration or termination of the lease contract.
The building was completed on July 1, 2023 with an estimated useful life of 15 years. Mr.
Britney report total income from the lease for 2021 at:
- 4,830,000
21. Assuming Ms. Britney will use outright method in recognizing income from leasehold
improvements, how much is the total income from lease for year 2023?
- 38,430,000
22. Assuming Ms. Britney will use spread-cut method in recognizing income from leasehold
improvements, how much is the total income from lease for year 2023?
- 3,030,000
23. Assuming that due to the fault of the lesses, the lease contract was terminated on January
1, 2025, how much income is to be reported by the lessor in 2025?
- 30,600,000
24. Jay, a member of the Philippine boxing team received the following during the taxable year:
Prizes for winnings gold in the Asian games
P600,000
Winnings from Philippine lotto
400,000
Cash gifts from SM Foundation
100,000
The amount not subject to income tax is
- 710,000
25. Prizes and awards received shall be exempt from income tax when the following conditions
are met, except
A. It is given in recognition of religious, charitable, scientific, educational, artistic, literary or civic
achievements
B. The recipient of the awards or prize is not required to render substantial future services as a
condition in receiving the prize or awards.
C The recipient of the awards was selected without any action on his part to enter the contest or
proceeding
- D. None of the above
26. Annuity payments received by a taxpayer represents a part which is taxable and not taxable.
Which of the following statement is correct?
- Both statements are correct
27. Mr. Santiago purchased a life annuity for P100,000 which will pay him P10,000 a year. The
life expectancy of Mr. Santiago is 12 years. How much should Mr. Santiago include in his gross
income?
- 20,000
28. ABC is a general partnership in trade and in its fifth year of operations. During the current
taxable year, it had a gross profit from sales and business expenses of P2,000,000 and
P1,000,000, respectively. A, B, and C share equally in the profits and losses of the partnership.
The income tax due of the partnership is
- 200,000
29. Ramos, Toribio Partnership is a general professional partnership, with Ramos and Toribio,
participating equally in the income and expenses. The following are the data for the partnership
and the partners in 2021:
Partnership Ramos Toribio
Gross income P600,000 P150,000 P200,000
Expenses 350,000 70,000 120,000
The gross income of Ramos from the partnership is
- 125,000
30. The taxable income of Ramos

- 205,000
31. The following data were provided to you by Talon Flames Company for the current year.
Amount written off 2020 Income (Loss) before write off Amount recovered In 2021
Case 1 P50,000 P350,000 P20,000
Case 2 10,000 (50,000) 10,000
Case 3 30,000 20,000 30,000
The income from bad debt recovery during 2022 is
- Case 1: 20,000; Case 2: 0; Case 3: 20,000
32. Which of the following is not a taxable income?

-Tax expense previously disallowed as deduction from taxable income, fully refunded
subsequently.
33. The following are not taxable, except

-Refund of fringe benefit tax
34. Which of the following tax refunds is taxable?

-Percentage tax on person's exempt from VAT
35. The individual performs services for a creditor who in consideration thereof cancels the debt,
the cancellation of indebtedness mat amount to:
-To a payment of income
36. At the testimonial dinner for new CPAS, Christian, a reviewer was requested to sing the
theme song of the movie "Ghoot". Pauline, a new CPA, was so delighted that she felt she was
falling in love with Christian so she decided to cancel Christian's indebtedness to her. As a
result,
-Christian received a gift from Pauline and therefore is not part of his taxable income
37. For income tax purposes, gains derived from the following transactions shall be recognized:
A Transaction between related taxpayers
B. Illegal transactions
- C. Both "A" and "B"
38. Corazon insured her life with Malayan Insurance company. Under the contract, she will pay
a monthly premium of P2,000 for 10 years. In case of death before the 10 year, her beneficiary
will receive an indemnification in the amount of P150,000. If she is still living on the 10 year, she
will receive P500,000. If Corazon dies on the 5 year, her beneficiary will report an income of
-0
39. Suppose Corazon dies on the 5 year and her beneficiary was offered to received P150.000
in cash or to receive it in installment of P20,000 for 10 monthly installment payment and the
beneficiary chose the 2" option, she will report an income of:
- 50,000
40. If Corazon/survives the policy and is able to receive the P500,000, she will report an income
of
- 260,000
41. Proceeds of insurance taken by a corporation on the life of an executive to indemnify the
latter's beneficiaries against the loss in case of his death is
- Exempt from income tax
42. If an employee retires and decided to receive this retirement benefits in the form of pension,
what is the tax treatment of such?
A. Subject to graduated income tax rate
B. Exempt from income tax
- C. Either "A" or "B"
43. Mr. Hen retired from his job after 25 years of service. He joined the company at the age of
23 and was promoted from an accounting clerk to VP Finance. She was paid P2,000,000 total
retirement pay from the employer's contributory pension plan which was duly registered with the
BIR, Out of the total proceeds, Ms. Han contributed P600,000. This was Ms. Hen's first
retirement from employment. Compute the inclusion in gross income
- 1,400,000
44. Assuming Mr. Hon transferred to another company and was retired after 15 years of service.
The second employer paid P1,500,000 out of its non-contributory pension fund as retirement
pay to Mr. Hen. The pension fund was also duty registered with the BIR is the second retirement
pay exempt from income tax?
- Yes, because this is the first time Mr. Hen qualifies for retirement pay exemption
45. Which is not an acceptable grounds for exemption of termination pay

- Grave misconduct and neglect of duty
46. One of the following compensation income of an individual taxpayer not an exclusions from
gross income
- Separation pay of an employee who resigned from his employment.
47. Which of the following is a taxable income?

- Interest on moral damages
48. The following are examples of nontaxable compensation for injuries, except
- Compensatory damages for unrealized profit
49. Marlon was hit by a car driven by Jay causing severe injuries to Marion. It was found out
during trial that the driver was drunk at the time of the incident. After trial, the court awarded the
following
-P1,500,000 actual damages for hospitalization

-P300,000 exemplary damages
-P500,000 for loss of income
-P100,000 moral damages
Marion also received a cash gift of P100.000 from Jay. The taxable income received by Marion
is
- P 500,000

A Property acquired through
B. Inherited properties donation
- C. Income from letter "A" and "B
51. Pedro, single received the following during the taxable year
Proceeds of his life insurance paid at an annual premium of P15,000 within 25 years
P 2,000,000
Proceeds of his mother's life insurance paid at annual premium of P10,000 in 20 years
1,000,000
House and lot inherited from his mother

4,000,000
Rent income from inhered properties

200,000
For income tax purposes, how much of the above items must be included in his gross income?
- 1,825,000
52. If a particular transaction is subject to income tax under the Tax Code but there is a treaty
provision that it is exempt, which will prevail?
- Tax treaty
53. The Professional Regulations Commission collected a total sum of P100,000,000 from
professional license fees. It also collected P5,000,000 from rentals of government properties.
- 100,000,000

A. Income derived by a political subdivision of the Philippine government performing essential
governmental function
B. Income derived by foreign government in the Philippines
- D. Neither "A" nor "B"
55. In order for gains realized from the sale or exchange or retirement of bonds, debentures or
other certificate of indebtedness be exempt from income taxation, what is the prescribed length
of its maturity?
- More than 5 years
56, Gains realized by the investor upon redemption

- Exempt
57. Ms. Karen invested in the mutual fund and savings deposit of BCC Bank She acquired a
100,000 participation shares when the net asset value per unit of the fund was P98,00. She
pulled out her investment when the net asset value per unit was P101.00. Ms. Karen also had
P100,000 accrued interest in her savings deposit. Which statement is incorrect?
- The P100,000 interest income is an inclusion in gross income subject to final tax but the
P300,000 is on inclusion in gross income subject to regular tax
58. RA 9505, otherwise known as PERA Act of 2008, in

- Personal equity and retirement account
-End-
4/22/2021 Submissions - B-BTAX222-2nd-2021 Course Syllabus - DLSU-D College/GS
B-BTAX222-2nd-2021 Course Syllabus

Estate Tax: Deductions from Gross Estate
Enabling Assessment: Deductions from Gross Estate

Submissions
Here are your latest answers:
Question 1
Under conjugal partnership of gains, property for personal and exclusive use of either spouse is
considered as exclusive property, except jewelry.
Response: False
Score: 1 out of 1 Yes
Question 2
Under the system of absolute community of property, the vanishing deduction is a charge against
community property.
Response: False
Question 3
The benefit of vanishing deduction may only be applied once.
Response: True
Question 4
Casualty losses can be claimed as deduction both from the gross income and gross estate.
Response: False
Question 5
No deduction is allowed on the property which is not included in the decedent's gross estate.
Response: True
Question 6
Mr. Galante transferred a 3,000 square meter lot to the city government of Laguna to be converted
as a zoo. The said lot was acquired by the decedent 10 years ago for P50,000. The lot's FMV at the
time of Mr. Galante's death was P5,000,000. How much is allowed as a deduction from the gross
estate of Mr. Galante relative to this transfer?
Response: P5,000,000
Question 7
https://dlsud.edu20.org/student_quiz_assignment/submissions/21990241 1/6
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Actual funeral and judicial expenses are considered in computing the net distributable estate.
Response: True
Question 8
Which of the following is not considered as an exclusive property of a spouse?
Response: That which is purchased with the spouses' common fund.
Question 9
A resident citizen had his family home in the Philippines. He worked abroad and was temporarily
absent from his family home when he died. Which of the following statements is correct?
Response: The decedent would not be allowed family home deduction because he was a nonresident
citizen when he died.
Score: 0 out of 2 No
Question 10
Which of the following is incorrect about the standard deduction from gross estate under the TRAIN
Law?
Response: It does not apply to a nonresident alien decedent
Question 11
As a rule, the amount net taxable estate must always be equal to the amount of net distributable
estate.
Response: False
Question 12
Which of the following is not exempted from estate tax?
Response: Exclusive property of the decedent
Question 13
A Filipino taxpayer died in 2018 leaving the following:
Net taxable estate in the Philippines - P3,000,000

Net taxable estate in Korea - P1,000,000
Estate tax paid in Korea - P80,000
How much is the estate tax due after the tax credit?
Response: P60,000
Question 14
Which of the following is not considered in computing for the net taxable estate?
Response: Medical expenses
Question 15
Under the TRAIN Law, regardless of the classification of the decedent, the maximum amount of
deductible standard deduction is P5,000,000.
Response: True
Question 16
Obligations contracted by a person during his/her lifetime are terminated upon his/her death.
Response: True
Question 17
Among the properties included in the gross estate of the decedent at the time of death is a three-
story commercial building with a FMV of P12,000,000. During the settlement of the estate and
before the last day of paying the estate tax, the said property was destroyed by fire. The FMV at
the time of the incident was P13,000,000. Based on these facts, what amount shall be included as
part of the decedent's gross estate?
Response: P12,000,000
Question 18
The gross estate of a married decedent under the system of conjugal partnership of gains during
the marriage is a mixture of his exclusive property and conjugal property.
Response: False
Question 19
Properties acquired by gratuitous title during the marriage are generally classified as conjugal
properties under conjugal partnership of gains.
Response: True
Question 20
Which of the following is not allowed with tax credit for payments of estate tax on foreign
countries?
Response: An alien who was a resident of his own country at the date of death
Question 21
A resident alien, single, died intestate on November 2, 2018. The following data were provided:
House and lot, USA (family home) - P20,000,000
Investment in stock, Philippines - P8,000,000
Investment in stock, USA - P10,000,000
Investment in bonds, USA (85% of the business of the USA Corporation is in the Philippines) -
P7,000,000
Cash in bank, Philippines - P3,000,000
Cash on hand, Philippines - P500,000
Accounts receivable from a debtor who resides in USA (fully uncollectible) - P2,000,000
Vehicles in the Philippines - P8,000,000
Actual funeral expenses - P1,500,000
Judicial expenses - P3,000,000
Unpaid Philippine income tax for income in 2017 - P1,200,000
Loss on December 31, 2018 due to theft - P800,000
Devise to Quezon City for children’s playground - P700,000
Receivable under RA 4917 - P500,000
Medical expenses - P5,000,000
1. How much is the net taxable estate of the decedent? _____

2. How much is the estate tax due? _____
Response: 49500000
Response: 2970000
Question 22
All claims against the insolvent person are deductible from the decedent's gross estate regardless
of whether there is still a collectible portion therein.
Response: True
Question 23
For unpaid taxes to be deductible from gross estate, such must have accrued at the time or before
the decedent's death.
Response: False
Question 24
The net taxable estate is the amount arrived at after deducting all the actual expenses incurred
by the decedent's estate to the gross estate.
Response: True
Question 25
As a rule, deductions from gross estate are disfavored in law; hence, the one claiming the
deductions must be able to justify his/her claim or right.
Response: True
Question 26
Property inherited before the marriage becomes community property upon marriage.
Response:
This study sourceFalse
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Question 27
Family home is considered in computing for the net distributable estate.
Response: False
Question 28
Under the system of absolute community of property, the following are not exclusive property,
except:
Response: Property owned before marriage for personal and exclusive use of the decedent when he
was still alive
Question 29
In the absence of a marriage settlement, or when the regime agreed upon is void, the property
relations of the spouses who were married before August 3, 1988 shall be governed by:
Response: Conjugal partnership of gains
Question 30
A Filipino decedent, residing in U.S. died in 2020 leaving the following:
Net taxable estate, Philippines - P10,000,000

Net taxable estate, Canada - P8,000,000
Net taxable estate, USA - P2,000,000
Estate tax paid in USA - P90,000
Estate tax paid in Canada - P520,000
1. How much is the allowable estate tax credit? _____

2. How much is the estate tax payable after the allowable estate tax credit? _____
Response: 570000
Response: 630000
Question 31
Pedro died leaving a car he acquired by purchase from Juan 4 years ago. The car was correctly
included in Pedro's gross estate. What is the applicable vanishing deduction rate in this case?
Response: 0%
Question 32
A nonresident alien died on March 1, 2018 leaving the following properties and deductions:
Shares in a domestic corporation - P500,000

Shares in a foreign corporation - P500,000
Tangible personal property - P1,500,000
Deductible losses, indebtedness and taxes - P500,000
How much is the decedent's estate tax due assuming there is no reciprocity?
Response: P66,000
Question 33
Under the system of conjugal partnership of gains, the vanishing deduction is a charge against
exclusive property.
Response: False
Question 34
The share of the surviving spouse in the estate shall be deducted equal to 1/2 of the gross
conjugal property.
Response: False
Question 35
Which of the following is not considered in computing for the net distributable estate?
Response: Immovable properties
Question 36
Which of the following is not allowed as deductions against the exclusive portion of the estate of
the decedent?
Response: Family home
Question 37
Aside from foreign estate tax, there are other taxes that may be claimed as a deduction against
Philippine estate tax.
Response: False
Northern CPAR: Taxation – Fringe Benefit Taxation
NORTHERN CPA REVIEW
th
4 Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail Address: ncpar@yahoo.com
REX B. BANGGAWAN, CPA, MBA
TAXATION
FRINGE BENEFIT TAXATION
FRINGE BENEFIT – means any good, service or other benefit furnished or granted in
cash or in kind by an employer to an individual employee (except rank and file
employees).
Classification:
A. Given to rank and file employees
Taxable Fringe Benefits to Rank and File Employees:
1. Meals furnished or subsidized by employer (except OT meal which is subject a de
minimis benefit)
2. Rental value of quarters furnished an employee.
3. Premium on life insurance of an employee where the insured employee is directly
or indirectly the beneficiary – in essence a form of additional income for the
employee.
4. Fixed or variable transportation, representation and other allowance given an
employee. Advance or reimbursement-type allowance is exempt.
5. Performance bonus, relay station allowance, and danger exposure allowance.
6. Personnel economic relief allowance (PERA) granted to government employees.
7. Salaries and allowances during leaves of absences (vacation and sick leave).
8. Fees received by an employee (including director’s fees) for the performance of a
service for the employer.
9. Dismissal payments (this is different with separation pay).
Exempt Fringe Benefits to Rank and File Employees:
1. Meals, living quarters, de minimis entertainment, medical services, courtesy
discounts on purchases, sack or rice, etc given for the convenience of the
employer or for promoting the contentment, health, efficiency or goodwill
of the employee.
2. Reimbursement-type traveling, representation and other allowance. Excess
advances retainable by the employee is taxable
3. Retirement and separation benefits exempt under the law
B. Given to managerial or supervisory employees
Benefits subject to final tax:
1. Housing Benefits
Exception:
1. Housing benefits provided to military officials of the Armed Forces of the
Philippines consisting of officials of the Philippine Army, Philippine Navy and
Philippine Air Force
2. Housing unit which is within or adjacent to the premises of a business or
factory. Adjacent means within 50 meters of the perimeter of the business
premises of the employer.
3. Temporary housing for an employee who stays in a housing unit for three
months or less.
2. Interest on loans at less than market rate or at 0% rate. The differential
interest from 12% (as fixed by regulation) shall be the taxable fringe benefit.
3. Membership fees, dues, and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations – these are
taxable employee benefits of the employee in full.
4. Expense for foreign business travel
a. First class airplane ticket – 30% of the cost of ticket
b. Lodging cost in a hotel or similar establishment in excess of US$300 per day.
c. Traveling expense paid by the employer for the travel of the family members of
the employee
In connection with this, there must be a documentary evidence to support that the
foreign travel was for business meetings or convention; otherwise the entire cost of
1
Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA
https://www.coursehero.com/file/58969946/388201670-HQ06-1-Fringe-Benefits-docpdf/ TAX – 4th Batch – HQ06-1
the ticket including hotel accommodation and other expenses incidental thereto
shouldered by the employer shall be treated as taxable fringe benefits.
1. business meetings – to be supported by official communication from business
associates abroad indicating the purpose of the meeting
2. business conventions – to be supported by invitations or communications from the
host organization or entity abroad
Reasonable foreign travel expenses are exempt under fringe benefit tax; hence, inland
travel expenses such as for food, beverages and local transportation; cost of economy
and business class airplane ticket; and those within the limits as set out in 4 a and b
above.
5. Household personnel
If shouldered by the employer the following personal expenses shall be taxable
fringe benefit:
a. Salaries of household help
b. Personal driver of the employee (if not for the convenience of the employer such
as doctor on call)
c. Similar expenses as payment for homeowners association duties, garbage dues,
etc.
6. Expense account
General Rule: expenses of the employees that are paid for the employer are taxable
fringe benefit:
a. expenses of a reimbursement type ( direct payment by the employer is not
necessary since subsequent reimbursement for the expense of the employee,
makes him the indirect payer of the expense)
b. personal expenses (groceries etc.) even if receipted in the name of the employer
Exception:
a. Regular fixed entertainment and representation allowance – this is treated as
additional compensation to the employee
b. Expenses connected with the trade of the employer and is duly receipted in the
name of the employer- these are expenses of the employer
7. Holiday and vacation expense
If incurred by the employees and shouldered by the employer, this constitute
taxable fringe benefit.
8. Life and Health insurance and other non-life insurance premium or similar
amounts in excess of what the law allows
Exception:
a. contributions of the employer for the benefit of the employee pursuant to the
provision of existing laws, i.e.: SSS, GSIS, PhilHealth; etc
b. the cost of premium by the employer for the group insurance of its employees
9. Vehicle of any kind; and
The same rules in housing benefits apply herein.
Exception:
a. Aircraft or helicopter owned and maintained by the employer – are treated as
for business purpose only and hence, not subject to fringe benefit tax. (Note: it
is very impractical to provide managerial or supervisory personnel with aircraft
or helicopter for personal use due to the cost of maintaining them.)
b. Yatch, whether owned or leased by the employer is considered not for business
purpose (by nature for pleasure), and hence taxable fringe benefit. Note: Yatch
for purposes of determining the depreciation value is assumed to have a life of
20 years.
10. Educational assistance granted
by employer to
1. the employee – generally, taxable as a fringe benefit
Exception:
a. the education or study involved is directly connected with the employer’s
trade, business or profession; and
b. there is written contract that the employee is under an obligation to remain
in the employ of the employer for a period of time mutually agreed upon
2. the dependents of employees – generally, taxable as a fringe benefit
Exception: When the assistance is granted through competitive scheme under a
scholarship program of the company
Benefits not subject to fringe benefit tax (Sec. 33 (C), NIRC):
2
1. Fringe benefits which are authorized and exempt form tax under special laws
2. Benefits given to rank and file employee, whether given on a Collective Bargaining
Agreement or not
3. Benefits given as required by the nature of, or necessary to the trade, business or
profession of the employer
4. Benefits given for the convenience or advantage of the employer
5. Contributions of the employer for the benefit of the employee to retirement, insurance
and hospitalization benefit plans; and
6. De minimis benefits promulgated by the Bureau of Internal Revenue
Tax Rates for Fringe Benefits:

The final tax rates that apply to the gross-up monetary amount of the taxable fringe
benefit with the corresponding gross-up percentage are as follows:
If the employer paying the fringe benefit is a regular domestic or resident corporation:
Final Tax Gross-up
rate
Effective January 1, 1998 34% 66%
If the taxpayer is subject to preferential rate:
1. Non-resident alien employed by regional area headquarters, offshore banking units of
multinational companies shall be taxed at 15% of the gross up amount of the benefits
(i.e.: benefits / (100%-15%))
2. NRA-NETB is subject to 25% of the gross up value of the benefits (i.e.: benefits /
(100%-25%))
Note to candidates:
The fringe benefit tax rates herein are complementary values of the final tax (regular
corporate income) tax and grossed-up value. It should be pointed out, however, that the
same is not a statutory formula and thus the rates will remain unaffected even if the
corporate income tax change unless specifically provided for by an amendatory law.
Valuation of Taxable Fringe Benefits:

1. If granted in money or is directly paid by the employer, the value is the amount of
granted or paid for
2. If furnished by the taxpayer in property and ownership is transferred to the employee,
the value of the fringe benefit shall be the fair market value of the property
transferred.
3. If furnished by the taxpayer in property without transfer of ownership, the value of
the fringe benefit is equal to the depreciation value of the property.
- For this purpose, personal property is assumed a depreciable life of 5 years
(20%) while real property shall have a presumptive life of 20 years (5%)
- Furthermore, since the supervisory or managerial employee cannot reasonably be
expected to use the property all the time, it is assumed that usage is 50% for
business use and 50% for personal use.
Deductible Amount of Fringe Benefits:
General Rule: Deductible amount =taxable fringe benefits + fringe benefit tax
Exception Rule: Deductible amount = fringe benefit tax paid (If fringe benefit tax is
based on the depreciation value, zonal value or assessed value)
Filing of Return
The fringe benefit tax withheld by the employer shall be remitted to BIR within 10 days
after the end of each calendar quarter; however, for EFPS , 5 days later
ILLUSTRATIVE DRILL PROBLEMS:

Compute the monetary value, grossed-up monetary value and the fringe benefit tax for
each of the following cases:
Moneta FB Fringe
Illustrative Cases ry Expens benefit
value e tax
1. Alder, a sole proprietor, paid the P150,00 monthly
salary and P68,000 monthly rental of the condo unit
of its branch manager.
2. DVD Corporations owns a condo unit (capital asset)
3
which it furnished and granted for the residential use
of its VP Finance during 2010. The fair market value
of the property per BIR (zonal value) amounts to
P10,000,00 while its current Real Property
Declaration amounts to P8,000,000.
3. CD Realty Corporation sold a property to its VP for
Operations for P1,980,000. The residential house and
lot was purchased for P2,300,000 and had fair market
value per BIR of P2,500,000 and per Assessor’s office
of P2,600,000, respectively.
4. Courier Company transferred its house and lot to its
president, Rhad S. Tete. The following information
relates to the property:
Cost P
5,000,000
Zonal value 4,500,000
Assessed value 3,000,000
5. KKK, a business partnership, purchase an automobile
for he use of its manager, Mr. Ong. The vehicle which
is intended to be used partly for business purposes
costs P400,000 and was registered in the name of Mr.
Ong.
6. John is a doctor on call. He was granted by his
employer a car with a second hand value of P300,000
to ensure his immediate availability during
emergency situations.
7. Darrel Taxicab owns a fleet of motor vehicles
consisting of 20 taxis for business. One of the taxi;
however, is kept reserved for employees use. The
taxis were purchased at P300,000 each.
8. Northern Company reimbursed the P102,000 vacation
expense of its president, Mr. Asuncion.
9. Northwestern Company granted a P4,000,000 7%
loan to its VP for Marketing, Andrix Kay.
10.Mrs. Mara Butit, a Chief Accountant, availed of the
car plan of his employer, Baguio Coop, a non-profit
credit cooperative. Under the plan, Mrs. Butit
shouldered only 40% of the P800,000 cost of the car.
The car was registered in the name of Mrs. Butit.
11.Ms. Sexy is a cute accounting staff at MBA Audit
Services. Mr. Milan, the managing partner was so
impressed by Ms. Sexy that he allowed the company
to shoulder half of Ms. Sexy’s P10,000 monthly rental.
12.HTM Corporation granted the use of its residential
unit it acquired in 2000 for P5,000,000 to a non-
resident alien director. The property has a zonal value
of P6,000,000 and assessed value of P5,500,000.
13.Joe, a resident citizen, was hired as the vice president
for risk management for the offshore banking unit of
Intercontinental Bank in the Philippines. During 2010,
Joe was given car benefit of P1,200,000. 30% of this
will be deducted from Joe’s future monthly salary.
CPA EXAM DRILL PROBLEMS: FRINGE BENEFITS
1. The 2010 books of accounts of DBest Company showed the following:
Fringe benefit expense P1,550,0
00
Fringe benefit tax expense 332,000
Compute the gross-up monetary value of fringe benefit given to managers and
supervisors.
a. P488,235 b. P512,500 c. P705,500 d. P1,037,500
2. Compute the value of fringe benefit given to rank and file employees.
a. P512,500 b. P512,500 c. P705,500 d. P844,500
4
3. Compute the monetary value of fringe benefit given to managers and supervisors.
a. P512,500 b. P512,500 c. P705,500 d. P844,500
4. Compute the total deductible amount against gross income of DBest Company.
a. P1,037,500 b. P1,369,500 c. P1,882,000 c. P2,187,500
5. Which of the following is subject to fringe benefit tax?

a. Fringe benefit of the rank and file employeesc. Compensation income of the rank
and file employees
b. Fringe benefit of the managerial employees d. Compensation income of the
managerial employees
6. The following concepts denote exemption from the fringe benefits tax, except
a. Convenience of the employer c. Welfare and benefits of the employee
b. Necessity to the business or trade d. De minimis benefits
7. As a rule, fringe benefit furnished or granted in cash or in kind by an employer to an

individual employee maybe subject to the fringe benefit tax, if given to
A. Rank and file employees B. Managerial employees C. Those holding
supervisory positions
a. Only A and B b. Only A and C c. Only B and C d. A,
B and C
8. The fringe benefit tax is

A. Imposed on the employer B. Withheld at source C. Deductible by the
employer
a. Only A and B b. Only A and C c. Only B and C d. A,
B and C
9. With regard to the amount on which the fringe benefit tax rate is applied, which
statement is wrong? The tax benefit rate is applied on
a. The monetary value of the fringe benefit
b. The gross-up monetary value of the fringe benefit
c. The amount deductible by the employer from gross income
d. Both accounts of the fringe benefit and the fringe benefit tax
10.The following fringe benefits are not subject to fringe benefit tax, except
a. If required by the nature of or necessary to the trade, business or profession of the
employer
b. Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans
c. Benefits given to the rank and file employees
d. If given for the convenience or advantage of the employee
11.Basic rules on fringe benefits tax, except

a. Fringe benefit given to rank and file employees is not subject to fringe benefits tax
b. Fringe benefit given to a supervisory or managerial employee is subject to fringe
benefits tax
c. De minimis benefit whether given to rank and file employee or to supervisory or
managerial employee is not subject to fringe benefit tax
d. The fringe benefit tax is a tax paid by the managerial or supervisory employee
12.Facilities or privileges furnished or 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, or efficiency of his employees.
a. Fringe benefit c. De minimis benefit
b. Fringe benefit tax d. grossed-up monetary
13.Which statement is wrong? The fringe benefit tax is

a. Imposed on the employer c. Imposed on the managerial or supervisory
employee
b. Withheld at source d. Deductible by the employer
5
14.Which of the following is considered fringe benefits?
a. Housing privilege of AFP consisting of officials of the Philippine Army, Philippine
Navy and Philippine Air Force
b. Housing unit which is situated inside or adjacent to the premises of a business or
factory within a maximum of 50 meters from the perimeter of the business
premises.
c. Temporary housing for an employee who stays in a housing unit for 3 months or
less.
d. Housing benefits given by the government to its public managerial officers.
15.The grossed-up monetary value of fringe benefit subject to fringe benefit tax received
by a non-resident alien individual engaged in trade or business in the Philippines is
computed by dividing the monetary value of the fringe benefit by
a. 75% b. 25% c. 85% d. 15%
16.The following fringe benefits are not subject to fringe benefits tax, except:
a. Fringe benefits given to the rank and file employees, whether granted under a
collective bargaining agreement or not
b. Contributions of the employer for the benefit of the employees to retirement,
insurance and hospitalization benefits plans
c. De minimis benefits, as defined in the rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the Commissioner.
d. Fringe benefits furnished or granted by the employer to its managerial and
supervisory employees.
17.Mr. A is a mining engineer employed by B Co., a mining firm. The company’s mine is
in Mountain. Trail. Mr. A was provided by the Company with living quarters at the
mine site. The fair rental value of the living quarters is P15,000 a month. Determine
the quarterly fringe benefit tax due.
a. P7,059 b. P21,176 c. P84,706 d. P 0
18.In 2010, ABC Corp. hired Ms. R. Escala as sales manager for cosmetics. In accordance
with her conditions for employment, she was given the following compensation and
fringe benefit:
Salary P200,000/month
Three handsome houseboys as P8,000 per
maids maid/month
A macho personal driver P10,000/month
Home owner’s association dues P1,200/year
The fringe benefit tax due is
a. P108,424 b. P102,212 c. P192,565 d. P198,776
19.In 2007, A Corporation allowed its Sales Manager to incur expenses subject to
reimbursement, as follows:
Electricity (Bill Moto Electic Coop.) – 70% in the name of A Corporation P 20,000
Water (Baguio Water & Air District) – 70% in the name of A Corporation 2,000
Grocery (Pelizloy Mart) 10,000
Gasoline of company car 12,000
Representation and transportation – business trip 4,000
The amount subject to fringe benefits tax is
a. P48,000 b. P25,400 c. P15,400 d. P16,600
20.As a means of promoting the health, goodwill and efficiency of his employees,
employer A gave rank and file employee B the following fringe benefits in 2009:
1. Monetized unused vacation leave of 15 days P 9,000
2. Rice subsidy 24,000
3. Uniform and clothing allowance 8,000
4. Achievement award for length of service in the form of tangible personal
15,000
5. Gifts given during Christmas and major anniversary celebrations
10,000
6. 13th month pay 18,000
The amount of taxable fringe benefit is
a. P30,000 b. P25,000 c. P23,000 d. P11,000
6
21.The employer’s deductions for the benefits given
a. P23,000 b. P18,000 c. P66,000 d. P84,000
22.The following data belong to Nasty Corp. for the year 2010
a. Educational assistance to supervisors and their children P 75,000
b. Employer’s contribution for the benefit of the employees to
retirement, insurance and hospitalization benefit plans 70,000
c. Year’s rental for an apartment paid by the Nasty for the use of its controller
60,000
Compute the total deductible fringe benefit tax expense.
a. P54,091 b. P105,606 c. P94,471 d. P63,529
23.ABC, Inc. established in the Philippines provided its employees cash and non-cash
fringe benefits in 2009 as follow:
Total amount of fringe benefits P1,000,000
60% of said amount was given to rank and file employees
40% of said amount was given to corporate officers as follow:
a. To resident citizens 45%
b. To non-resident aliens not engaged in business in the Philippines 35%
c. To special aliens and Filipino employees 20%
Compute the total fringe benefit tax expense of ABC, Inc.
a. P238,824 b. P212,864 c. P242,891 d. P145,490
24.Compute the total deductible fringe benefit expense.

a. P1,238,824 b. P1,212,864 c. P1,242,891 d.
P1,145,490
25.A Company made the following payments in the 3rd quarter of 2009:
Fringe benefits:
To the supermarket in payment of groceries for the company’s manager and family –
P16,500
To a university in payment of the tuition fee of the manager – P24,750
Salary of the manager, net of P50,000 withholding tax – P350,000
Determine the fringe benefit tax due.
a. P19,412 b. P20,100 c. P7,765 d. P184,118
---- End of Handouts ---
7
FAR EASTERN UNIVERSITY
TAXATION
1. Fundamental Principles J. Cayetano
INDIVIDUAL TAXPAYER:
Are natural persons with income derived from within the territorial jurisdiction of a taxing authority. Under the
tax code. Individual taxpayers are classified as:
1. Resident citizen
2. Nonresident citizen
3. Resident alien
4. Nonresident alien
- Engaged in trade or business (NRA-E)
- Not engaged in trade or business (NRA-NE)
INCOME TAX COMPUTATION OF INDIVIDUAL:
Resident Citizen Nonresident Citizen Resident Alien Nonresident Alien Nonresident Alien
Situs Inside and Outside Inside only Inside only Inside only Inside only
Tax base Net income Net income Net income Gross income Gross income
Tax rate Graduated tax table Graduated tax table Graduated tax table Graduated tax table 25% final tax
GRADUATED TAX TABLE (GTT):
Taxable income Tax rate

Below P250,000 Exempt
P250,000 – P400,000 20% of excess over P250,000
P400,000 – P800,000 25% of excess over P400,000 + P30,000
P800,000 – P2,000,000 30% of excess over P800,000 + P130,000
P2,000,000 – P8,000,000 32% of excess over P2,000,000 + P490,000
Over P8,000,000 35% of excess over P8,000,0000 + P2,410,000
RESIDENT CITIZEN VERSUS NONRESIDENT CITIZEN:

Nonresident citizen are:
a. A citizen of the Philippine who establishes the satisfaction of the commissioner of the fact of his physical
presence with definite intention to reside therein.
b. Leaves the Philippines during the taxable year to reside abroad as an immigrant or for employment on a
permanent basis or for work and derives income from abroad and whose employment thereat requires him
to be physically abroad most of the time during the taxable year.
c. A citizen of the Philippines who shall have stayed outside the Philippines for 183 days or more by the end of
the year.
d. A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines shall
likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines with
respect to his income derived from source abroad until the date of his arrival in the Philippines.
Resident citizen are – those Filipino who are not nonresident citizen and did not met any of the above criteria.
RESIDENT ALIEN VERSUS NONRESIDENT ALIEN:

Resident alien are:
a. An alien actually present in the Philippines who is not a mere transient. Transient, a person who comes to
the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient.
b. An alien, who comes to the Philippines for a definite purpose, which, by its nature, would require an extended
stay making his home temporarily in the Philippines.
c. An alien who shall come to the Philippines with no definite intention as to his stay.
d. An alien stay for more than one year.
Page 1 of 19
Nonresident alien are – those alien that are not resident.
• Non-resident alien engaged in business – stayed more than 180 days.
• Non-resident alien not engaged in business – stayed less than 180 days or promptly accomplished.
SITUS OF INCOME:
Type of income Situs of income
a. Sale of personal property Place where the property is sold
b. Sale of real property Location of the real property
c. Sale of shares of domestic company Inside the Philippines
d. Sale of shares of foreign company Outside the Philippines
e. Rent income Location of the property
f. Royalties Location the intangible asset is employed
g. Interest income on person Debtor’s residence
h. Interest income on domestic bank Inside the Philippines
i. Interest income on foreign bank Outside the Philippines
j. Dividend income of domestic corp. Inside the Philippines
k. Dividend from resident foreign corp. 50% or more inside Pro-rated based on gross income
l. Dividend from resident foreign corp. less than 50% Outside the Philippines
m. Dividend from nonresident foreign corp. Outside the Philippines
TYPES OF INCOME TAXES FOR INDIVIDUAL:

Type of taxes Income subject to such tax
a. Final withholding tax (FWT) Certain passive income in Philippines
b. Capital gains tax (CGT) Gains on sale of shares and real properties
c. Basic income tax. All other income not subject to FWT and CGT
FINAL TAX:
Not all passive income are subject to FWT, only the following are subject to FWT:
a. Interest income from any currency bank deposit
b. Royalties
c. Winnings
d. Dividends
e. Prizes
FINAL TAX ON INTEREST INCOME:

Tax rate
Earned Earned
Types of Interest
inside PH outside PH
a. Interest income from any currency bank deposit 20%
b. Yield or any other monetary benefit

(deposit substitute, trust funds, similar arrangement, 20%
government treasury bills, bond investments)
c. Interest from a depository bank under foreign currency deposit
system (FCDU)
15%
NRC and NRA are exempt RC = GTT
Not RC = Exempt
d. Interest on long-term (5 years or more) bank deposit or bank
Exempt
investment (Time-deposit)
e. Interest on pre-terminated long-term (5 years or more) bank
deposit or bank investment (Time-deposit)
4 years – 5 years 5%
f. Interest from loans and notes receivable GTT
Page 2 of 19
FINAL TAX ON ROYALTIES
Tax rate
Earned Earned
Types of Royalties
a. Royalties from LBM
• Literary works
10%
• Books
RC = GTT
• Musical instruments
Not RC = Exempt
b. All other royalties
20%
(e.g., computer software, rental of patent)
FINAL TAX ON WINNINGS:

Tax rate
Earned Earned
Types of Winnings
a. PSCO and lotto Winnings
• Less than P10,000 Exempt RC = GTT
• P10,000 or more 20% Not RC = Exempt
b. Non PSCO and non-lotto winnings (no threshold) 20%
FINAL TAX ON PRIZES:

Tax rate
Earned Earned
Types of Prizes
a. More than P10,000 20%
RC = GTT
b. Less than P10,000 GTT Not RC = Exempt
FINAL TAX ON DIVIDENDS:

Dividends (share in income of business partnership, joint venture) coming from: Tax rate
RC, NRC, RA = 10%
a. Domestic corporation NRA Engaged = 20%
NRA Not Engaged = 25%
RC, NRC, RA = 10%

b. Resident foreign corporation – 50% of GP or more in the Phil. NRA Engaged = 20%
NRA Not Engaged = 25%
RC = GTT
c. Resident foreign corporation – Less than 50% of GP in the Phil.
Not RC = Exempt
RC = GTT
d. Nonresident foreign corporation
Not RC = Exempt
CAPITAL GAINS TAX:

For income taxation purposes, assets are classified either as ordinary asset or capital asset.
a. Ordinary assets:
- Stocks in trade of the taxpayer or other property of a kind which would property be included in the
inventory of the taxpayer if on hand at the close of taxable year.
- Property used in trade or business subject to depreciation.
- Real property held by the taxpayer primarily for sale to customers in the ordinary course of trade or
business.
- Real property used in trade or business of the taxpayer
b. Capital assets:
- Personal asset
- Business asset not mentioned above (e.g., cash, receivables, prepaid expenses, investments, intangible
assets).
Page 3 of 19
CAPITAL GAINS TAX ON SALE OF SHARES:
There are two types of assets as taxation is considered:
1. Ordinary assets – assets used in business, such as:

a. Stock in trade of a taxpayer or other real 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.
b. Real property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or
business.
c. Real property used in trade or business of a character which is subject to the allowance for depreciation.
d. Real property used in trade or business of the taxpayer.
Basically, ordinary assets are:

• Assets held for sale – inventory
• Assets used in business – supplies, property, plant and equipment
2. Capital asset – any asset other than ordinary asset. Basically, capital assets are:
a. Personal asset of individual
b. Business asset of any taxpayer not mentioned above:
• Cash
• Receivables
• Prepaid assets
• Intangible assets
Gain arising from: APPLICATION TAX
1. Sale of ordinary asset Basic Tax
2. Sale of capital asset:

a. Sale of shares of domestic company – unlisted Capital Gains Tax
b. Sale of shares of domestic company – listed Percentage Tax
c. Sale of shares of foreign company Basic Tax
d. Sale of real property inside the Philippines Capital Gains Tax

e. Sale of real property outside the Philippines Basic Tax
f. Sale of other capital asset (e.g., cars, jewelries) Basic Tax
Computation of Capital Gains Tax:
Selling price of shares sold P XX

Less: Acquisition cost of shares sold ( XX)
Capital gain XX
Tax rate 15%
Capital gains tax P XX
Deadline of payment of capital gains tax – Transactional:

The capital gains tax return (BIR Form 1707) shall be filled within 30 days each sale, exchange, and other
disposition of stocks. If the tax is qualified for payment under the installment method, the tax is due within 30
days after each installment.
Deadline of payment of capital gains tax – Annual:

Te annual capital gains tax return, BIR Form 1701-A, shall be filed on or before the 15th day of the fourth month
following the close of the taxable year of the taxpayer.
Computation of Capital Gains Tax:
Selling price of real property P XX

Zonal value XX
Fair market value XX
Select higher P XX
Tax rate 6%
Page 4 of 19
Exemption:
If the real property sold is a principal residence and the proceeds were used to acquire new principal residence,
the sale of such is exempted from capital gains tax. Principal residence means the house and lot which is the
primary domicile of the taxpayer.
Requirements:
a. The seller must be a citizen or resident alien (means not applicable to NRA)
b. The sale involves the principal residence of the seller-taxpayer
c. The proceeds of the sale is utilized in acquiring a new principal residence
d. The BIR is notified within 30 days.
e. Acquisition of new principal residence must be within 18 months
f. Exemption can only be availed once every 10 years
g. Must be deposited in escrow
Proceeds from sale:

§ Fully utilized – sale is exempted from CGT
§ Not utilized – sale is not exempted from CGT
§ Partially utilized – sale is partially exempted from CGT:
Selling price of real property P XX

Zonal value XX
Fair market value XX
Select higher P XX
Tax rate 6%
Whole capital gains tax P XX
Percentage of proceeds utilized
in acquiring new principal residence over the total proceeds X%
Page 5 of 19
DISCUSSION:
CLASSIFICATION OF INDIVIDUALS:
1. Which of the following is not considered as nonresident citizen?
A. 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.
B. A citizen of the Philippines who leaves the Philippines during the taxable year to reside aboard, either as
an immigrant or for employment on permanent basis.
C. A citizen of the Philippines who leaves the Philippines who works and derives income from abroad whose
employment thereat requires him to be physically present abroad most of the time during the taxable
year.
D. A citizen of the Philippines who went on a business trip abroad and stayed therein most of the time
during the year.
2. A Filipino who has been abroad for more than 183 days is classified as a
A. Resident alien C. Nonresident citizen
B. Nonresident alien D. Nonresident alien not engaged in trade or business
3. Due to his expertise, Engr. Pedro (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. Pedro is a:
A. Resident citizen C. Nonresident citizen
B. Resident alien D. Nonresident alien
4. An American who showed proof to the satisfaction of the Commissioner of Internal Revenue of his stay in
the Philippines as an immigrant is classified as
A. Resident citizen C. NRA-Engaged in trade and business
B. Resident alien D. NRA-Not engaged in trade and business
5. A Japanese who is staying in the Philippines for 183 days is a

A. Resident alien
B. Nonresident alien
C. Nonresident alien engaged in trade or business
D. Nonresident alien not engaged in trade or business
6. A Canadian who is staying in the Philippines for more than one year is a
A. Resident alien
B. Nonresident alien
C. Nonresident alien engaged in trade or business
D. Nonresident alien not engaged in trade or business
7. An alien who stayed less than one year in the Philippines is classified as a nonresident alien not engaged in
trade or business if he stayed herein for less than
A. 180 days C. 183 days
B. 1 years D. 2 years
SITUS OF TAXATION:
8. The following are the income earned by Diaz:
• Diaz works from home online and submits his output to clients. He collected P100,000,000 service
fee from foreign clients and P20,000 from resident clients.
• Diaz rendered audit services to client in Japan for P500,000. The services were paid in Japan.
• Diaz has a store in a tourist park in Baguio City, Philippines. He earned a total ofP40,000 gain from
selling souvenir items. 40% were from foreign tourist.
• Diaz sold at a gain of P2,000,000 to a client abroad a commercial building located in Quezon City,
Philippines.
• Diaz sold his stocks in a domestic corporation to a foreign investor at a gain of P50,000.
• Diaz received P20,000 dividends from a domestic corporation and P30,000 dividend income from a
non-resident foreign corporation.
• Diaz earned P40,000 dividends from a resident foreign corporation; 60% of its gross profit is from the
Philippines.
• Diaz earned P100,000 dividends from a resident foreign corporation which realized 40% of its gross
income in the Philippines.
• Diaz earned P20,000 dividends from a non-resident foreign corporation.
Page 6 of 19
How much from the earnings above are considered as income earned within the Philippines?
A. 2,254,000 C. 2,310,000
B. 2,294,000 D. 2,270,000
9. Which statement is correct regarding situs of income?

A. The gain on the sale of real property is earned in the location of the property.
B. The gain on sale of any property is earned in the place of sale.
C. Merchandising income is earned in the residence of the proprietor
D. Manufacturing income is earned in the place of sale.
10. Jay, a nonresident citizen, lent money to Park, a resident Chinese. The indebtedness was collateralized by
a property located in Japan. The interest income is earned in
A. Philippines C. Japan
B. China D. Japan, China and Philippines
11. Gain on the sale of goods manufactured and sold by the taxpayer within the Philippines is subject to tax
A. Within the Philippines C. Either within or without the Philippines
B. Without the Philippines D. Neither within nor without the Philippines
12. Vannah, a resident alien, and Darwin, a nonresident alien, executed a contract in Japan whereby Darwin shall
purchase the lot owned by Vannah in the Philippines. Vannah gains P1,000,000. Which is true?
A. The gain is exempt since the gain is derived outside the Philippines
B. The gain is not subject to Philippine tax since Vannah is a resident alien.
C. The gain is subject to Philippine tax because Vannah is a resident alien.
D. The gain is subject to Philippine tax because the property is in the Philippines.
FINAL TAXES ON CERTAIN PASSIVE INCOME:

13. Statement 1: Final tax is collected at source; hence, there is no need to file an income tax return.
Statement 2: Foreign income is subjected to final tax if the taxpayer is taxable on global income.
Statement 3: Items of passive income from abroad are subject to final tax.
Statement 4: Interest income on government securities are subject to final tax.
Which statement is true?

A. Statement 1 and 2 C. Statement 1 and 3
B. Statement 3 and 4 D. Statement 2 and 4
14. Which statement is correct regarding final income tax?

A. It covers all items of passive income from whatever sources.
B. It applies to all items of gross income of any nonresident earned from sources within the Philippines.
C. It applies to passive income earned abroad.
D. Taxpayers need not file an income tax return.
15. Which statement is correct regarding final income tax?

A. Items of income subjected to final tax can still be subjected to regular tax.
B. Final tax applies only on certain passive income earned within the Philippines
C. Items of income exempt under final tax are subject to regular tax
D. Final income tax applies to all passive income from Philippines sources.
16. Which of the following is subject to 15% final tax on interest from foreign currency deposits made with
Philippine banks?
B. Nonresident alien engaged in trade or business
C. Nonresident alien not engaged in trade or business
D. Resident alien
17. Sarah, a resident citizen taxpayer provided the following information for 2021:
Interest income – BDO, Philippines 200,000

Interest income – HSBC, U.S.A. 100,000
Interest income received from a depository bank under foreign currency deposit system 100,000
What is the final taxes on passive income of Sarah?

A. 80,000 C. 55,000
B. 75,000 D. 40,000
Page 7 of 19
18. The interest income from long-term peso deposits made with foreign banks is
A. Subject to 20% final tax C. Subject to regular tax
B. Exempt from any tax D. Subject to 15% final tax
19. The interest income from long-term peso deposits made with local banks is
A. Subject to 20% final tax C. Subject to regular tax
B. Exempt from any tax D. Subject to 15% final tax
20. Jonny, a resident citizen, deposited P2,000,000 in the 1-year time deposit of Banco de Oro. The deposit
pays 8% interest. Compute the final tax on maturity.
A. 32,000 C. 16,000
B. 24,000 D. 0
21. Hatty received P42,000 net of final tax from short-term deposits. Compute the final tax withheld on the
interest.
A. 10,500 C. 5,000
B. 9,000 D. 4,500
22. Sally, a resident citizen, deposited P5,000,000 in a non-resident foreign depository bank which pays 12%
annual interest. How much final tax shall be withheld in the first year?
A. 0 C. 120,000
B. 45,000 D. 150,000
23. Rudy, a nonresident citizen, deposited his P2,000,000 savings in a two-year time deposit in Blue Bank, a
depository bank under the expanded foreign currency deposit system. The deposit pays 8% annual interest.
Compute the final tax to withheld in dollars in the first year.
A. $0 C. $64,000
B. $24,000 D. $80,000
24. Mr. Baguham published his book abroad for the international market. During the first quarter, he earned a
gross royalty of P1,000,000. How much is final tax will be withheld by the foreign publisher?
A. 250,000 C. 100,000
B. 200,000 D. 0
25. Smith, a resident citizen taxpayer provided the following information for 2021:
Royalty income, Philippines 40,000

Royalty income on book published in Philippines 50,000
Royalty income on book published in Canada 60,000
What is the final taxes on passive income of Smith?

A. 8,000 C. 30,000
B. 13,000 D. 21,000
26. Sunny, a resident citizen taxpayer provided the following information for 2021:

Singapore sweepstakes winnings 200,000
Other winnings, Philippines 50,000
Raffle draw winnings – Beijing China 30,000
What is the final taxes on passive income of Sunny?

A. 161,600 C. 101,800
B. 110,000 D. 111,600
27. Shembot, a resident citizen taxpayer provided the following information for 2021:
Prize in a contest he joined in Manila Philippines 9,000

Prize in a contest he joined in Quezon City Philippines 20,000
Prize in a contest he joined in Tokyo Japan 8,000
Prize in a contest he joined in Seoul South Korea 40,000
What is the final taxes on passive income of Shembot?

Page 8 of 19
A. 4,000 C. 5,800
B. 15,400 D. 12,000
28. Samantha, a resident citizen taxpayer provided the following information for 2021:
Dividend received from a domestic corporation 250,000

Dividend received from a foreign corporation 150,000
What is the final taxes on passive income of Samantha?

A. 50,000 C. 80,000
B. 30,000 D. 25,000
CAPITAL GAINS TAX:

29. Post Malone, a taxpayer holds share of stock as investment. During the current year, Post Malone sells the
shares he bought for P100,000 for P180,000 directly to a buyer. How much is the capital gains tax on the
sale, if any?
A. 10,800 C. 12,000
B. 4,800 D. 0
30. Jay-Z, an individual taxpayer holds shares for stock as investment which he bought from a publicly-listed
company for P500,000. The shares are listed and traded in the local stock exchange. He sells it for
P750,000. How much is the capital gains tax on the sale, if any?
A. 112,500 C. 37,500
B. 45,000 D. 0
31. Chamillionaire, an individual taxpayer invested P300,000 in the common shares of San Miguel Corporation.
During the current year, he sold these shares to a buyer directly for P250,000. How much is the capital gains
tax on the sale, if any?
A. 45,000 C. 18,000
B. 25,000 D. 0
32. During the year 2018, Selena sold her vacation house for P500,000. She acquired it for P700,000 two years
ago. The fair market value of the vacation hose at the time of sale was P800,000. How much is the capital
gain tax if any?
A. 48,000 C. 42,000
B. 30,000 D. 12,000
33. Nikki acquired her principal residence in 2012 at a cost of P1,000,000. She sold the said property on January
1, 2018, with a fair market value of P5,000,000 for a consideration of P4,000,000. Within 18 months period
she purchased her new principal residence at a cost of P7,000,000. How much is the capital gains tax?
A. 240,000 C. 180,000
B. 300,000 D. 0
34. Using the above information regarding Nikki, assume instead that the entire proceeds was not fully utilized
because she only used P3,000,000 in acquiring her new principal residence. How much is the capital gains
tax?
A. 300,000 C. 225,000
B. 240,000 D. 75,000
Page 9 of 19
35. Lorna, a self-employed resident citizen provided the following data for 2018 taxable year:
Sales 2,800,000
Other non operating income 50,000
1) How much is the basic income tax of Lorna for the year?
A. 212,500
B. 211,500
C. 208,000
D. 228,000
2) How much is the total income tax of Lorna assuming she opted to be taxed at 8%?
A. 212,500
B. 211,500
C. 208,000
D. 228,000
Susan operates pet shop and at the same time, offers interior design services to her client. The following data
were provided by Susan for 2018 taxable year:
Pet Shop: Interior design services:

Gross sales 1,800,000 Gross receipts
1,150,000
Cost of sales 600,000 Cost of direct services
120,000
Operating expenses 200,000 Operating expenses
80,000
3) How much is her income tax liability for the year?

A. 216,000
B. 345,000
C. 475,000
D. 540,000
4) Assuming Susan signified her intention to be taxed 8% income tax rate on her quarterly income tax return,
how much is her income tax liability for the year?
A. 216,000
B. 345,000
C. 475,000
D. 540,000
5) Maleficent is a mixed income earner. He is a self-employed resident citizen and currently finance manager
of Fatherhood Corporation. The following data were provided for 2018 taxable year:
Compensation income 1,800,000

Sales 2,800,000
How much is total basic tax assuming he opted to be taxed at 8%?

A. 321,500
B. 788,600
C. 654,000
D. 512,000
Mr. Allan, works for Sis Company. He is not engaged in business nor has any other source of income other than
his employment. For 2018, Mr. Allan earned a total taxable compensation income of P1,060,000. How much us
his income tax liability.
1) How much is his income tax liability?
Page 10 of 19
A. 84,800
B. 208,000
C. 195,000
D. 133,000
2) Assuming Mr. Allan requested to be taxed at 8%, how much tax will be collected from Mr. Allan?
A. 84,800
B. 208,000
C. 64,800
D. 133,000
Mr. Gloc 9 operates a convenience store while he offers bookkeeping services to his clients. In 2018, his gross
sales amounted to P800,000, in addition to his receipts from bookkeeping services of P300,000. He already
signifies his intention to be taxed at 8% income tax rate in his first quarter return.
3) How much is the income tax liability for the year?

A. 220,000
B. 88,000
C. 68,000
D. 145,000
4) Assuming Mr. Gloc 9 failed to signify his intention to be taxed at 8% income tax rate on gross sales in his
first quarter income tax return, and he incurred cost of sales and operating expenses amounting to P600,000
and P200,000, respectively, or a total of P800,000. How much is the income tax?
A. 145,000
B. 220,000
C. 10,000
D. 0
Ms. Goo Hara operates a convenience store while she offers bookkeeping services to her clients. In 2018, her
gross sales amounted to P1,800,000, in addition to her gross receipts from bookkeeping services of P400,000.
Her recorded cost of goods sold and operating expenses were P1,325,000 and P320,000, respectively.
5) How much is her income tax liability?

A. 554,000
B. 430,000
C. 76,500
D. 11,000
6) How much is her income tax liability if she signifies her intention to be taxed at 8% income tax rate?
A. 176,000
B. 156,000
C. 44,000
D. 24,400
In 2018, Ms. Suli, a finance comptroller of RIP Goo Hara Company, earned annual compensation of P1,410,000.
Aside from employment income, she owns a convenience store, with gross sales of P2,400,000. Her cost of
sales and operating expenses are P1,000,000 and P600,000, respectively, and with non operating income of
P100,000.
7) How much is her tax due for 2018 if she opted to be taxed at eight percent income tax rate?
A. 304,800
B. 184,800
C. 505,000
D. 513,000
8) How much is her tax due for 2018 if she did not opt to be taxed at eight percent income tax rate?
A. 589,200
B. 509,200
C. 473,000
D. 583,000
Page 11 of 19
1) What is the applicable tax type and tax rate if a resident citizen earned interest from a peso bank deposit,
BPI, Makati?
A. 20% final tax
B. 10% final tax
C. Exempted from taxation
D. Regular tax (graduated tax table)
2) What is the applicable tax type and tax rate if a resident citizen earned interest from a dollar deposit,
HSBC, New York USA?
A. 20% final tax
B. 10% final tax
C. 15% final tax
3) What is the applicable tax type and tax rate if a resident citizen earned royalties from books published in
the Philippines?
A. 20% final tax
B. 10% final tax
C. 8% final tax
4) What is the applicable tax type and tax rate if a resident citizen earned royalties from books published in
the Africa?
A. 20% final tax
B. 10% final tax
C. 8% final tax
5) What is the applicable tax type and tax rate if a resident citizen earned royalties from musical composition
in the Philippines?
A. 20% final tax
B. 10% final tax
C. 8% final tax
6) What is the applicable tax type and tax rate if a resident citizen earned royalties from patent used in the
Philippines?
A. 20% final tax
B. 10% final tax
C. 8% final tax
7) What is the applicable tax type and tax rate if a resident citizen earned royalties from franchise exercised in
the Philippines?
A. 20% final tax
B. 10% final tax
C. 8% final tax
8) What is the applicable tax type and tax rate if a resident citizen earned prize amounting to P30,000 in the
Philippines?
A. 20% final tax
B. 10% final tax
Philippines?
A. 20% final tax
B. 10% final tax
Page 12 of 19
10) What is the applicable tax type and tax rate if a resident citizen earned winnings amounting to P30,000 in
the Philippines?
A. 20% final tax
B. 10% final tax
11) What is the applicable tax type and tax rate if a resident citizen earned winnings amounting to P9,800 in
the Philippines?
A. 20% final tax
B. 10% final tax
12) What is the applicable tax type and tax rate if a resident citizen earned winnings from PCSO Lotto amounting
to P30,000 in the Philippines?
A. 20% final tax
B. 10% final tax
Philippines?
A. 20% final tax
B. 10% final tax
14) What is the applicable tax type and tax rate if a resident citizen earned USA sweepstakes winnings
amounting to P30,000 in the Philippines?
A. 20% final tax
B. 10% final tax
15) What is the applicable tax type and tax rate if a resident citizen received dividend from a domestic
corporation?
A. 20% final tax
B. 10% final tax
16) What is the applicable tax type and tax rate if a resident citizen received dividend from a foreign corporation?
A. 20% final tax
B. 10% final tax
Jay, a resident citizen taxpayer provided the following information for 2018:
Gross business income, Philippines 2,000,000

Gross business income, Canada 3,000,000
Business expenses, Philippines 1,400,000
Business expenses, Canada 2,050,000
Interest income – BDO, Canada 50,000
17) What is the basic tax of Jay for 2018?

A. 370,000
B. 335,000
C. 295,000
Page 13 of 19
D. 380,000
18) What is the final tax on passive income of Jay for 2018?
A. 10,000
B. 6,000
C. 12,500
D. Zero
19) John, a resident citizen taxpayer provided the following information for 2018:
Interest income – BDO, Philippines 20,000

Dividend income from a domestic corporation 12,500
What is the final tax on passive income of John for 2018?

A. 5,250
B. 105,250
C. 106,500
D. 6,500
20) Jason, a resident citizen taxpayer provided the following information for 2018:

Hong Kong sweepstakes winnings 20,000
Other winnings – Philippines 15,000
What is the final tax on passive income?

A. 0
B. 2,200
C. 6,200
D. 5,200
Jessica, a purely self-employed taxpayer provided the following data:

Cost of sales (1,500,000)
Operating expenses (750,000)
Net income 550,000
21) What is the income tax due of Jessica?

A. 67,500
B. 10,000
C. 746,000
D. 666,000
22) Assuming Jessica opted to avail the 8% tax under the TRAIN law, what is the income tax due of Jessica?
A. 24,000
B. 44,000
C. 204,000
D. 224,000
Jerome, a mixed income earner provided the following data for 2018:
Compensation income 900,000

Operating expense (750,000)
Page 14 of 19
Total taxable net income 1,450,000
23) What is the income tax due of Jerome?

A. 67,500
B. 250,000
C. 325,000
D. 227,500
24) Assume Jerome opted the 8% tax, determine the tax due:
A. 296,000
B. 276,000
C. 384,000
D. 364,000
Joshua, a tax payer in 2018 provided the following passive income:
Interest on bank deposit under foreign currency deposit system 900,000

Royalty on books 94,500
Dividend income from domestic corporation 144,000
25) If Joshua is a resident citizen, what is the final tax on passive income?
A. 203,850
B. 158,850
C. 168,300
D. 173,250
26) If Joshua is a non resident citizen engaged in business, what is the final tax on passive income?
A. 23,850
B. 33,300
C. 38,250
D. 47,700
27) Which of the following is an income subject to the basic tax?

A. Dividend received from domestic corporation
B. Prizes from USA lotto
C. Interest income from BDO, Philippines
D. Share in the net income of business partnership
28) Jeric, a resident citizen provided the following earnings of interest:
Interest income from bank deposit, Philippines 50,000

Interest income from bank deposit, Africa 70,000
Interest on bank deposit under foreign currency deposit system 80,000
What is the final tax of Jeric from these earnings?

A. 10,000
B. 25,000
C. 26,000
D. 39,000
Jerry, a resident citizen earned the following royalties during the year:
Royalties from books, Philippines 100,000

Royalties from patent, Philippines 50,000
29) What is the final tax on royalties by Jerry?

A. 15,000
B. 25,000
C. 30,000
D. 400,00
30) Assume instead Jerry is a non resident alien not engaged in business, what is the income tax of Jerry for
the year?
Page 15 of 19
A. 22,500
B. 30,000
C. 37,500
D. 45,000
31) Jerimiah, a resident citizen provided the following winnings for 2018:

Raffle draw winnings – Seoul, South Korea 30,000
What is the final tax on winnings by Jerimiah?

A. 0
B. 4,000
C. 5,600
D. 11,600
32) Jasmine, received the following dividend during 2018:

Dividend income from a foreign corporation 75,000
What is the final tax on dividend by Jasmine?

A. 12,500
B. 20,000
C. 25,000
D. 40,000
33) All of the following, except one, are taxable on income within only:
A. Resident alien
B. Non resident citizen
C. Resident citizen
D. Non resident alien
34) The process by which the sovereign raises income to defray the expenses of the government is called
A. Subsidy
B. Tariff
C. Taxation
D. Tribute
35) In case of conflict between tax laws and generally accepted accounting principles (GAAP)
A. Both tax law and GAAP shall be enforced.
B. GAAP shall prevail over tax laws.
C. Tax laws shall prevail over GAAP.
D. The issue shall be resolved by the court.
Assume the following data for Natdog Corporation for the current year (6th year of business operations):
Gross income, Philippines P 975,000

Expenses, Philippines 950,000
Gross income, Malaysia 700,000
Expenses, Malaysia 720,000
Interest on bank deposit 25,000
Determine the income tax payable assuming:

1) The corporation is a domestic corporation:
A. 1,500
B. 33,500
C. 7,500
D. 500
2) The corporation is a resident corporation:

A. 1,500
B. 33,500
Page 16 of 19
C. 7,500
D. 19,500
A domestic corporation which commenced operation in 2014 provided the following data:
2018 2019 2020

Gross income 10,000,000 12,000,000 14,000,000
Operating expenses (9,500,000) (12,200,000) (12,800,000)
Net income (loss) 500,000 (200,000) 1,200,000
Determine the income tax payable for the year:
3) 2018
A. 200,000
B. 150,000
C. 300,000
D. 3,000,000
4) 2019
A. 240,000
B. 600,000
C. 190,000
D. -0-
5) 2020
A. 300,000
B. 280,000
C. 230,000
D. 10,000
6) A proprietary hospital had the following data for 2018:
Gross receipt from patients and laboratory services P8,500,000

Hospital operating expenses 8,200,000
The income tax payable of the hospital for 2018 is

A. 105,000
B. 180,000
C. 465,000
D. 540,000
A domestic corporation provided the following data for 2018:
Gross profit from sales P 3,000,000

Dividend from domestic corporation 100,000
Dividend income from a resident corporation 50,000
Dividend income from a non resident corporation 40,000
Capital gain on sale of land in the Philippines
Selling price – P2,000,000
Fair value – P1,800,000
Cost – P1,500,000 500,000
Capital gain on sale of land in China
Selling price – P1,500,000
Fair value – P1,800,000
Cost – P1,300,000 200,000
Capital gain on shares of domestic corporation 120,000
Interest income from:
Notes receivable 20,000
Bank deposits 65,000
7) What is the income tax payable for the year?

A. 366,000
Page 17 of 19
B. 423,000
C. 426,000
D. 453,000
8) What is the total capital gains tax?

A. 121,750
B. 37,000
C. 127,000
D. 138,000
9) What is the final tax on certain passive income?

A. 13,000
B. 17,000
C. 11,750
D. 9,875
Philippine Airlines, a domestic corporation engaged in local and international operations has the following data
for the current year:
Gross income and expenses from international operations, P10,000,000 and P4,000,000 respectively.
10) The income tax due of the corporation is

A. 150,000
B. 250,000
C. 1,800,000
D. 3,000,000
11) Assume the carrier is an international carrier (a resident foreign corporation), the income tax due is
A. 150,000
B. 250,000
C. 1,800,000
D. 3,000,000
Page 18 of 19
12) Pacific Airlines, an international air carrier is a resident foreign corporation, showed the following gross
receipts for 2018:
Point of origin Destination Gross receipt

Philippines U.S.A. 8,000,000
U.S.A. U.K. 4,000,000
U.S.A. Philippines 3,750,000
U.K. Philippines 2,100,000
The income tax payable for 2018 is

A. 127,500
B. 150,000
C. 170,000
D. 200,000
13) Masi University is a private educational proprietary institution had the following data for 2018:
Tuition fees P 4,800,000

Total school expenses 9,450,000
The income tax payable for 2018 is

A. 165,000
B. 95,000
C. 60,000
D. 200,000
Mimi sold his residential house and lot located in Manila on January 5, 2018 for P8,000,000. The property was
purchased in 2005 for P3,000,000. The current market value of the property at the time of sale was:
BIR commissioner’s zonal valuation P 9,000,000

City Assessor’s schedule of values 6,000,000
14) What is the capital gains tax on the sale?

A. 300,000 B. 360,000 C. 480,000 D. 540,000
15) Suppose Mimi, within the 18 six months after the sale, purchase another residence for P8,000,000, what
will be the capital gains tax on the sale?
A. 540,000
B. 360,000
C. 520,000
D. 0
Page 19 of 19
QUIZ 1
Question 1
1. One of the following is not a requisite for taxable income?
Correct!
The gain must in the conduct of business
There must be gain
The gain must be realized
The gain must not be excluded by law
Question 2
2. Which of the following is not classified as income?
Gift received
Gain derived from labor
Return of Capital
Excess of selling price over cost of assests sold
Question 3
3.
Income
is all wealth that flows into the hand of the taxpayer, except a mere
return of capital.
Answer 1:
Income
Question 4
4. Which of the following is outside the purview of income?
Correct Answer
Inflow arising from generous act of a person
Inflow of value for the use of tangible asset
Excess of cost derived through enterprising initiative
Amount in excess of the loan lent
Question 5
5. There is no taxable income until such income is recognized. Taxable
income is recognized when the
income has been received , either actually or constructively
taxpayer fails to include the income in his income tax return
income has been actually received in money or its equivalent
transaction that is the source of the income consummated.
Question 6
7. National Tax is a tax imposed by the
National Government.
Direct tax
is a tax demanded from the person whom the law intends to impose it,
and cannot be shifted by the taxpayer to some other person.
National Tax
is levied for the general purpose of the government.
Income tax
is levied on value or amount of the income of the taxpayer.
Income tax
is a burden not laid directly upon persons and properties but upon the
right of a person to receive income or profits
Answer 1:
National Government
Answer 2:
Direct Tax
Answer 3:
General Tax
Answer 4:
Ad Valorem Tax
Answer 5:
Excise tax
Question 7
8. What are the three (3) requisites for income to be taxable?
1. There must be gain or profit;
2. The gain must be realized; and

3. The gain must not be excluded by law from taxation.
1. There must be gain or profit , whether in cash or its equivalent
2. The gain must be realized or received
3.The gain must not be excluded by law or treaty from taxation.
Question 8
9. Subject of income tax is
Right to engage in activities from which to derive or earn income
Income from all sources
Business transactions from which income is derived
The person deriving the income
Question 9
10. Which is true? Income derived is defined as inflow of wealth
To a person as a source or means of livelihood
Over and above income
which includes only the capital
For the use of a factor of production
Question 10
11. For income tax purposes. a general professional partnership is not
considered a corporation
True
False
Question 11
12. A corporation does not include general professional partnership.
True
False
Question 12
13. Benefits from taxation have to be experienced to justify the legitimacy
of collection of taxes from the people.
True
False
Question 13
14. Taxation is considered considered as the lifeblood of the government
and every local government unit must exercise this power
True
False
Question 14
15. The process by which the sovereign raises income through its
executive branch to defray the expenses of the government is called
taxation.
True
False
QUIZ 4
Question 1
1. Nationality is one of the factors affecting the taxation of income. Which
of the following nationality is taxable on income from all sources?
Correct!
Resident Citizen
Non-Resident Alien
Resident Alien
All of the above
Question 2
2. What pattern of income taxation is used where the tax on income is
withheld by payor at source and the amount so withheld is irrevocable?
Final Tax on Passive Income
Capital Gains Tax
Corporate Income Tax
Sales Tax
Question 3
3. Which of the following income is not subject to final tax on passive
income?
Rental Income
Dividend income received by individual taxpayers
Prizes in excess of P10,000
Royalties
Question 4
4. Taxpayer is a resident citizen, married and with 3 children. A rank and
file employee, details of his income and benefits from employment for
taxable year 2019 are as follows:
Salaries and Wages 840,000
13th Month Pay 70,000
Mid Year Bonus 35,000
Other Bonuses 10,000
Laundry Allowance 600 per month
Rice Allowance. 2,500 per month
Clothing Allowance. 6,000 for a year

Payroll Deductions
SSS 10,000
Philhealth. 2,400
Pag-IBIG. 1,200
Union Dues. 1,800
1. What is the amount of Gross Income?

840,000 + 70,000 + 35,000 + 10,000 + (300*12) + (500*12) = 964,600
2. What is the amount of Taxable Income?

964,600 – (10,000 + 2,400 + 1,200 + 1,800) – 90,000 = 859,200
3. What is the amount of Tax Due?

130,000 + (59,200*0.3) = 147,760
NOTE: illustrate on how did you arrive with your answers.

Salaries and Wages 840,000
13th Month Pay. 70,000
Mid Year Bonus. 35,000
Other Bonuses 10,000
Excess of De Minimis Benefits:
Laundry 600-300=300x12. 3,600
Rice 2,500-2,000=500x12. 6,000
TOTAL GROSS INCOME. 964,600
Less: Deductions
13th Month Pay and
Other Benefits. 90,000
Mandatatory Contributions. 15,400

TOTAL TAXABLE INCOME. 859,200
Tax for 800,000. 130,000
Excess 59,200 x 30%. 17,760
TOTAL TAX DUE. 147,760
QUIZ 5
Question 1
2. The following income are reported by Cute, a CPA
Salary as an accountant P480,000
Overtime Pay 30,000
13th Month Pay and other benefits 60,000
Audit Retainer's Fee 50,000
Capital Gains from the sale of car 30,000
A. What is the amount of gross compensation income from employment

B. What is the amount on non taxable benefits
C. What is the taxable compensation income?
D. Using the tax table for individual income taxation, what bracket of
income is applicable in computing the tax due?
E. What is the tax due?
for question letter E, illustrate your answer.
A. Gross Compensation income from employment:
Salary 480,000
Overtime Pay 30,000
13th Month Pay and other benefits 60,000
TOTAL 570,000
Note:
The audit retainer's fee if an income from the practice of
profession.
The gain from the sale of car is a capital gain.
B. Taxable compensation income:

TOTAL Gross Compensation income 570,000
Less: Non taxable benefits 60,000
Taxable Income 510,000
C. TAX Due:
Over P400,000 P30,000 + 25% P22,500 + 20%

but not over of the excess of the excess
P800,000 over P400,000 over P400,000
Tax for the amount of P400,0000 30,000

Tax on the excess (510,000-400,000)x25% 27,500
TOTAL TAX DUE 57,500
QUIZ 6
Question 1
1. ABC Corp is a domestic corporation and granted Mr. X a branch
manager employee in addition to his basic salaries, Php 4,000 cash per
quarter for his personal membership fees at Anytime Fitness gym.
Indicate the following:
a. Monetary value of Fringe Benefit
b. Percentage Divisor Applicable
c. Fringe Benefit Tax Rate
d. Gross-Up Monetary Value
e. How much is the Fringe Benefit Tax that ABC Corp should withhold and
remit to BIR per quarter?
Computation/Answer:
Monetary value of fringe benefit: Php 4,000
Percentage divisor applicable: 65%
Fringe benefit tax rate: 35%
FBT= (Monetary value of fringe benefit/65%) x 35%
FBT= (Php 4,000/65%) x 35%
FBT= Php 6,153.85 x 35%
FBT= Php 2,153.85
Question 2
2. Gerry, the Chairman of the Board, presented the following expense
account paid by U Corporation for 2019
Family and Vacation Expenses P 80,000
Grocery Items 20,000
Clothing 10,000
Gasoline of company car 10,000
A. What is the amount of Fringe Benefit subject to Fringe Benefit Tax?
B. What is the amount of Fringe Benefit Tax?
A. Amount of Fringe Benefit Subject to Fringe Benefit tax
Family ans Vacation Expenses 80,000
Grocery Items 20,000
Clothing (excess of de minimis allowance) 4,000
Total 104,000
Note: The gasoline of company car is under the Employer's
Convenience Rule
B. Amount of Fringe Benefit Tax
Monetary Value of Fringe Benefit 104,000
Divided by the Gross Up Divisor 65%
Gross Up Monetary Value 160,000
Multiplied by FBT rate 35%
Fringe Benefit Tax 56,000
QUIZ 7
Question 1
1. Monetized unused vacation leave credits pf private employees not
exceeding ten days during the year and the monetized value of leave
credits paid to government officials and employees are part of the de
minimis benefits.
True
False
Question 2
2. Income derived by the political subdivision of the government is not
taxable.
True
False
Question 3
3. Daily meal allowance not exceeding twenty five percent of the basic
minimum wage is a de minimis benefit.
True
False
Question 4
4. A medical allowance of P 3,000 per employee per year to the
employee's dependent is a non taxable fringe benefit.
True
False
Question 5
5. Fringe benefit tax is not applicable when the fringe benefit given is
required by the nature of or is necessary to the trade, business or
profession of the employer, or when the fringe benefit is for the
convenience of the employer.
True
False
Question 6
6. All amounts received from a life insurance annuity are taxable.
True
False
Question 7
7. All increases in taxpayer's net worth are taxable income.
True
False
Question 8
8. Gifts received are classified as income.
True
False
Question 9
9. In order for an income to be classified as non taxable, it should not be
excluded by law or treaty from taxation.
True
False
Question 10
10. Separation pay is taxable if it caused by the disability of the employee.
True
Correct!
False
Question 11
8 / 12 pts
11. Indicate whether or not the following damages are "Taxable" or "Not
Taxable".
a. Actual damages for unrealized profit

Not Taxable
b. Actual damages for lost products

Not Taxable
c. Exemplary damages
Not Taxable
d. Moral damages
Not Taxable
e. Interest on taxable damages

Not Taxable
f. Actual liquidated damages
Not Taxable
Question 12
12. Tax assessment is a process of taxation which involves the passage of
tax laws and ordinances through legislature.
True
False
Question 13
13. The Gross Income derived within by the non resident foreign
corporation is taxed in the Philippines with 30% final tax.
True
False
Question 14
14. For income tax purposes , a General Professional Partnership is not
considered a corporation.
True
False
Question 15
15. Domestic and foreign corporations are taxed on income within and
without.
True
False
QUIZ 8
Question 1
Get the taxable income and tax due of a full-time small business owner with total
gross sales of Php 480,000 and without any non-operating income for the previous
taxable year who availed of the 8% tax rate.
1. Taxable Income
2. Tax Due
1. Get the taxable income. Deduct the non-taxable Php 250,000 from
the gross sales: Php 480,000 – Php 250,000 = Php 230,000.
2. Multiply the difference by 8% to compute the income tax due: Php
230,000 x 0.08 = Php 18,400.
QUIZ 9
Question 1
Mr. Pablo, an finance officer of ABC Corp. International Corp., earned in
2018 an annual compensation of P1,800,000.00, inclusive of the 13th
month and other benefits in the amount of P250,000.00. Aside from
employment income, he owns a business, with gross sales of P3,200,000.
His cost of sales and operating expenses are P800,000.00 and
P400,000.00, respectively, and with non-operating income of P150,000.00.
A. The amount of Taxable Income would be:
Gross Income from Compensation P 1,800,000

Less: Non Taxable Benefits
90,000
Taxable Compensation Income P

1,710,000
Gross Sales from Business P

3,200,000
Less: Cost of Sales

800,000
Gross Income
2,400,000
Less: Operating Expenses

400,000
Net Income from Operation

2,000,000
Add: Other non operating income 150,000

Taxable Income from Business
2,150,000
TOTAL TAXABLE INCOME:
From Compensation P 1,710,000
From Business 2,150,000
TOTAL TAXABLE INCOME P 3,860,000
B. Tax Due
Over P2,000,000 but not over P8,000,000
P490,000 + 32% of the excess over P2,000,000
P402,500 + 30% of the excess over P2,000,000

Tax for the amount of P2,000,000 P 490,000
Tax for the excess (3,860,000-2,000,000)x32% 595,200
TOTAL TAX DUE 1,085,200
QUIZ 10
1. The following rules as to recognition of capital gains or losses from the
disposition of personal property calssified as capital asset apply where the
taxpayer is an individual. Which is the EXCEPTION?
Net capital loss carry over in a taxable year should not exceed the
capital gain in the year the loss was incurred.
Ordinary losses are deductible from capital gains but net capital loss
cannot be deducted from ordinary gain.
Capital losses are deductible only to the extent of the capital gains,
hence, the net capital loss is not deductible
Depending on the holding period rule , the percentages of gain or loss is
100% if the capital asset has been held for 12 months or less, and 50% if
the capital asset has been held for more than 12 months.
2. Basic rule on sale of capital assets, excepts

Sale of real property located in the Philippines by a foreign
corporation is subject to 6% capital gains tax based on selling price
or fair market value, whichever is higher
Sale of shares stock of a domestic corporation through the local stock
exchange or initial public offering is exempt from tax
Sale of shares of stock of a resident foreign corporation not through the
local stock exchange is subject to a final tax of 5% for the first P100,000
capital gain and 10% for the excess
Sale of personal property located in the Philippines by a resident citizen
is subject to rules on holding period rule
3. An individual taxpayer owns a ten (10) door apartment with a monthly

renal of P20,000 each residential unit. He sold this property to another
individual taxpayer. Which is NOT correct?
The property sold is a capital asset
The seller is not liable to pay capital gains tax
The taxpayer is engaged in business
The rental income is subject to income tax using the graduated rates.
4. This is a capital asset

A residential land owned by a practicing lawyer
A residential land previously foreclosed by Development Bank of the
Philippines and is now being offered for sale to the public
A 10-door apartment units owned a retired government employee
A commercial building foreclosed by a lending institution
5. Holding period rule is the duration for which the taxpayer held the
capital asset. A capital asset held by the taxpayer for not more than 12
months is said to be
Correct Answer
short-term
medium-term
long-term
no term
6. Capital losses are deductible from ordinary gain but net capital gain I
not deductible from ordinary gains
True
False
7. Where the taxpayer is a corporation, the following rules as to

recognition of capital gains or losses from the disposition of property
classified as capital asset shall apply. Which is the exception?
Net capital loss carry over should not exceed the net income in the
year the loss was incurred
Ordinary losses are deductible from capital gains but net capital loss
cannot be deducted from ordinary gain
Capital losses are deductible to the extent of capital gain
The holding period rule does not apply corporations, hence, capital gains
and losses are recognized at 100%
8. Ordinary losses are deductible only to the extend of the capital gain but
the net capital loss is not deductible from ordinary gain.
True
False
9. The term "capital assets" include

Real property not used in the trade or business
Stock in trade or other property included in the taxpayer's inventory
Property primarily for sale to customers in the ordinary course of his trade
or business
Property used in the trade or business of the taxpayer and subject to
depreciation
10. Where the taxpayer is a corporation, which of the following statement

is true?
Correct Answer
Ordinary loss is deductible from ordinary gain
Capital loss is deductible only up to the extent or ordinary gains
The net capital loss can be carried over in the next succeeding year
The holding period rule does not apply to corporation, hence, capital
gains and losses are recognized at 50%
11. Determine whether ordinary asset or capital asset
a. Accounts Receivable
Capital Asset
b. Security held as investments

Capital Asset
c. Inventories of raw materials, work in process and finished goods
Ordinary Asset
d. Office equipment
Capital Asset
e. Land used in business

Ordinary Asset
f. Land held for investment purposes

Ordinary Asset
g. Land for sale by real estate dealer

Ordinary Asset
h. Residential house
Capital Asset
i. Interest of a partner in a partnership

Capital Asset
j. Car used for personal purposes

Capital Asset
QUIZ 11
Apply the principles you learned on the dealings of capital assets
governed by the thee specific rules, (holding period rule, capital loss
limitation rule, net capital loss carry over)
A domestic corporation had the following data for taxable year 20-A and
20-B
20-A
20-B
Taxable Income before capital assets transactions P 400,000 P

500,000
Gain from sale of capital assets
Held for 12 months

20,000 23,000
Held for 9 months

5,000 10,000
Loss from sale of capital assets
Held for 15 months

7,000 15,000
Held for 22 months
25,000 12,000
REQUIRED: What is the amount of taxable income of the corporation for

the years 20-A and 20-B?
Taxable Income of the corporation for the years:

20-A 20-B
Taxable Income before capital assets transactions P 400,000 P 500,000
Add: Gain from sale of capital assets 25,000 33,000
Less: Losses for sale of capital assets ( 25,000) ( 27,000)
NOTE: Capital Loss Limitation Rule. The capital loss
For year 20-A is P 27,000. However, we can
only deduct up to the amount of the capital gain
which is 25,000. We cannot deduct the excess
of P 2,000 capital loss from ordinary gain of
P 400,000 ordinary gain.
________________ ________________
TAXABLE INCOME P 400,000 P 506,000
Note: The excess of P 2,000 capital loss cannot
be carried over to year 20-B because Net
Capital Loss Carry Over is not applicable
to corporate taxpayers.
QUIZ 12
1. Which of the following is not classified as income?
Gift received
Gain derived from labor
Return of capital
Excess of selling price over cost of assets sold
2. Which of the following is subject to final tax?

Sale of real property (capital asset) located in the Philippines
Passive income earned outside the Philippines
Business income
Compensation Income
3. Which of the following is reported in the year when the amount is

collected?
Rent Income
Gross Profit
Compensation Income
Trading Income using accrual method of accounting
4. The following are components of non-taxable minimum wage, except:

Commission
Overtime Pay
Hazard Pay
Night Shift Differential
5.Gross business income is equal to the following, except:

Correct Answer
Gross Sales-Cost of Sales
Sales-Sales Returns and Allowances-Sales Discounts-Cost of Sales
Gross Receipts-Sales Returns and Allowances-Sales Discount
Net Sales-Cost of Sales
QUIZ 13
1. The following income are normally reportable in the annual tax return,
except
Passive Income
Compensation Income
Business Income
You Answered
Capital Gains
2. One of the following is a taxable income

Vacation leave with pay
Stock Dividend received
Compensation for personal injuries
Income from a qualified pension plan
3. The income from long term construction contract is required to be

reported
Percent completion method of reporting
Cash basis of reporting income
Accrual basis of reporting income
Installment method of reporting income
4. Which of the following dividend is exempt from income tax?

Stock Dividend
Cash Dividend
Property Dividend
Share Dividend, followed with redemption
5. Which of the following passive income is subject to normal tax (not final
tax)
P10,000 prizes earned in the Philippines
P1,000,000 cash dividend received by citizen from domestic corporation
You Answered
P100,000 interest income earned by alien from outside the Philippines
P1,000 winnings in the Philippines
6. Which of the following is a capital asset?

Investment in securities
Factory Building
Equipment used in business
Inventory for sale
7. In determining the capital gain or loss which of the following is not the
appropriate cost basis?
Cost of the inheritance received
Purchase cost in acquiring the asset
The lower of cost to the donor or fair market value at date of donation
Fair market value of property received in exchange
QUIZ 14
The AB & Co. is a general professional partnership, with Partners A and B,
sharing 60%-40% respectively in the partnership net income or loss. AB &
Co. is in its fourth year of operations during taxable year 2018. The
partnership withheld an income tax of 10% on each share of the Partners
when they withdrew their share. In 2018, the partnership and the partners
had the following data on income and expenses?
AB & Co:
Gross Income P900,000.00
Operating Expenses 150,000.00
Office Rental expense 120,000.00
Bad Debts 25,000.00
Depreciation Expense of Office Furniture 9,600.00
Partner A
Own Gross Income from Business P 950,000.00
Cost of Goods Sold 300,000.00
Interest Expense on Loans 26,000.00
Bad Debts Expense 17,000.00

Business Expenses 135,000.00
Partner B
Own income and Expenses none
Compute for the following:
1. Net Income of A & B Co.

2. Distributive Net Share of Partners A & B from the Net Income of A &
B Co.
3. Income Tax Due of A & B Co.
1.
Gross Income P900,000.00
Less: Expenses
Operating Expenses 150,000.00
Office Rental expense 120,000.00
Bad Debts 25,000.00
Depreciation Expense of Office Furniture 9,600.00
NET INCOME of A & B Co. P 595,400.00
2. Share of A (595,400 x 60%) P357,400
Share of B (595,400 x 40%) P 238,160

3. Since A & B Co is a General Professional Partnership, it is not liable to pay
income tax due.
QUIZ 16
Question 1
ABC Corporation took two key men insurance on the life of its President,
Mr. X. In one policy, the beneficiary is the corporation to compensate it for
its expected loss in case of death of its president. The other policy
designates Mr. X's wife as its irrevocable beneficiary.
Question 1- Are the insurance premium paid by X Corporation in both

policies deductible?
Question 2 – Will the insurance proceeds be treated as income subject to

tax by the corporation and by the wife?
No to both questions
Yes to 1st question and No to 2nd question
Yes to both questions
No to 1st question and Yes to 2nd question
Question 2
Which of the following is not an income tax on corporation?
Stock transaction tax

Normal tax
Minimum corporate income tax
Gross income tax
Question 3
The normal tax of an ordinary corporation effective January 1, 2000 is:
30%
34%
33%
32%
Question 4
Which statement is wrong? The gross income tax:
Is always computed to compare with the normal income tax and

minimum corporate income tax.
Is optional to a qualified corporation.
Available only if the ratio of cost of sales does not exceed fifty-five per
cent of gross sales or receipts from all sources.
The choice shall be irrevocable for three consecutive years that the
corporation is qualified under the scheme.
Question 5
Which statement is wrong? The gross income tax of the corporation is:
15% of gross sales

15% of gross income
15% of gross profit from sales
15% of gross receipts
Question 6
As a general rule, proceeds of insurance are not taxable because they only
constitute a return of capital (of what was lost). Which is the exception?
Proceeds of crop insurance.

Proceeds of life insurance.
Proceeds of accident or health insurance.
Proceeds of property insurance.
Question 7
Which of the following is taxable?
Retirement pay received from a benefit plan registered with the

Bureau of Internal Revenue where at the time the employee retired he
was 55 years of age, retiring from employment for the first time in his
life, and was employed with the employer from whom retiring for 6
years prior to retirement.
Separation pay received by a 50-year old employee due to the
retrenchment program of the employer.
Social security benefit received by a balikbayan from employer abroad at
the age of 35.
SSS and GSIS benefit.
Question 8
Income which is constructively received is already taxable income is a rule
under this method of accounting:
Correct Answer
Cash method
Accrual method
Installment method
Deferred payment method
Question 9
Which income from sources partly within and partly outside the Philippines
is allocated on the time basis?
Income from personal services performed in part in the Philippines

and in part abroad.
Income of an international shipping corporation with vessels touching
Philippine ports
Income of a telegraph company with transmission from the Philippines to
points abroad
Income from goods produced in whole or in part in the Philippines and
sold in a foreign country, or vice-versa.
Question 10
A general professional partnership is exempt from income tax, but is
required to file an income tax return:
Because the net income of the partnership will be traced into the
income tax return of the partners.
For statistical purposes.
Because all income earners are required to file income tax return.
None of the choices
QUIZ 17
Question 1
The minimum corporate income tax of a domestic or resident trading or
manufacturing corporation is:
2% of gross income.
5% of gross sales
. 15% of gross income.
15% of gross income.
Question 2
The minimum corporate income tax of a domestic or resident service
corporation is:
2% of gross income.
2% of gross receipts.
15% of gross receipts.
15% of gross income
Question 3
One of the following statements is correct. Which is it? The minimum
corporate income tax of a corporation is computed:
In the annual income tax return only of the corporation

In the quarterly and annual returns of the corporation.
In the quarterly returns only of the corporation.
In all the taxable years of operations of the corporation.
Question 4
One of the following statements is wrong. Identify. The improperly
accumulated earnings tax imposed on corporations:
Is computed on improperly accumulated income over several years

. Is calculated to force corporations to pay out dividends.
Is based on the net income per books after income tax.
Is based on a statutory formula for improperly accumulated income
Question 5
All, except one, of the following, are not subject to the improperly
accumulated earnings tax. Which is the exception?:
Service enterprises.
Publicly-held corporations.
Banks and other nonbank financial intermediaries.
Insurance companies
Question 6
The following, except one, give rise to the presumption that a corporation
is improperly accumulating profits. Identify the exception:
The corporation is a service enterprise

The corporation is a mere holding company.
The corporation is an investment company.
The corporation permits its profits to accumulate beyond the reasonable
needs of the business.
Question 7
Which of the following is not treated as a corporation?
General professional partnership.

General partnership in trade.
Mutual fund company
. Regional operating headquarters of multi national company.
Question 8
Which of the following statements is wrong?
A general partnership in trade is not taxable as a corporation

A joint venture for undertaking construction projects is not taxable as a
corporation
A consortium for energy operations pursuant to an operating consortium
agreement under a service contract with the government is not taxable as
a corporation.
A co-ownership where the activities of the co-owners are limited to the
preservation of property and collection of income from the property is not
taxable as a corporation.
Question 9
Which is wrong? The net worth-expenditure method of investigation which
is used by the Bureau of Internal Revenue to determine taxable income
that was fraudulently concealed by an individual is based on:
All of the choices

The statutory authority of the Commissioner of Internal Revenue to
promulgate rules and regulations.
The statutory authority of the Commissioner of the Internal Revenue to
determine the taxable income of a taxpayer from the best evidence
obtainable.
The statutory authority of the Commissioner of Internal Revenue to have
the income of a taxpayer computed under such method as in his opinion
clearly reflects the income.
Question 10
Statement 1. A change in the method of accounting requires a prior
approval of the Commissioner of Internal Revenue.
Statement 2. A change in accounting period does not require prior
approval of the Commissioner of Internal Revenue as long as the
necessary income tax returns for the different accounting periods (old,
interim and new) are filed.
First statement is correct, while second statement is wrong.

First statement is wrong, wile second statement is correct.
Both statements are correct.
Both statements are wrong.
Question 11
Who of the following need not file income tax return?
A general professional partnership, with a net income or net loss.

A taxable corporation, if with a net loss.
A taxable partnership, if with a net loss.
An employee with a gross compensation income of P500,000 when the
withholding tax by an employee was correct.
QUIZ 18
Question 1
One of the following is not an excise tax in the Tax Code.
Community tax
Percentage tax
Income tax
Value-added tax
Question 2
Dividend received from a foreign corporation shall be subject to
withholding income tax if:
In all cases where the foreign corporation engaged in business in the

Philippines had more than fifty percent of its world gross income for the
three-year period preceding the declaration of dividend derived from
Philippine sources
None of the choices
In all cases where the foreign corporation engaged in business in the
Philippines had more than eighty-five percent of its world gross
income for the three-year preceding the declaration of dividend
derived from Philippine sources
In all cases where the foreign corporation had business in the Philippines.
Question 3
A corporation which is included in exempt corporation under Section 30 of
the National Internal Revenue Code. (e.g., organized and operated for
charitable purposes) which did not file its article of
incorporation and by-laws with the Bureau of Internal Revenue:
Is required to file an income tax return although not required to pay

the income tax
Is required to file an income tax return and paid the income tax.
Needs to file only an information return and will not be required to pay the
income tax.
Needs to file an information return and pay the income tax.
Question 4
One of the following is correct:
Where in a deferred payment sales the initial payments exceed

twenty-five percent of he selling price, the income from the sales must be
reported on the accrual method.
Income from deferred payment sales may not be reported on the accrual
method.
Income from long-term contracts may be reported on the completed
contracts method of accounting
Income from long-term contracts must be reported only on the
percentage of completion method of accounting.
Question 5
Statement 1. Where different enterprises or corporation are owned by the
same taxpayer, the Commissioner of Internal Revenue may make an
allocation of income and expenses among them so as to clearly reflect the
income of each enterprise or corporations.
Statement 2. In the interest of determining the correct taxable income, it is
legal for the Commissioner of Internal revenue to determine the revenue
and gross income of a taxpayer based on industry standards developed
by the Bureau of Internal Revenue from an industry study.
First statement is wrong, but second statement is correct.

Both statements are correct
First statement is correct, but second statement is wrong.
Both statements are wrong
Question 6
Which of the following fringe benefit is not subject to the fringe benefits
tax?
Housing
Expense account
Contributions of the employer for the benefit of the employee to
retirement, insurance and hospitalization benefit plans.
Vehicle of any kind
Question 7
Which statement is wrong? The amount on which the fringe benefit tax
rate is applied is:
The monetary value of the fringe benefit

The grossed-up monetary value of the fringe benefit.
The amount deductible by the employer from his/its gross income
Reflected in the books of accounts in the two account of fringe benefits
expense and fringe benefit tax expense.
Question 8
Which statement is wrong? The fringe benefit tax is:
Imposed on the employee.
Imposed on the employer.
Deductible by the employer
Withheld at source.
Question 9
Statement 1. The cost of leasehold improvements shall be deductible by
the lessee by spreading the cost of the improvements over the life of the
improvements or remaining term of the lease, whichever
period is shorter.
Statement 2. Deprecation expense can be a deduction for both tangible

and intangible property with limited useful life.
False, true
True, true
Fasle, false
True, false
Question 10
Statement 1. Bad debt is an expense in the books of account when a
provision is made for it.
Statement 2. Bad debt is a deduction from the gross income when the
account is written off.
The first statement is false while the second statement is true.

The first statement is true while the second statement is false.
Both statements are false.
Both statements are true
Question 11
Statement 1. A net operating loss is the excess of allowable deductions
over the gross income from business for a taxable year.
Statement 2. A net operating loss which had not previously been deducted
from gross income shall be carried over as a deduction only in the next
year immediately following the year of such loss.
True, true
False, false
False, true
True, false
Question 12
Statement 1. In a total loss due to casualty, the measure of loss is the
book value of the asset reduced by any form of indemnity.
Statement 2. In a partial loss due to casualty, the measure of loss is the

cost of the property, or the cost to restore the property to its normal
operating condition, whichever is lower, reduced by any form of indemnity.
Statement 3. In a wash sale, loss is not deductible.
Statement 4. In a merger or consolidation, or transfer to a controlled

corporation, loss is not deductible.
True, true, true, true.

False, true, false, true.
True, false, true, false
False, false, false, false.
Question 13
One of the following is not correct for deductibility of losses from gross
income:
A declaration of loss by casualty should be filed with the Bureau of

Internal Revenue
It must not be compensated by insurance or any form of indemnity.
It is of property owned by the taxpayer, whether used in business or
not.
. It must arise from fire, storm, or other casualty, robbery, theft, or
embezzlement.
Question 14
Statement 1. Interest paid or incurred in the acquisition of fixed assets may
be capitalized to the asset account.
Statement 2. An individual on the cash basis of accounting shall deduct

interest paid in advance in the year that the principal is paid.

Statement 1 is wrong while statement 2 is correct.
Statement 1 is correct while statement 2 is wrong.
Both statements are wrong
Question 15
Statement 1. Only business expenses may be deducted from the gross
income of taxpayers.
Statement 2. Itemized deductions from gross income should be duly

supported by vouchers or receipts.
First statement is false while second statement is true.

Both statements are true.
eipts. a. First statement is true while second statement is false
Question 16
Which of the following tax refunds constitutes income?
Refund of donor's tax

Refund of estate tax
Refund of Philippine income tax
Refund of percentage tax.
Question 17
Which of the following is not gross compensation income?
Salary of P220,000 of an employee.

. Salaries of P220,000 of a partner of a general partnership in trade
Honorarium of P220,000 of an employee who is a member of the
board of directors of a corporation.
Bonus of P220,000 of an employee
Question 18
Gain on sale of 10-year bond.

GSIS proceeds of insurance
Prize exceeding P10,000.
Interest on long-term deposit on banks of individuals
Question 19
SSS benefits
Interest on government bonds.
You Answered
Agricultural land inherited.
Cash received as gift.
Question 20
Prize won as member mythical team in the PBA

Prize won in as essay contest.
Award for being a model employee
The Nobel Prize
Question 21
Which of the following items that reduce salaries of employees is not an
exclusions from gross income?
Labor Union Dues

GSIS or SSS Contributions
Pag-ibig contributions
IOUs
Question 22
A citizen of the Philippines was a non-resident citizen in 2017. On May 15,
2018, he arrived in the Philippines to reside permanently in the Philippines.
His income for the year was:
A – From January 1, 2018 to May 14, 2018.
B – From May 15, 2018 to December 31, 2018.
He is considered a resident citizen on his “B” income.

He is not taxable on his “A” income.
. He is considered a non-resident citizen on his “A” income
He is considered a resident citizen on his “A” and “B” income.
Question 23
The following are the general principles of income taxation:
a. A citizen of the Philippines residing therein is taxable on all income
derived from sources within and without the Philippines.
b. A nonresident citizen is taxable on income derived from sources
within the Philippines.
c. An individual citizen of the Philippines who is working and deriving
income from abroad as an overseas contract worker is taxable only on
income from sources within the Philippines.
d. An alien individual, whether a resident or not of the Philippines, is
taxable only on income derived from sources within the Philippines.
e. A domestic corporation is taxable on all income derived from
sources within and outside the Philippines.
f. A foreign corporation, whether engaged or not in business in the
Philippines, is taxable only on income derived from sources within the
Philippines.
One of the statements is false.

All the statements are false.
Some of the statements are false.
All the statements are true.
Question 24
Statement 1. A non-resident citizen is taxable on his income from
within the Philippines.
Statement 2. A non-resident citizen is not taxable on his income from
outside the Philippines.
Statement 3. A non-resident citizen is taxable on his income from
within and outside the Philippines.
True, true, true.
True, true, false.
False, false, true.
False, false, false.
Question 25
If an individual performs services for a creditor who in consideration
thereof cancels the debt, the cancellation of indebtedness may amount:
To a gift
To a donation inter vivos
To a payment of income.
To a capital contribution
Question 26
Who among the following is a non-resident alien?
An alien who comes to the Philippines for a definite purpose which in

its nature may be promptly accomplished.
An alien who comes to the Philippines for a definite purpose which in its
nature would require an extended stay.
An alien who lives in the Philippines with no definite intention as to his
stay.
An alien who has acquired residence in the Philippines.
Question 27
Lots being rented when subsequently sold are classified as:
Capital Assets
Ordinary Assets
Fixed Assets
Liquid Assets
Question 28
The term “capital assets” includes:
Property used in the trade or business of the taxpayer and subject to the
depreciation.
Stock in trade or other property included in the taxpayer’s inventory.
Property primarily for sale to customers in the ordinary course of his trade
or business.
Real property not used in the trade or business of taxpayer
Question 29
It is important to know the source of income for tax purposes (i.e., from
within or without the Philippines) because:
The Philippines imposes income tax only on income from sources within
Some individual and corporate taxpayers are taxed on their
worldwide income while others are taxable only upon income from
sources within the Philippines.
Some individual taxpayers are citizens while others are aliens.
Export sales are not subject to income tax.
Question 30
“Schedular system of income taxation” means:
Compensation income and business professional income are added

together in arriving at gross income.
All types of income are added together to arrive at gross income.
Capital gains are excluded in determining gross income.
Separate graduated rates are imposed on different types of income.
Question 31
Gross income is reported partially in each taxable year in proportion to
collections made in such period as it bears to the total contract price refers
to:
Percentage of completion basis method

Crop year basis method
Installment Sales method
Accrual method
Question 32
A feature of ordinary gains as distinguished from capital gains:
Sources are capital assets.

No holding period.
May or may not be taxable in full.
Gains from sales of assets not stock in trade
Question 33
Mr. Juan dela Cruz transferred his commercial land with a cost of
P500,000 but with a fair market value of P 750,000 to JDC Corporation in
exchange of the stocks of the corporations with par value of P1,000,000.
As a result of the transfer he became the major stockholder of the
corporation. As a result of the transfer,
No recognized gain because the land was in exchange of stocks of the

corporation.
You Answered
The recognized gain is the difference between the par value of the stock
and the fair market value of the land
No recognized gain because the land was in exchange or purely
stocks and Mr. dela Cruz became the majority stockholders.
The recognized gain is the difference between the fair market value of the
shares of stocks and the cost of the land.
QUIZ 20
Question 1
Statement 1. Contributions by the employer to a pension trust for past
service cost is deductible in full in year that the employer made the
contributions, if he is on the cash basis of accounting.
Statement 2. Contributions or donations given directly to individuals

cannot be deducted from gross
income.
False, true.
True, true
False, false
True, false
Question 2
Which statement is wrong/ research and development costs:
Cannot be deducted because it has unlimited life.

When related to the acquisition and/or improvement of land and building,
must be capitalized.
If not related to land and building, may be treated as an outright
deduction.
If not related to land and building, may be treated as a deferred expense
which may be amortized.
Question 3
Which statement is wrong? The rule that capital losses are deductible only
to the extent of capital gains is applicable:
To the individual taking the Optional Standard Deduction. d. To the

individual taking the itemized deduction from gross i
To the individual taking the itemized deduction from gross income.
To a corporation.
To an individual
Question 4
Statement 1. A fringe benefit which is subject to the fringe benefit tax is
taxable income of the employee.
Statement 2. A fringe benefit which is not subject to the fringe benefit tax
is taxable income of the employee
. First statement is false while second statement is true.

ployee. a. First statement is true while second statement is false.
. Both statements are true.
Question 5
Statement 1. The fringe benefit tax is deductible from the gross income of
the employer.
Statement 2. The fringe benefit tax is withheld by the employer.
Both statements are true.

The first statement is true while second statement is false.
The first statement is false while second statement is true.
Question 6
Statement 1: A corporation cannot deduct a loss arising from a sale
between the corporation and the controlling individual stockholders.
Statement 2: A corporation cannot deduct a loss arising from a sale

between the corporation and the controlling parent corporation

First statement is correct, but the second statement is wrong
First statement is wrong, but the second statement is correct.
Question 7
Which of the following losses is deductible?
. Loss on a transfer of property to a controlled corporation solely for

stock.
Loss on a transfer of property to a corporation solely stock resulting in
control.
Loss on wash sale.
Loss on merger.
Question 8
Which interest expense can be deducted from gross income?
None of the choices

Interest expense on money borrowed to buy government bonds.
Interest expense on money borrowed to finance petroleum operations.
Interest expense between a corporation and the controlling individual.
Question 9
Which statement is wrong? The net operating loss carry-over (NOLCO) is:
Not available to a general professional partnership in the Philippines.
Available to a domestic corporation.
Available to a registered general partnership in business in the
Philippines.
Available to an individual in business in the Philippines.
Question 10
Which statement is wrong? Contributions made by an employer to a
pension trust:
For a lump sum payment to cover past service cost, may be

amortized over a period of more than, but not less than ten years
For lump sum payment to cover past service cost, is allowable as
deduction beginning with the year the payment was made.
For lump sum payment to cover past service cost is allowable as
deduction amortized for period of ten years
For present service cost, is deductible in the year that payment is made.
Question 11
Which statement is not correct? Deduction for depletion:
For domestic corporations, shall be allowed only if the mine is

located in the Philippines.
Is allowed on wasting assets only.
For domestic corporations, shall be allowed only if the mine is located in
the Philippines.
Is separate from deduction for depreciation of building in the mine site.
Illustrative Tax Computations
MULTIPLE CHOICE
1. XYZ Corporation manufactures glass panels and is almost at the point of insolvency. It has no
more cash and all it has are unsold glass panels. It received an assessment from the BIR for
deficiency income taxes. It wants to pay but due to lack of cash, it seeks permission to pay in kind
with glass panels.
Should the BIR grant the requested permission?

a. It should grant permission to make payment convenient to taxpayers.
b. It should not grant permission because a tax is generally a pecuniary burden.
c. It should grant permission, otherwise, XYZ Corporation would not be able to pay.
d. It should not grant permission because the government does not have the storage facilities
for glass panels.
ANS: B REF: iCPA TOP: Tax Remedies
2. Deltoid Motors hit on the idea of setting up a wholly owned subsidiary, Gonmad Moters, and of
selling its assembled cars to Gonmad at a low price so it would pay a lower tax on the first sale.
Gonmad would then sell the cars to the pubic at a higher price without paying any sales tax on this
subsequent sale.
Characterize the arrangement

a. The plan is a legitimate exercise of tax planning and merely takes advantage of a loophole
in the law.
b. The plan is legal because the government collects taxes anyway.
c. The plan is improper; the veil of corporate fiction can be pierced so that the second sale
will be considered the taxable sale.
d. The government must respect Gonmad’s separate juridical personality and Deltoid’s
taxable sale to it
ANS: C REF: iCPA TOP: Tax Remedies
3. PRT Corporation purchased a residential house and lot with a swimming pool in an upscale
subdivision and required the company president to stay there without paying rent; it reasoned out
that the company president must maintain a certain image and be able to entertain guests at the
house to promote the company’s business. The company president declared that because they are
childless, he and his wife could very well live in a smaller house.
Was there a taxable fringe benefit?

a. There was no taxable fringe benefit since it for the convenience of the employer and was
necessary for its business.
b. There was a taxable fringe benefit since the stay at the house was for free.
c. There was a taxable fringe benefit because the house was very luxurious.
d. There was no taxable fringe benefit because the company president was only required to
stay there and did not demand free housing.
ANS: A
SOL:
NIRC Section 33; RR No. 3-98
REF: iCPA TOP: Tax Remedies
Compiled by: Accounting Notebook
https://www.coursehero.com/file/44487892/Tax-Computations-Samplepdf/
4. Ms. Allyza is employed in JBC Corporation. She receives the following for the current year:
Statutory minimum wage, inclusive of the 13th month pay P175,000

Overtime pay 40,000
Commission from the same employer 20,000
Total P260,000

a. 260,000
b. 240,000
c. 20,000
ANS: B
SOL:
Basic statutory minimum wage P175,000
Overtime pay 40,000
Total P240,000
REF: RESA First Preboard May 2019 TOP: Income Tax Individuals
5. Ginoo is the CEO of Mahusay Corporation and received as compensation income (net of all
exclusions) the amount of P5,000,000 in 2018. He did not give up though his modest business
venture being an MBA graduate. In 2018, his total sales from his fast growing business amounted
to P3,000,000 for the first three quarters and P3,500,000 in the 4th quarter. Details of his business
operations in 2018 follow:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of sales (300,000) (300,000) (1,200,000) (1,500,000)
Operating expenses (120,000) (120,000) (480,000) (520,000)
Taxable income P80,000 P80,000 P320,000 P1,480,000
The total income tax for 2018 is:

a. 478,000
b. 1,450,000
c. 1,928,000
d. 2,077,200
ANS: D
SOL:
What if Ginoo signified his intention to be taxed at 8% income tax rate on gross sales in his 1st
quarter income tax return he filed? The total income tax due and payable (after tax credit) for
2018 is: P387,200
REF: CRC Final Preboard October 2018 TOP: Income Tax Individuals
6. Dyango is a professional with gross receipts of P2,000,000 and deductible expenses of P1,200,000,
for the calendar taxable year 2018. How much will be the income tax to be paid for 2018 by taking
into account your best recommendation as tax adviser on the most economical option to avail of in
taxing his self-employment income?
a. 110,000
b. 130,000
c. 140,000
d. 160,000
ANS: B
SOL:
The most economical option you recommended to Dyango in order for him to save on income tax
payment for his 2018 self-employment income is: Graduated income tax rates of from 0% to 35%
REF: CRC Final Preboard October 2018 TOP: Income Tax Individuals
7. A closely-held domestic corporation had the following data in 2018:
Gross income from business P3,000,000

Dividend from domestic corporation 100,000
Capital gain on sale of idle land on a selling price of
P3,600,000, but with a zonal valuation of P4,000,000 1,000,000
Capital gain on direct sale to buyer of shares of stock of
domestic corporation 200,000
Interest on Philippine currency bank deposit 100,000
Net operating loss in 2017 250,000
Income taxes paid for the first three quarters of the year 150,000
Dividend declared and paid within the year 500,000
Appropriation of retained earnings for additional working
capital purposes 800,000
Retained earnings at the start of the year 900,000
Paid-in capital 1,000,000
The income tax still due and payable in 2018 is

a. 60,000
b. 75,000
c. 150,000
d. 225,000
ANS: B
SOL:
Improperly accumulated earnings tax: P51,000
REF: CRC Final Preboard October 2018 TOP: Income Tax Corporation
8. A domestic corporation’s 2018 computed NCIT and MCIT and creditable income taxes withheld at
source and excess MCIT and excess withholding tax from prior year follow: :
NCIT P520,000
MCIT 550,000
Taxes withheld at source 125,000
Excess MCITR over NCIR (2 years ago) 30,000
Excess withholding income tax prior year 10,000
Quarterly income taxes paid 250,000
The income tax still due and payable at the end of the year is
a. 165,000
b. 135,000
c. 115,000
d. 105,000
ANS: A REF: CRC Final Preboard October 2018 TOP: Income Tax Corporation
9. Taxpayer is a domestic corporation:
Taxable income before income tax

Philippines P3,000,000
Foreign country 2,000,000
Quarterly income taxes paid, Philippines 400,000
Income tax paid, foreign country 800,000
How much is the income tax still due if the taxpayer is claiming a deduction for the foreign income
tax paid?
a. 500,000
b. 860,000
c. 1,260,000
d. 1,500,000
ANS: B
SOL:
How much is the income tax still due if the foreign income tax paid is claimed, instead, as tax
credit against the Philippine income tax due? P500,000
REF: CRC Final Preboard October 2018 TOP: Income Tax Corporation
10. Ruth Leslie is employed in Lab Corporation and is also a part-time real estate agent for a real
estate broker. In addition to the SMW of P180,000 she received from her employer, she likewise
received P75,000 as commission from her real estate dealings for the year 2018.
How much is the income tax due if she is under the 8% income tax regime?
a. 20,400
b. 6,000
c. 0
d. some other amount
ANS: B
SOL:
Total income received P255,000
Less: Statutory minimum wage 180,000
Taxable income, commission 75,000
Tax due (P75,000 x 8%) P6,000
How much is the income tax due if she is under the graduated income tax regime?
Total income received P255,000
Less: Statutory minimum wage 180,000
Taxable income, commission 75,000
Tax due (first P250,000) Exempt
Taxpayer’s income as minimum wage earner does not exceed P250,000; hence, not subject to
income tax and the withholding tax.
Since taxpayer is a mixed income earner and has received income from other sources in addition to
her compensation income, the commission received during the taxable year is subject to income
tax and consequently, to withholding tax.
In his instance, if the taxpayer selected the graduated income tax regime, her commission income
is subject to income tax at 0% since it did not exceed P250,000 and she is also subject to business
tax. However, if she selected the 8% income tax regime, she is liable for income tax amounting to
P6,000, but this is in lieu of the graduated income tax and the percentage tax under Section 116 of
the Tax Code.
Likewise, minimum wage earners receiving other income from other sources in addition to
compensation income, such as income from other concurrent employers, from the conduct of trade,
business, or practice of profession, except income subject to final tax, are subject to income tax
only to the extent of income other than Statutory Minimum Wage, holiday pay, overtime pay, night
shift differential pay, and hazard pay earned during the taxable year.
REF: RESA Final Preboard October 2018 TOP: Income Tax Individuals
018 TOP: Other taxes
TAX FINALS SUMMATIVE 02
1. Income tax payment to a foreign country, in the case of a domestic corporation may be claimed as
Either as a deduction from the gross income or as a tax credit against the income tax due
2. What would be the allowable deduction for P8,000 contribution made by a resident citizen to a
religious organization from his P70,000 net income after contribution?
7,000
3. The following statements pertain to Optional Standard deduction for corporations. Choose the correct
statement:
Passive income which has been subjected to final tax at source shall not form part of the gross
income for purposes of computing OSD
4. The following data on net income, bad debts, write off and recovery show:
2019:
Net income before bad debts P120,000
Bad debts written off P40,000
Bad debts claimed and allowed as deduction P20,000
Bad debts provision P50,000
2020:
Subsequent recovery of bad debts written off P40,000
Taxable recovery in 2020 should be:

P20,000
5. Force majeure includes

All of these
6. One is entitled to tax credit for taxes paid to foreign country

Domestic corporation
7. Which statement is not correct?

Contributions of canned goods to student for distribution during Christmas season are
deductible from gross income
8. Which of the following income is may reduced by optional standard deduction?

Business income
9. The president upon the recommendation of the secretary of finance may allow a corporation the option
to be taxed on gross income provided
I. Tax rate is 15%
II. Available to firms whose ratio of cost of sales to gross sales or receipt from all sources
does not exceed 55%
III. Shall be irrevocable for 3 consecutive years during which the corporation is qualified
under the scheme
All must be complied
10. The MCIT does not apply to a corporation if
All of these
11. Ordinary assets are those assets that are used primarily in the ordinary course of business or trade.
Ordinary assets include
All of these
12. The term “Corporation” shall include:

1. Partnerships, no matter how created or organized
2. Joint Stock companies
3. Joint Accounts
4. Associations
5. Insurance companies
6. Mutual fund companies
7. Regional Operating Headquarters of Multinational Corporations (MNCs)
All of these
13. Which of the following prescriptive period for the BIR to conduct a tax audit is correct?
All of these
14. It is an official document that empowers a revenue officer to examine and scrutinize a taxpayer’s books
of accounts and other accounting records, in order to determine the taxpayer’s correct internal revenue
tax liabilities
Letter of Authority
15. Which of the following is correct?

Interest incurred to acquire a business asset may be added to the cost of the property
16. JC educational Foundation, a non-stock, non-profit educational institution. Which of the following
statements is not correct?
It is not liable to withholding of income tax on salaries of its employees
17. The MCIT shall not apply to which of the following RFC?
I. International Carrier
II. Offshore banking units (OBUS) on their income from foreign currency transactions with local
commercial banks
III. Regional operating headquarters
IV. Firms that are taxes under special income tax regime such as PEZA registered firms
IV only
18. Which of the following dividend income is tax exempt? Dividend income received from
I. A DC by another DC
II. A DC by a RFC
III. A DC by a NRFC
IV. A RFC by a DC
V. A RFC by another RFC
I and II only
19. Statement 1: Capital losses can be deducted only from capital gains
Statement 2: Ordinary losses can be deducted from any gross income
20. How may a taxpayer entitled to foreign tax credit claim the same?
May be claimed either as a deduction from the gross income or as a tax credit, at the option of
the corporation
21. Which of the following income is reduced by itemized deduction?

Business income
22. A taxpayer filed an income tax return for the calendar year 2019 on March 19, 2020. The BIR issued a
deficiency income tax on April 10, 2021 which has become final. When is the last day for BIR to collect?
April 10, 2026
23. Which of the following is a deductible expense?

All of these
24. The MCIT does not apply if:

I. The corporation is exempt from income tax by virtue of tax holidays granted to it by the Board of
Investment
II. The taxpayer is a commercial partnership
Neither I nor II
25. It is a written notice given to a taxpayer informing him of the findings of the BIR officer (s) relating to a
deficiency in his tax return, indicating therein the law and the facts on which the assessments is made
and requiring the taxpayer to respond with a given period, otherwise, the commissioner or his duly
authorized representative shall issue an assessment based on his findings
Preliminary Assessment Notice
26. OSD is
Equal to 40% of the gross income from business or practice of profession
27. One of the following is not correct for deductibles of losses:

It must got be compensated by insurance or any form of indemnification
28. What would be the allowable deduction for P8,000 contribution made by a domestic corporation to a
religious organization from his P70,000 net income after contribution?
P3,500
29. Mr. U inherited large parcels of raw land. He sold these parcels of land.
Statement 1: The land sold is capital asset.
Statement 2: The land sold is ordinary asset.
Statement 1 is true
30. Which of the following is/are considered inventory intended for sale in the ordinary course of business?
I. Raw materials, WIP inventory, and finished goods inventory
II. Real estate being held or sold by a trader of equipment
III. Securities held of being sold by an investor
I only
31. Contributions and donations were made by taxpayer, as follows:

To the Quiapo Catholic Church P15,000
To the Society of the Blind, Inc. Philippines P10,000
To beggars in the streets P5,000
To the Chapel of Rome P20,000
The actual contributions to be compared with the 5% limitation is:

25,000
32. Ordinary assets are those assets that are used primarily in the ordinary course of trade or business.
Ordinary assets include
All of these are ordinary assets

Investment property

Investment property
35. All, except one, of the following, are not subject to the improperly accumulated earnings tax. Which is
the exception?
Saving Institutions
36. Which of the following taxpayers is taxable on income from all sources within and outside of the
Philippines?
Domestic Corporation
37. Statement 1: Bad debts is an expense in the books of accounts when provision is made for it
Statement 2: Bad debts is a deduction from the gross income when account is written off
38. It is important to know the source of income for tax purposes (i.e. form within or without the Philippines)
because:
Some individual and corporate taxpayers are taxed on their worldwide income while others are
taxable only upon income from sources within the Philippines
39. This is not a requisite for business expense to be deductible

It must be paid during the taxable year
40. Which of the following income is may reduced by optional standard deduction?
Business income
41. Improperly accumulated earnings tax will not apply if the accumulation is for:
I. Investment of substantial earnings and profits of the corporation in unrelated business or in
shares or securities of unrelated Business
II. Investment in bonds and other noncurrent assets
III. Accumulation of earnings in excess of 100% of paid-up capital not otherwise intended for the
reasonable needs of the business as defined
I and II only
42. The multiplier in the tax credit formulas under limitations A and/or B for foreign income tax payments is
Philippine income tax due based on the taxable income from sources within and without the
Philippines
43. The term "capital assets" includes

Real property not used in trade or business of the taxpayer
44. Statement 1 A net operating loss is the excess of allowable deductions over the gross income from
business or practice of profession for a tax at year;
Statement 2. A net operating loss which had not previously been deducted from gross income shall be
carried over as a deduction only in the next year immediately following the year of such loss.
Only statement 1 is true
45. Jadine Corporation, a DC, reports the following income and expense during the taxable year:
Gross Receipts P1,000,000
Interest Income, net of FT P40,000
Salaries P600,000
Rent Expense P200,000
Interest Expenses on unpaid salaries P60,000
Payment of bank loan balance, including interest expense of P40,000, P400,000
● How much is the total allowable deductions?

823,500
● How much is the nondeductible interest expense?

76,500
46. The term “Dealings in Property” refers to the disposal through sale or exchange of
I. Ordinary assets
II. Capital assets
I and II
47. Which of the following income is not from a related trade, business or activity of a domestic proprietary
educational institution?
Income from rent of available office spaces
48. A net capital loss means:

Losses over the gains on sales and exchanges of capital assets
49. Mike filed his 2018 income tax return and paid the tax due thereon on April 1, 2019. The last day for the
BIR to send an assessment is:
April 15, 2022
50. Which of the following statements is not correct?

Creditable withholding tax is the other term for final withholding tax.
51. Which of the following statements about IAET is false?
Shall not be imposed despite determination that a corporation has accumulated beyond the
reasonable needs of the business
52. Taxes paid or incurred within the taxable year in connection with the taxpayer’s profession, trade, or
business, shall be allowed as deduction, except:
All of these
53. Which of the following is not a taxable income?

Compensation from injuries and sickness
54. Mobile Legends Bang Bang University, a private educational institution has presented the following
data for the year:
Gross income, related activities P5,000,000
Gross income, unrelated activities, except rental income P5,000,000
Rental Income (gross of WHT) P2,000,000
Expenses P5,000,000
Dividend Income from DC P100,000
Quarterly Income Tax Paid for the first 3 quarters P500,000
How much is the income tax due and payable?
P1,500,000
55. Which of the following is false?

A capital asset may be an asset connected or not connected with the trade or business of the
taxpayer
56. Statement 1: Bad debt is an expense in the books of accounts when provision is made for it
Statement 2. Bad debt is a deduction from the gross income when account is written off
57. Statement 1. The capital gain tax on shares of stock of an individual applies only if the shares of stock
are those of a domestic corporation.
Statement 2. The capital gain tax on real property of an individual applies only if the real property is in
the Philippines
58. Which of the following statements regarding collection of tax assessment is incorrect?
I. Within five years from assessment
II. Within 10 years in case there is no assessment and in case of false or fraudulent returns with intent
to evade the tax.
Neither
59. Masigasig University, a private educational institution, had the following data for the year:
Tuition fees, 4,800,000
Total School expenses 9,450,000
Income tax payable should be:

(95,000)
60. Which of the following taxpayers is not required to file income tax returns and thus cannot claim any tax
credit?
Nonresident foreign corporations
61. Which of the following statements about IAET is false?

Once a corporation is subjected to Corporate Income Tax, the IAET can no longer be imposed
62. The following are requisites in the carry over of Net Operating Loss, except
The carry over is good for one year.
HANNAH CORPORATION
Hannah corporation, a corporation engage in business in the PH and abroad has the following data for the
current year:
Gross income, PH P975,000
Expenses, PH P750,000
Gross income, Malaysia P770,000
Expenses, Malaysia P630,000
Interest on bank deposits P25,000
● Determine the income tax due if the corporation is:

Domestic P109,500; RFC P67,500; NRFC P300,000
A DOMESTIC CORPORATION STARTED OPERATIONS IN YEAR 2008....

A domestic corporation started operations in year 2008. The following data on income taxes during the years
2015 to 2019 were made available:
Year 2015
Basic tax P0
MCIT P300,000
Year 2016
Basic tax P100,000
MCIT P50,000
Year 2017
Basic tax P150,000
MCIT P60,000
Year 2018
Basic tax P8,000
MCIT P40,000
Year 2019
Basic tax P1,000
MCIT P50,000
● Income tax payable for the year 2016:
P0

P300,000

P0

P40,000

50,000
● The cumulative balance of excess MCIT over the RCIT as of 2017 is:
50,000
P32,000
P200,000
P81,000
QUEEN’S INSTITUTE OF LEARNING

Queen’s institute of learning is a private educational institution duly recognized by CHED has the following data
for the fiscal year ending March 30, 2020
Tuition and other fees P3,500,000
School miscellaneous fees P1,500,000
Rent income net of WHT P1,900,000
Dividend from DC P2,000,000
Dividend from Foreign corporation P2,000,000
Operating expense P4,000,000
● The income tax payable should be

P400,000
ASIA PACIFIC AIR (APA)

Asia Pacific Air (APA), an international carrier has the following data for the current year, Gross income (from
flights are originating in the PH) and expenses from international operations, P10,000,000 and P4,000,000
respectively. The income tax due of the corporation is:
P250,000
Asia Pacific Air (APA), a domestic corporation engaged in local and international operations has the following
data for the current year, Gross income and expenses from international operations, P10,000,000 and
P4,000,000 respectively. The income tax due of the corporation is:
P1,800,000
THE FOLLOWING DATA ON NET INCOME….

The following data on net income, bad debt, write off and recovery show:
2019:
Net income (loss)before bad debts (40,000)
Bad debt written off 50,000
Bad debt claimed and allowed as deduction 40,000
Bad debt provision 60,000
2020:
Subsequent recovery of bad debts written off 50,000
● Taxable recovery in 2020 should be

0
BIKINI BOTTOM
Bikini bottom inc., a DC had the following data on income and expenses for the calendar year 2018:
Gross sales P9,350,000
Sales Discount P100,000
Sales returns and allowances P250,000
Cost of sales P3,000,000
Opex with vouchers P4,000,000
Opex without vouchers P500,000
Interest income on NR P150,000
Other income P50,000
Interest income from bank deposit in BDO P80,000
Interest income from EFDCUS in Metrobank P125,000
Royalty income P100,000
● (Walang tanong ‘to)

P3,720,000
● The taxable income using itemized deduction is

2,200,000
CLOY CORPORATION
Cloy Corporation, a DC, had the following data for 2018:
Taxable income, PH 1,000,000
Taxable income, USA 600,000
Taxable income, UK 400,000
Income tax paid, USA 250,000
Income tax paid, UK 120,000
Philippine tax paid in previous quarters 110,000
● How much is the income tax payable at year end if the tax paid abroad is claimed as tax credit?
190,000
● How much is the income tax payable at year end if the tax paid abroad is claimed as deduction?
379,000
A PROPRIETARY HOSPITAL
A proprietary hospital had the following data for 2020:
Gross receipts from patients and laboratory services 8,500,000
Rental income net of 5% WHT 1,425,000
Hospital Operating expenses 8,200,000
● The income tax payable of the hospital should be:

105,000
THE FOLLOWING ARE THE RECORDS OF A DC….

The following are the records of a DC:
2018
Dividend-RFC 140,000
Interest income on NR 28,000
Capital loss 20,000
Business expense 1,475,000
2019
Dividend-RFC 0
Interest income on NR 16,400
Capital loss 0
Business expense 1,025,000
2020
Gross sales 825,000
Dividend-RFC 32,000
Interest income on NR 0
Capital loss 22,000
Business expense 459,000
● The taxable income (loss) in 2019:

0

0

(407,000)
● The tax due and payable in 2018:

21,360
● The MCIT for the year 2019:

25,728
STRANGER THINGS, INC. (STI)

Stranger Things, Inc. (STI), a domestic corporation provided the following data for the calendar year ending
December 31, 2018. Assume an exchange rate of $1 = P50.
Philippines
Deductions P2,550,000
Canada
Gross Income $40,000
Deductions $15,000
Income Tax Paid $3,000
● How much should be reported as income tax payable if STI claimed the tax paid abroad as a
deduction?
765,000
● How much should be reported as income tax payable if STI claimed the tax paid abroad as tax credit?
660,000
A DOMESTIC CORPORATION HAS THE…

A domestic corporation has the following data on income and expenses
Gross business income 6,200,000
Deduction including SS, Philhealth 150,000 , 2,500,000
Contributions to Government Priority Projects 100,000
Contributions to foreign private foundation 100,000
Contributions to Domestic Charitable organization 190,000
● Select the correct response:

285,000
X, CORPORATION
The following information is available from the records of X, Corporation:
Year 1
Income (loss) before bad debts write off and recovery 100,000
Bad debts write off 25,000
Year 2
Income (loss) before bad debts write off and recovery (20,000)
Previous year’s write off, recover this year 30,000
Year 3
Income (loss) before bad debts write off and recovery 50,000
Previous year’s write off, recover this year 8,000
● For year 3 the total taxable income should be?

48,000
PHILIPPINE-AIR PACIFIC AIR (PAPA)

Philippine-Asia Pacific Air (PAPA), an international carrier, showed the following gross receipts for the current
year:
Point of Origin: Philippines

Destination: USA
Gross Receipts: P8,000,000
Point of Origin: USA

Destination: UK
Point of Origin: USA

Destination: Philippines
Point of Origin: UK
Destination: Philippines
1. 40% of the shipments from the Philippines to the United States were later shipped to the UK.
2. 25% of all its revenues were from transport of cargoes and goods.
● The income tax payable for the year is:

P200,000
HEART ENTERPRISES
Heart Enterprises incurred the following business expenses in the taxable year 2020:
a. Allowance per aging of accounts receivable at the beginning and ending of the year are P20,000 and
P30,000, respectively. The firm’s provision for bad debts for the year is P15,000.
b. Accumulated depreciation on machine at beginning is P100,000 but at the end of the year is P110,000.
During the year, the firm sold a machine with a cost of P300,000 and an accumulated depreciation of
P30,000.
c. Research and development cost of P500,000 compliant under tax laws to be deductible.
d. Contributions during the year:
i. To the government for priority programs in sports P50,000
ii. To the government for public purposes P10,000
iii. To an accredited NGO with total administrative expenses of 35% P100,000
Net income before contribution - P2,500,000
● Total allowable deductions of Heart Enterprises if it is a corporation:

725,000
JONELLA CORPORATION
Jonella Corporation showed the following data during the taxable year:
Sales 500,000
Interest Income, net of FT 24,000 9,900
Cost of Sales 300,000
Salary Expense, P120,000 (25% of the workforce are senior citizens qualified under Special Law)
(34,500+90,000 = 124,500)
Interest Expense, 60,000
Rent Expense, net of 5% EWT P28,000 30,000
Representation Expense, P6,000 5,000
Depreciation Expense 5,000
Bad Debts Written Off 3,000
Provision for Bad Debts 5,000
Contribution to priority project in Education 10,000
● The income tax due and payable of Jonella Corporation is?

2,500
LIZQUEN, INC.
Lizquen, Inc. is engaged in the hotel and restaurant industry. The company reported the following income and
expense during the year.
Net Service Revenues P1,000,000
Cost of Services P580,000
Salaries Expense P90,000
Rent Expense P60,000
Representation Expense P10,000
● How much is the deductible representation expense?

10,000
PART 2
Individuals
CLASSIFICATION OF INDIVIDUAL TAXPAYERS
1. Resident Citizen (RC)

2. Nonresident Citizen (NRC)
3. Resident Alien (RA)
4. Non-resident Alien (NRA)
a) Engaged in trade or business (ETB)
b) Not engaged in trade or business (NETB.)
5. Prior to TRAIN Law, include the following Special Employees:

a) Special Alien Employees (SAES)
b) Special Filipino Employees (SFES)
NONRESIDENT CITIZEN
The following are considered nonresident citizens (Section 22 (E), RA 8424):
1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner one
of 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 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 [for one hundred eighty-three days [(183) or more] during the taxable year;
4. A citizen who has been previously considered as nonresident citizen who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines
shall be considered a nonresident citizen for the taxable year in which he arrives in the
Philippines with respect to income derived from sources abroad until the date of his
arrival in the Philippines.
 Citizens not classified under this category are considered Resident Citizens.
OVERSEAS CONTRACT WORKER

 Overseas Contract Workers (OCW's) refer to Filipino citizens employed in foreign
countries, commonly referred to as Overseas Filipino Workers (OFW who are physically
present in a foreign country as a consequence of their employment thereat.
 Their salaries and wages are paid by an employer abroad and is not borne by any entity
or person in the Philippines.
 To be considered as an OCW or OFW, they must be duly registered as such with the
Philippine Overseas Employment Administration (POEA) with a valid Overseas
Employment Certificate (OEC). (RR No. 1-2011).
 A seaman who is a citizen of the Philippines and who receives compensation for services
rendered abroad as a member of the complement of a vessel engaged exclusively in
international trade shall be treated as an overseas contract worker. (Section 23 (C), RA
8424).
 In order for seafarers or seamen to be considered as OCW's or OFW's they must be duly
registered as such with the Philippine Overseas Employment Administration (POEA) with
a valid Overseas Employment Certificate (OEC) with a valid Seafarer's Identification
Record Book (SIRB) or Seaman's Book issued by the Maritime Industry Authority
(MARINA).
 For taxation purposes, OCWs are classified as nonresident citizens.
RESIDENT ALIEN
Resident Alien means an individual whose residence is within the Philippines and who is not a
citizen thereof (Section 22 (F), RA 8424).
Under RR No. 2, the following are considered as resident

alien: An alien who has
1. An alien actually present in the Philippines who is acquired residence in the
not a mere transient. A person who comes to the Philippines retains his
Philippines for a definite purpose which in its status as a resident until
nature may be promptly accomplished is a transient. he abandons the same
2. An alien, who comes to the Philippines for a
and actually depart from
definite purpose, which, by its nature, would require
an extended stay making his home temporarily in the Philippines.
the Philippines.
3. An alien who shall come to the Philippines with
no definite intention as to his stay.
NON-RESIDENT ALIEN
1. Engaged in trade or business (Section 25 (A), RA 8424).

 An alien individual actually engaged in trade or business in the Philippines:
 An alien who comes in the Philippines for an aggregate period of more than
180 days during the calendar year during any calendar year shall be deemed a
non-resident alien doing business in the Philippines.
2. Not engaged in trade or business - those NRAs not included above.
SPECIAL EMPLOYEES (SEs)

[Applicable to income earned prior to effectivity of TRAIN Law]
Individuals employed by any of the entities below, holding managerial and/or technical positions,
are classified as special employees:
 Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies.
 Offshore Banking Units
 Petroleum contractors and subcontractors
Special employees are further classified as either Special Filipino Employees (SFES) or
Special Alien Employees (SAES).
PRIOR to the effectivity of RA 10963 (TRAIN Law), SEs are taxable as follows:
INCOME SAEs SFEs
Compensation 15% FWT  IF employed by
Income (preferential tax rate) ROHQ/RHQ
GR: Basic income tax unless
qualified to be taxed at 15%** at
the option of taxpayer.
 IF employed by OBUs,
Petroleum Contractors &
Subcontractors = 15%
FWT
De minimis and other Exempt Exempt
exempt benefits
Fringe Benefits 15%FBT if holding managerial 15% FBT if holding managerial position;
position; otherwise, part of otherwise, part of compensation
compensation income income ***
Other Income Apply the rules on NRA-NETB Apply the rules on RC
** Under RR 11-2010. Filipinos exercising the option to be taxed at 15% preferential rate for
occupying the same managerial or technical position as that of an alien employed in RHQ or
ROHQ must meet all the following requirements:
1. POSITION and FUNCTION TEST. Must occupy managerial or technical position.
2. COMPENSATION THRESHOLD TEST. Compensation income should be at lease P975,000 for
the taxable year.
For purposes of determining the threshold, include the following:
 Salaries, wages, remuneration, honoraria
 Annuities, other emoluments and fringe benefits not subject to FBT
Exclude the following:
 De minimis benefits
 Retirement and/or separation benefits (taxable or not)
 Fringe benefits subject to FBT
3. EXCLUSIVITY TEST. The SFE must be exclusively working for the RHQ or ROHQ as employee and
not just a consultant or contractual personnel. "Exclusivity" means just ha employer at a time.
 The three (3) requirements above are not applicable to all SAEs and SFEs employed
by OBUs and PCs/SCs.
***The option to be subjected to 15% preferential tax rate and the coverage of
fringe benefit tax are independent to each other. Thus, there would be instances
where a Filipino employee shall enjoy 15% preferential tax rate but may not be
covered by fringe benefit tax for not being a supervisory/managerial employee (RR
11-2010).
Under TRAIN Law, special employees are now subject to graduated income tax rate on their
compensation income. Hence, the preferential tax rate for special employees shall apply only to
income derived prior to 2018 taxable year or prior to the effectivity of RA10963 (TRAIN LAW).
TYPES OF INCOME TAXES:
SOURCE(s) of TAXABLE INCOME:
TAXPAYER SOURCE(S)
 RC = within and without the Phils.
 NRC, RA, OCW, NRA-ETB, NRA-NETB = within the Phils. only

TYPES OF INCOME TAXES:
1. Basic Income Tax on regular or ordinary income
2. Final Withholding Tax on Passive income derived from Philippine sources
3.Capital Gains Tax on Sale of Shares of Stock of domestic corno
4. Capital Gains Tax on Sale of Real Properties located in the Philippines.
The total amount of the taxes above is kno he total amount of the taxes above is known
as "Total Income Tax Expense"
FINAL WITHHOLDING TAX (FWT) ON PASSIVE INCOME.
 Applicable to passive income from sources within the Philippines. Passive income
derived from outside the Philippines are subject to basic income tax under section 24(A)
of the tax code.
 It is a tax deducted from the income to be paid to the payee or seller.
 It is constituted as full and final payment of the income tax liability. Hence, the income
subjected to this tax is no longer included in the income tax return of the
individualSection 24A of the tax code.
 It cannot be credited/deducted against the basic income tax due The liability for the
payment of the tax is primarily on the pa agent.
PASSIVE INCOME derived from Philippine sources SUBJECT TO FWT.
1. Interest Income
2. Royalties
3. Dividends
4. Prizes
5. Other winnings
PASSIVE INCOME DERIVED FROM PHILIPPINE SOURCES SUBJECT TO FWT:

INTEREST INCOME
TAXPAYER
RC, RA NRC, NRANETB,
NRAET
a) Interest from any currency bank deposit; and 20% 20% 25%
Yield or any other monetary benefits from:
i. Deposit substitutes
ii. Trust funds
iii. Similar arrangements as above.
DEPOSIT SUBSTITUTE- an alternative form of
obtaining funds from PUBLIC** other than
deposits, through the issuance, endorsement, or
acceptance of “debt instrument” for the
borrower’s own account, for the purpose of re-
lending or purchasing of receivables and other
obligations, or financing their own needs or the
needs of their agent or dealer (RR 14-2012).
**Public is defined as borrowing from twenty
(20) or more individual or corporate lenders at
any one time.
b) Interest form a depositary bank under the
expanded foreign currency deposit system
 Prior to 2018 7 ½% Exempt Exempt
 Under TRAIN Law(beginning Jan.1,2018) 15% Exempt Exempt
c) Interest income from long term bank deposit
or bank investment (at least 5-years maturity).
In case of pre-termination of the long-term
deposit or investment, depending on the holding
period.
 5 years or more Exempt Exempt 25%
 4years to less than 5 years 5% 5% 25%
 3 years to less than 4 years 12% 12% 25%
 Less than 3 years 20% 20% 25%
ROYALTIES TAXPAYER
TAXPAYER
________________________
 Royalties from: RC, RA
a. Literary works _________________________
b. Books NRC NRAET NRAETB
c. Musical Composition 10% 10% 25%
 OTHER Royalties 20% 20% 25%
DIVIDENDS TAXPAYER
RC,RA NRANETB,
NRC NRAET SAE
a) Dividends actually or constructively received

from: 10% 20% 25%
I. Domestic Corporation
II. Joint Stock Company
III. Insurance or mutual fund company;
and
IV. Regional operating headquarters of
multinational company.
b)Share in the distributable net income after tax of 10% 20% 25%
partnership except (GPP)**
c) Share in the net income after tax of: 10% 20% 25%
1. Association
2. Joint Account
3. Taxable joint venture or Consortium***
**
SHARE IN THE NET INCOME OF A PARTNERSHIP
GENERAL PARTNERSHIP GENERAL “PROFESSIONAL” PARTNERSHIP
Treated as dividend income, generally Not treated as dividend income. Subject to basic
subject to 10% final withholding tax. tax under section 24 (A).
SHARE IN THE NET INCOME OF A JOINT VENTURE

CO-VENTURER TAXABLE JV ***NON-TAXABLE JV
Individual Treated as dividend income, Not Subject to basic tax
treated as dividend generally subject withholding tax. under
to 10% final withholding tax. section 24(A).
Corporation Treated as inter-corporate dividend Subject to basic corporate tax
income, hence, tax exempt (not as dividend income)
****NON-TAXABLE JV "Joint ventures or consortium organized for the following purposes:

1) Construction projects;
2) Engaged in petroleum, coal, geothermal and other energy operations pursuant to
operating or consortium agreement under a service contract with the Government.
PRIZES
TAXPAYER
RC, RA
NRC NRAET NRANETB
 Amount is more than 10,000
 Amount is not more than 10,000 20% 20% 25%
Basic Tax Basic Tax 25%
WINNINGS
TAXPAYER
RC, RA
NRC NRAET NRANETB
 OTHER Winnings* 20% 20% 25%
 PCSO/Lotto Winnings
Prior to 2018 Exempt Exempt 25%
TRAIN LAW (beginning Jan. 1,2018)
o Not more than P10k Exempt Exempt 25%
o More than P10k 20% Exempt 25%
*NOT INCLUDED are winnings exempt from income tax such as but not limited to:
 Winnings under Sec. 126 of the Tax Code [subject to OPT (only) of 4%; 10%, as the case
may be]
 Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary, or civic achievement but only if
- The recipient was selected without any action on his part to enter the
contest or proceeding;
- 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 associations.
**One of the obvious errors/inconsistencies under the TRAIN Law
CAPITAL GAINS TAX (CGT) and STOCK TRANSACTION TAX (STT) ON SALE OF SHARES OF DC
-Not Through the local stock exchange TAX RATE
(sold directly to a buyer)
o Prior to 2018 CGT 1st P100,000 gain = 5% In
excess of P100,000 = 10%
o Beginning 2018 (TRAIN Law) CGT 15% of capital gain
-Through the local stock exchange
o Prior to 2018 STT ½ OF 1% of GSP
o Beginning 2018(TRAIN Law) STT 6/10 OF 1% of GSP
Sale of shares of a domestic corporation NOT Through the local stock exchange to the
buyer) is subject to CGT.
FORMULA in computing the capital gain:
Selling Price PXX Pxx
Acquisition Cost (xx)
Cost to sell Net (xx)
Capital Gain Pxx
Rate %
CGT Pxx
o Under RR 6-2013, the value of the shares of stock at the time of sale shall be the fair
market value. In determining the value of the shares, the Adjusted Net Asset Method
shall be used whereby all assets and liabilities are adjusted to market values. For
purposes of discussion in this review material, the selling price is assumed to be the
market value computed using the aforementioned method, assuming the latter is not
provided.
o All individual taxpayers are subject to CGT on shares of stock of domestic corporations
Sale of shares of a domestic corporation THROUGH THE LOCAL STOCK EXCHANGE is not subject to
income tax but to a “business tax” under Section 127(A) of the Tax Code as follows:
- Prior to 2018: STT of 12 of 1% of Gross Selling Price
- Beginning Jan. 1, 2018 (TRAIN Law): STT of 6/10 of 1% of Gross Selling Price
Sale of shares of stock of a foreign corporation is subject to basic income tax.
The CGT and STT are applicable only to shareholders/investors because for income taxation
purposes, sale of shares of stock by a dealer in securities regardless of whether the shares were
sold directly to a buyer or through the local stock exchange, is subject to basic income tax.
Moreover, issuance of shares by the issuing corporation is not subject to except DST and Stock
Transaction Tax on Initial Public Offering under Section 127(B) of the Tax Code.
CAPITAL GAINS TAX (CGT) ON SALE OF REAL PROPERTY

REQUISITES:
1. The real property must be a capital asset; and,
2. It must be located in the Philippines.
FORMULA: Capital Gains Tax = TAX BASE x 6%
TAX BASE: Highes
t
1. Selling Price
2. Fair Market Value
3. Zonal Value
4.
OPTIONS OF THE SELLER IN CASE OF SALE TO GOVERNMENT OR ANY DO SUBDIVISIONS OR
AGENCIES OR GOCC'S:
1. Pay 6% CGT; or
2. Pay Basic Income Tax
REQUISITES FOR EXEMPTION:
1. The property sold must be the principal residence of the seller,
2. Proceeds is fully utilized in acquiring or constructing a new principal residence;
3. Utilization must be made within 18 calendar months from the date of sale or
disposition,
4. Notify the BIR Commissioner within 30 days from the date of sale or disposition of the
intention to avail the exemption;
5. The said exemption can only be availed once every 10 years.
PARTIAL EXEMPTION / TAXABLE PORTION:

If there is no full utilization of the proceeds of sale or disposition, the portion of the gain
presumed to have been realized from the sale or disposition shall be subject to capital gains tax
as follows:
SP
Taxable = Unutilized Portion X FMV
Amount Gross Selling Price Zonal
CGT = Taxable Amount x 6%

DUE DATE:
The tax on the unutilized portion shall be paid within 30 days after the expiration of the
eighteen (18) month period.
Taxation of NRA-NETB
NRA-NETB is subject to:

1. 25% FWT ON ALL
a. Ordinary income
b. Passive income derived from sources within the Philippines (including
interest income from long-term bank deposit or investment and
PCSO/Lotto winnings except interest income on bank deposit under FCDU)
2. CGT on sale of shares of a domestic corporation directly to a buyer
3. CGT on sale of a real property classified as, capital asset located in the Philippines
BASIC INCOME TAX
 Use the graduated tax rate or tax table, as amended
 Income subject to basic tax are:
o Ordinary income (le, compensation income, business income)
o Passive income derived abroad by RCS
o Capital gains not subject to CGTs
 Income subject to basic tax is reflected in the income tax return of the taxpayer
 Generally subject to creditable withholding tax to creditable withholding taxes which
may be deducted from the basic income tax due.
 It is the payee (income earner) who has the responsibility to file the return and pay the
applicable tax.
GRADUATED TAX RATE

PRIOR to 2018 TRAIN LAW-TAXABLE YEAR 2018-2019 2023 ONWARD
INCOME TAX INCOME TAX TAX
Not over P10,000 Exempt Not over P250,000 Exempt Exempt
Over P10,000 but not P500+10% in excess Over P250,000 but 20% of excess over P250,000 15% of excess over P250,000
over P30,000 over P250,000 not over P400,000
Over P30,000 but not over P2,500+15% in excess of Over P400,000 but P30,000+25% in excess of P22,500+20% in excess of
P70,000 P30,000 not over 800,000 P400,000 P400,000
Over P70,000 but not over P8,500+20% in excess of Over P800,000 but P130,000+30% in excess of P102,500+25% in excess of
P140,000 P70,000 notover P2,000,000 P800,000 P800,000
Over P140,000 but not over P22,500+25% in excess of Over P2,000,000 but P490,000+32% in excess of P402,500+30% in excess of
P250,000 P140,000 not over P8,000,000 P8,000,000 P2,000,000
Over P250,000 but not over P50,000+30% in excess of Over P8,000,000 P2,410,000+35% in excess of P2,202,500 + 35% in excess of
P500,000 P250,000 P8,000,000 P8,000,000
Over P500,000 P125,000 + 32% in excess
of P500,000
Provided that after 2020, the taxable income tax levels in the above schedules shall be adjusted
once every five (5) years, through rules and regulations issued by the Department of Finance,
upon recommendation of the Commissioner, after considering among others, the effect of the
same of the 5-year cumulative inflation rate.
Self-Employed and/or Professionals (SEP)
Sec. 24(A)(2)(B) of the Tax Code as amended by RA10963 (TRAIN Law) provides the following
rules for SEP:
PURELY SEP MIXED INCOME EARNER
With gross sales/receipts
Business/Professional income
3M and below above P3M Compensation P3M and below Above P3M
Regular income tax Regular Regular Regular income tax Regular
OR 8%tax on Gross Income Tax Income Tax OR 8%tax on Gross Income Tax
Sale/Receipts and Sale/Receipts and
other operating other operating
income in excess of income in excess of
P250,000 IN LIEU of P250,000 IN LIEU of
the graduated tax the graduated tax
rate and Section 116 rate and Section 116
**Provided, the SEP is:

(1)non-vat registered; (2)not engaged in vat exempt-sales/transaction(s); and (3)not
subject to other OPT other than Sec. 116.
NOTE:
 Sec. 116 is a business tax, not an income tax. It is computed as 3% of gross sales/receipts and
other operating income, Business taxes are discussed in volume 2 of this book entitled “Transfer
and Business Taxation".
 The option to be taxed at 8%** is available only to taxpayers who are (a) non-VAT registered and
(b) liable for 3% percentage tax under Section 116 of the NIRC. As such, (a) VAT-registered
taxpayers or (b) those liable for Percentage Taxes under Title V of the NIRC (except for Sec. 116)
have no other option than to be taxed using the graduated rates.
 Unless the taxpayer signifies in the 1st Quarter Return of the taxable year the intention to elect
the 8% income tax, the taxpayer shall be considered as having availed of the graduated rates
under Section 24(A) of the Tax Code, as amended, and such election shall be irrevocable.
PROVIDED, that at any time during a given taxable year, a taxpayer's gross sales or receipts
exceeded the VAT Threshold (P3,000,000, as amended; previously P1,919,500), he/she shall
automatically be subjected to the graduated rates under Section 24(A)(2)(a) of the Tax Code, as
amended, with the following rules/guidelines: o
 The taxpayer shall be allowed an income tax credit of quarterly payments
initially made under the 8% income tax option.
 Taxpayer is likewise liable for business tax(es), in addition to income tax. A
percentage tax pursuant to Section 116 of the Tax Code, as amended, shall be
imposed on the first R3,000,000 The excess of the threshold shall be subject to
VAT.
 Percentage tax due on the R3,000,000 shall be collected without penalty, if
timely paid on the due date immediately following the month the threshold
was breached.
Minimum Wage Earners
The term "statutory minimum wage (SMW)"earner shall refer to a worker in the private sector
paid the statutory minimum wage, or to an employee in the public sector with compensation
income of not more than the statutory minimum wage in the non agricultural sector where
he/she is assigned (RR 10-2008). MWEs are exempt from income tax on:
1. Minimum wage
2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay
APPLICABLE TAXES OF MWES (RR 10-2008: Sonano vs. See of Finance with GR No 184450)
Purely MWE Exempt from income tax
MWE with additional “compensation" income exceeding Still considered MWE, hence,
Still considered MWE, hence, tax-exempt thresholds-of: Exempt from income tax
Prior to 2018: P82,000 (Soriano vs. Secretary of Finance with
Beginning 2018 (TRAIN Law): 290,000 GR No. 184450 dated Jan 24, 2017)
MWE with additional “business" income Income as MWE = Exempt
Business income = Taxable
Basic Income Tax of Married Individuals

 Married individuals (i.e., husband and wife) are required by law to file a consolidated
income tax return, but they shall compute separately their individual income tax.
 Income which cannot be definitely attributed to or identified as income exclusively
earned or realized by either of the spouses, the same shall be equally divided between
the spouses for purposes of determining their taxable income.
 If the spouses are only physically separated and there is no legal separation, the are still
required by law to file consolidated or joint returns for which they are considered as
jointly and severally liable to the tax.
Income Tax of Senior Citizens
 Senior Citizens deriving returnable income are required to file their income tax returns
and pay the tax as they file the return.
 Senior Citizens as MWE - Exempt from income tax on the said compensation income
 Aggregate gross income (prior to TRAIN Law) does not exceed the amount of his
personal exemptions (BPE and APE), he shall be exempt from income tax and shall not
be required to file income tax return.
 The exemption of a senior citizen granted under RA 9994 otherwise known as the
"Expanded Senior Citizen Act of 2010" will not extend to all types of income earned
during the taxable year.
 PRIOR TO 2018 OR BEFORE THE EFFECTIVITY OF TRAIN LAW, a benefactor of a Senior
Citizen is entitled to a basic personal exemption of P50,000 which is the allowed basic
personal exemption of all qualified individual taxpayers required to file income tax
returns as provided under RA 9504. However, a senior citizen who is not gainfully
employed, living with and dependent upon * his benefactor for chief support will not
entitle the benefactor to claim additional personal exemption of P25,000.
Fringe Benefits and De Minimis Benefits (FBT)
CRT is a final withholding tax imposed on the grossed-up monetary value of the fringe benefit
furnished, granted or paid by the employer to managerial or
Oec whether such employer is an individual, professional partnership supervisory employees,
whether such emplover is an indi or corporation, regardless of whether the corporation is taxable
or not. or the government and its Instrumentalities. (Section 33, RA 8424. RR NA 2001,
The term "Fringe Benefit” means any good, service, or other benefit furnished or
granted by an employer in cash or in kind, in addition to basic salaries to employee (except rank
and file employee) such as but not limited to the following.
a. Housing
b. Expense Account
c. Vehicle of any kind
d. Household personnel, such as maid, driver and others
e. Interest on loan at less than market rate to the extent between the market rate and
the actual rate granted
f. Membership fees, dues and other expenses borne by the employer for the employee
in social and athletic Clubs or other similar organizations
g. Holiday and vacation expenses
h. Educational assistance to the employee or his dependents
i. Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows; and
j. Expenses for foreign travel
THE FOLLOWING FRINGE BENEFITS ARE NOT SUBJECT TO FBT:

1) Fringe benefits given to rank and file employees (not subject to FBT but subject to basic
income tax)
2) Housing benefits/privilege:
a. Of military officials of the Armed Forces of the Philippines (AFP).
b. Which is situated inside or adjacent (within 50 meters from the perimeter of the
business premises) to the premises of a business or factory.
c. Which are "temporary" for an employee or for a temporary housing unit of three (3)
months or less.
3) Expenses incurred by the employee which are paid by the employer and expenses paid
for by the employee but reimbursed by his employer, provided:
a. The expenditures are duly receipted for and in the name of the employer;
b. It does not partake the nature of a personal expense attributable to the employee;
4) Allowances subject to liquidation (tax exempt allowances)
 Allowances not subject to liquidation are taxable.
 Representation and transportation allowances which are fixed in amounts and are
regularly received by the employees as part of their monthly compensation (exempt
from FBT but subject to basic income tax).
5) Reasonable business travel expenses:
 Inland travel expenses (such as expenses for food, beverages and local
transportation) during foreign travel.
 Lodging cost in a hotel (or similar establishments) amounting to an average of
US$300 or less per day during foreign travel.
 Cost of economy and business class airplane ticket for "foreign" travel.
 70% of the cost of first class airplane ticket for foreign travel.
 BUSINESS travel expenses "within the Philippines" are
generally assumed to be reasonable in amount.
6) Educational assistance
 TO THE EMPLOYEE, provided:
a. The education or study is directly connected with the
employer's trade, business or profession; and
b. .There is a written contract between them that the employee
is under obligation to remain in the employ of the emplover for a
period of time they have mutually agreed upon
 TO THE DEPENDENTS OF THE EMPLOYEE, provided that the assistance
was provided through a competitive scheme under the scholarship
program of the Company.
7) Contributions of the employer for the bench of the employee on the following:
a. Pursuant to the provisions of existing law, such as under SSS and GSIS
b. Similar contributions arising from provisions of any other existing law
c. To retirement, insurance and hospitalization benefit plans
8) The cost of premiums borne by the employer for the group insurance of his employees
9) Fringe benefits which arelit:
 authorized and exempted from income tax under the Tax Code or under any special law
 The fringe benefit is required by the nature of or necessary to the trade, business or
profession of the employer,
 For the convenience or advantage of the employer;
De Minimis Benefits
The following are de minimis benefits under RR 10-2008 as amended by RA 10963
(TRAIN Law); RR &-2018, RR 11-2018, RR &-2012; RA 10653, RR 1-2015/RR 3-2015:
a. Monetized unused vacation leave credits of private employees not exceeding ten
(10) days during the year and the monetized value of leave credits paid to government
officials and employees
b. Medical cash allowance to dependents of employees not exceeding P1,500
per employee per semester or P250 per month (RR 11-2018; TRAIN Law);
c. Rice subsidy of P2,000 or one (1) sack of 50-kg. Rice per month amounting to not more
than P2,000 (RR 11-2018; TRAIN Law);
d. Uniform and clothing allowance not exceeding P6,000 per annum (RR 11-2018; TRAIN
Law);
e. Actual yearly medical benefits not exceeding P10,000 per annum;
f. Laundry allowance not exceeding P300 per month;
g. Employees achievement awards, e.g., for length of service or safety achievement, which
must be in the form of a tangible personal property other than cash or gift Certificate,
with an annual monetary value not exceeding P10,000 received by the employee under
an established written plan which does not discriminate in favor of highly paid
employees;
h. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000
per employee per annum;
i. Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-
five percent (25%) of the basic minimum wage.
j. Starting January 1, 2015, benefits received by an employee by virtue of a collective
bargaining agreement (CBA) and Productivity incentive schemes, provided, that the total
annual monetary value received from the two (2) items combined, do not exceed
P10,000 per employee per taxable year (RR 1-2015).
13th Month Pay and "Other Benefits"
13th month pay and Other Benefits received by officials and employees of public od
private entities not exceeding 290,000 beginning January 1, 2018 under the Law (P82,000 from
2015 to 2017; 30,000 before 2015) are exempt from income tax and creditable withholding tax on
compensation income.
Amount "in excess of P90,000 (as amended) should form part of an individual’s gross
income and would be subject to income tax and applicable creditable withholding taxes.
"OTHER BENEFITS" under RR 2-98 as amended by RR 3-2015 include:

 Christmas bonus
 Productivity incentive bonus
 Loyalty awards
 Gifts in cash or in kind and other benefits of similar nature actually received by officials and
employees of both government and private offices
 Gifts given during Christmas and major anniversary celebrations not exceeding
P5,000 per employee per annum shall be treated as "de minimis" benefits. Any
excess shall be included as part of "other benefits" (RR 10-2008 as amended
by RR 5-2011, RR 8-2012 and RR 1-2015].
EXCESS OF DE MINIMIS OVER THE CEILINGS & 13 'MONTH PAY

De minimis benefits "conforming to the Tax Exempt: Excluded in determining the
“ceiling" P90,000 ceiling of "other benefits."
"Excess" of the de minimis benefits over their Included in determining the 290,000 ceiling of
respective ceilings "other benefits”
Amount in excess of P90,000 is subject to basic
Income tax
FORMULA IN COMPUTING THE FRINGE BENEFITS TAX and MONETARY VALUE PRIOR to 2018
EMPLOYEE
RC, NRC, SAEs/
RA, NRA-ET NRA-NETB SFEs**
Monetary value Pxx Рxx Pxx
Divide by GUMVF 68% 75% 85%
Grossed-up monetary value (GUMV) Pxx Pxx Pxx
x FBT Rate 32% 25% 15%
Fringe benefit tax Pxx Pxx Pxx
**PRIOR to 2018 SEFS employed by ROHQS/RHQs not qualified for the 15% income tax on otion
income shall still be subject to 15% FBI it such SHE IS holding managerial position.
The coverage of 15% fringe benefit tax and 15% tax on compensation income are
independent to each other. Thus, there would be instances where a Filipino employee shall enjoy
15% preferential tax rate but may not be covered by fringe benefit tax for not being a
supervisory/managerial employee.
Beginning January 1, 2018 under the TRAIN Law
EMPLOYEE
RC, NRC,
RA, NRA-ET NRA-NETB
Monetary value Pxx Рxx
Divide by GUMVF 65% 75%
Grossed-up monetary value (GUMV) Pxx Pxx
x FBT Rate 35% 25%
Fringe benefit tax Pxx Pxx
MONETARY VALUE: In General, the valuation of fringe benefits shall be as follows

BENEFIT MONETARY VALUE Money
 Money = Amount of money
 Non-cash property with transfer of ownership = FMV vs. ZV, if applicable Non
 Non-cash property, ownership is not transferred = Depreciation value
 Employer lends money free of interest = Principal x 12%
 Employer lends money at a rate lower than 12% = Principal x (12%-Actual Rate )
EXCEPTIONS: Monetary Value of Housing and Motor Vehicle as shown below:

HOUSING BENEFIT VALUATION
1. Employer leases a residential property for the Rental paid x 50%
use of the employee
2. Employer owns a residential property for the FMV in the Real property declaration or Zonal
use of the employee value x 5%x50%
3. Employer purchases residential property in Acq. cost, exclusive of interest x 5% x 50%
installment for use employee
4. Employer purchases residential property and acq. cost or Zonal value as determined by the CIR
transfers ownership to employee
5. Employer purchases residential property FMV in the real property declaration or Zonal
and transfers ownership to employee on a lesser as determined by the CIR less cost to the employee
amount
MOTOR VEHICLE EVALUATION

1) Employer owns and maintains a fleet of motor Acquisition cost of vehicles not normally used
vehicles for the use of the business and employees for business divided by 5 years x 50%
2) Employer leases/maintains a fleet of motor vehicles Amount of rental payments not normally used
for the use of the business and the employees for business purposes x 50%
3) Employer purchases vehicle in the name of the Acquisition cost
Employee
4) Employer provides employee with cash for the Cash received
purchase of the vehicle, and ownership is placed
in the name of the employee.
5) Employer purchases the vehicle on installment and Acquisition cost exclusive of interest divided
ownership is placed in the name of the employee. 5years
6) Employer shoulders a portion of the amount of Amount shouldered by employer
the purchase price of vehicle and ownership is
placed in the name of the employee.
FILING OF INCOME TAX RETURNS

Manner of Filing
Filing of Tax Returns may be made through:
 Manual Filing
 Electronic Filing and Payment System (EFPS)
 eBIR Forms
1. Final Withholding Tax on passive income

MANUAL FILING
January to November 10th day of the month following the month
the withholding was made December
January 15 of the succeeding year
2. Capital Gains Tax
a) Shares of stock
l. Ordinary Return - 30 days after each transaction
II. Final Consolidated Return - on or before April 15 of the following year
b) Real Property - 30 days following each sale or other disposition
3. Fringe Benefits Tax - 10th day of the month following the end of the
calendar quarter in which the fringe benefits were granted to the record
4. Basic Income Tax
 Apply calendar year Purely Compensation income earners: April 15 of the
succeeding year.
 For Business income earners including income from practice of profession: The
individual taxpayer is required to file a quarterly tax return (regardless of the
results of operations) as follows:
1st Quarter May 15 (TRAIN Law); April 15 (Prior to TRAIN Law)

2nd Quarter Aug. 15 (or 45 days after end of Quarter)
3rd Quarter Nov. 15 (or 45 days after end of Quarter)
Annual return April 15 of the succeeding year (same with 1st
quarter return for income earned prior to TRAIN
Law)
Required to File:
1. Resident citizens receiving income from sources within or outside the Philippines
2. Employees deriving purely compensation income from 2 or more
employers. Concurrently or successively at anytime during the taxable year.
3. Employees deriving purely compensation income regardless of the amount whether
from a single or several employers during the calendar year, the income tax of
which has not been withheld correctly (i.e. tax due is not equal to the tax withheld)
resulting to collectible or refundable return.
4. Self-employed individuals receiving income from the conduct of trade or business

and/or practice of profession.
5. Individuals deriving mixed income, i.e., compensation income and income from the
conduct of trade or business and/or practice of profession.
6. Individuals deriving other non-business, non-professional related income
in addition to compensation income not otherwise subject to a final tax.
7. Individuals receiving purely compensation income from a single employer although
the income of which has been correctly withheld, but whose spouse is not entitled
to substituted filing
8. Marginal income earners
9. Non-resident citizens receiving income from sources within the Philippines
10. Aliens, whether resident or not, receiving income from sources within
the Philippines
NOT Required to File:

1. An individual who is a minimum wage earner.
2. An individual whose gross income does not exceed his total personal and additional
exemptions (for incomes earned prior to TRAIN Law).
3. An individual whose income has been subjected to final withholding tax [alien employee
as well as Filipino employee occupying the same position as that of the alien employee
of regional headquarters and regional operating headquarters of multinational
companies, petroleum service contractors and sub-contractors and offshore-banking
units (Prior to TRAIN Law) as well non resident aliens not engaged in trade or business)
4. Those who are qualified under "substituted filing" of income tax returns.
However, substituted filing applies only if all of the following requirements are present:
a. the employee received purely compensation income (regardless of amount) during the
taxable year
b. the employee received the income from only one employer in the Philippines during the
taxable year
c. the amount of tax due from the employee at the end of the year equals the amount of
tax withheld by the employer
d. the employee's spouse also complies with all 3 conditions stated above
e. the employer files the annual information return (BIR Form No. 1604-CF) the employer
issues BIR Form No. 2316 (Oct 2002 ENCS version) to each employee.
QUIZZER
Choose the letter of the correct answer.
Principles, Classification of Individual Taxpayers

1. A Filipino citizen is a natural person 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.
III. Acquired Philippine citizenship after birth (naturalized) in accordance
with Philippine laws.
a. I only c. I and III only
b. I and II only d. l, II and III
 Answer: D
2. Individual taxpayers are

I. El Natural persons with income derived within the territorial jurisdiction of a
taxing authority.
II. Natural persons classified as citizens and aliens
a. l only c. I and II
b. ll only d. None of the above
 Answer:
3. Statement 1: The intention with regard to the length and nature of stay of an alien determines
whether he is a resident or nonresident.
Statement 2: 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.
 Answer: C
4. Determine the correct classification of the following:
I. Manny, a Filipino businessman, went on a business trip abroad and stayed there most of
the time during the year.
II. 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.
lll. 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
A B C D
I. NRC RC RC RC
II. NRC NRC RC RC
III. NRC NRC NRC RC
 Answer: D
 To be considered nonresident, the intention should be to stay abroad as an
immigrant or for employment on a permanent basis or whose employment
thereat requires him to be physically present abroad most of the time [for one
hundred eighty-three days (183) or more during the taxable year.
5. Statement 1: Overseas Filipino Workers duly registered as such with the Philippine
Overseas Employment Administration (POEA) with valid Overseas Employment
Certificate (OEC) refer to Filipino citizens employed in foreign countries and whose
salaries are paid employers abroad and are not borne by entities or persons in the
Philippines.
Statement 2: Filipino citizen Seafarers who receive compensation for services rendered
abroad as a member of the complement of a vessel engaged exclusively for international
trade are considered Overseas Filipino Workers provided they are duly registered as such
with the Philippine Overseas Employment Administration (POEA) with a valid Overseas
Employment Certificate (OEC) with Seafarers Identification Record Book (SIRB) or
Seaman's Book issued by the Maritime Industry Authority (MARINA).
A B C D
Statement 1 True False True True
Statement 2 True False False True
 Answer: C
6. Bu-dhoy, a Mongolian national, arrived in the Philippines on January 1, 2018 to visit his
Filipina girlfriend. He planned to stay in the country until December 31, 2020, by which
time he would go back to his legal wife and family in Mongolia. Bu-dhoy derived income
during his stay here in the Philippines. For 2018 taxable year, Bu-dhoy shall be classified
as a :
a. Resident alien
b. Non-resident alien engaged in trade or business in the Philippines
c. Non-resident alien not engaged in trade or business in the Philippines
d. Special alien employee
 Answer: A
 He was a resident of the Philippines for the entire 2018 taxable year.
7. 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. Engr. Pedro D. Magiba is a
a. Resident citizen
b. Nonresident citizen
c. Special Filipino employee
 Answer: B
 Engr. D Magiba's employment in Thailand requires him to be
physically present abroad most of the time during the taxable year
[one hundred eighty three (183) days or more).
8. On 12. October 2016, 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
December 2016. His coming to the Philippines was for a definite purpose. However, he
was subsequently chosen to coach the Philippine men's basketball team for a period of
two (2) years. The American mentor intends to leave the Philippines as soon as his job is
finished. For 2016 taxable year, the American coach shall be classified as:
a. Resident alien.
b. Nonresident alien engaged in trade or business.
c. Nonresident alien not engaged in trade or business.
d. Resident citizen.
 Answer: A
 An alien who comes to the Philippines for the purpose that requires
extended stay for its accomplishment, so he makes his home
temporarily in the Philippines, is a resident, regardless of his intention
to return to his residence abroad.
9. Rihanna, an American singer, was engaged to sing for one week at the Western
Philippine Plaza after which she returned to USA. For income tax purposes, she shall be
classified as:
a. Resident alien.
 Answer: C
10. Mr. Almansor Sebastian, an Iranian and a resident of Tehran, Iran stayed in the
Philippines from July 1-15. 2018 to watch the 2019 FIBA World Qualifying tournament
held in MOA Philippines. 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. Mr. Almansor Sebastian is a:
a. Resident alien
 Answer: C
 Dividends from equity investments as well as interest income from investments in
mutual funds are not considered " operations" for income tax purposes. Incomes from
these investments are classified as passive incomes rather than business incomes.
Source(s) of Taxable income

11. It is important to know the source of income for income tax purposes (i.e. from within
without the Philippines) because:
a. Some individuals and corporate taxpayers are are taxable based on their worldwide
income while others are taxable only on their income from Philippines
b. The Philippines imposes income tax only on income from
c. Some individual taxpayers are citizens while others are aliens.
d. Export sales are not subject to income tax.
 Answer: A
12. Which of the following is correct?
I. A citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines.
II. A non-resident citizen is taxable only on income derived from sources within the
Philippines.
III. An alien individual, whether a resident or not of the Philippines is taxable only on
income derived from sources within the Philippines.
IV. A seaman who is a citizen of the Philippines and who receives compensation for services
rendered abroad as a member of the complement of a vessel engage in international
trade shall be treated as an overseas contract worker.
a. I, II and III only c. I, II and IV only
b. 1, III and IV only d. l, ll, III and IV
 Answer: D
13. Taxable only on income from sources within the Philippines, except S
a. Resident citizen c. Resident alien
b. Nonresident citizen d. Nonresident alien
 Answer: A
14. Situs of taxation is world/global taxation
A B C D
Resident citizen True False True True
Resident alien True False False False
Nonresident alien engaged in trade True False False True
 Answer: C
15. Who of the following individual taxpayers is taxable on income derived from within
and without the Philippines?.
a. Pedro, a native of Bacolod City, working as overseas contract worker in Iraq.
b. George, naturalized Filipino citizen and married to a Filipina. He had been living in
Pampanga since 1990. ,
c. Pao Gasul, Spanish citizen, a resident of Madrid, Spain, spent a one (one) Week vacation
in Boracay.
d. Lee Min Ho, Korean singer, held a 3-day concert in Manila.
 Answer: B
16. Pedro Dela Cruz, nonresident citizen, arrived in the Philippines on July 1, 2018 to reside here
permanently after working as a nurse in the United States for many years. Which on the following
statements is correct with respect to his classification for income tax purposes?
a. He shall be classified as nonresident citizen for the year 2018 with respect to
his income derived from sources abroad from January 1, 2018 until the date of
his arrival in the Philippines.
b. He shall be classified as nonresident citizen for the whole year of 2018.
c. He shall be classified as resident citizen for the whole year 2018.
d. He shall be classified as neither resident nor nonresident citizen for the year 2018.
 Answer: A
17. Individual taxpayers are subject to the following income tax

I. Basic tax based on graduated tax table
II. Final withholding tax on passive income derived from source within the Philippines
III. Capital gains tax
IV. Stock transaction tax of 6/10 of 1% of gross selling price
a. I and II only C. I, II and III only
b. I and III only d. All of the above
 Answer: C
The stock transaction tax is not an income but a business tax under Sec. 127(A) NIRC.
18. LJ, married, left the Philippines in the middle of the year on July 1, 2018 to go abroad
and work there for five (5) years. The following data were provided as of December 31, 2018:
Phis.
Gross Business Income Business Expense
PERIOD Philippines Abroad Philippines Abroad
Jan. 1 to June 30 P300,000 P200,000 P100,000 P50,000
July 1 to Dec. 31 600,000 400,000 150,000 50,000
His taxable income is:
a. P800,000 c. P1,1000,000
b. P950,000 d. P600,000
 Answer: A
TNI = P300,000 + 200,000 + 600,000 - 100,000 - 50,000 – 150,000 TNI = P800,000
Personal exemptions (basic and additional), under the TRAIN Law are no longer
allowed beginning January 1, 2018.
19. Based on the above problem, but assuming he arrived from abroad on July 1, 2018
to permanently resettle in the Philippines, after working abroad for 5 years, his taxable income as
of December 31, 2018 is:
a.R750,000 c. R1,100,000
b. P1,000,000 d. P600,000
 Answer: B
TNI = P300,000 +600,000 +400,000 – 100,000 – 150,000-50,000
TNI = P1,000,000
20. If he did not leave Philippines at all, LJ's taxable income is:
a. P750,000 c. P1,150,000
b. P950,000 d. P600,000
 Answer: C
TNI = total net income Philippines and abroad
TNI = P1,150,000
21. Chris is a Filipino immigrant living in the United States for more than 15 years. He is
retired and he came back to the Philippines as a balikbayan. Every time he comes to the
Philippines, he stays here about a month. He regularly receives a pension from his former
employer in the United States, amounting to US$2,000 a month. While in the Philippines, with his
pension pay from his former employer, he purchased three condominium units in Makati which
he is renting out for P25,000 a month each. Does the US$2,000 pension become taxable because
he is now in the Philippines?
a. Yes, income received in the Philippines by the non-resident citizens is taxable
b. Yes, income received in the Philippines or abroad by non-resident citizen is taxable.
c. No, income earned abroad by non-resident citizens are not taxable in the Philippines.
d. No, the pension is exempt from taxation being one of the exclusions from gross income.
 Answer: C
22. Floyd, an American citizen who is married to a beautiful Filipina owns a building in the United
States and leases the same to businesses owned by Filipino residents. Floyd has his residence in
the Philippines and all his children are studying in top Philippine universities. Which of the
following statements is true regarding the rental income?
a. Taxable in the Philippines because he had his residence in the Philippines.
b. Taxable in the Philippines because his wife is a resident citizen and they are all residents
of the Philippines.
c. Taxable in the Philippines because he derives his income from Filipino resident lessees.
d. Exempt in the Philippines because Floyd is resident alien. As such, he is taxable only on
income derived from sources within the Philippines.
 Answer: D
The next four (4) questions are based on the following data:
Carlo, married, with two dependent children, received the following income:
Rent, Philippines P1,000,000
Rent, Hongkong 200,000
Interest, peso deposit, MBTC 100,000
Interest, US$ deposit, BDO ($10,000 x P42) 420,000
Interest, deposit in Hongkong (HK$10,000 x P5) 50,000
Prize (cash) won in a local contest 8,000
Prize (TV) won in a local lottery 50,000
PCSO/Lotto winnings 2,000,000
Prize won in contest in U.S. 300,000
Lotto winning in U.S. 100,000
Dividend, domestic company 600,000
23. Assuming the taxable year is 2017, determine the taxable net income assuming he is:
RC NRC RA NRA-ETB
a. P80,000 P180,000 P830,000 P180,000
b. 180,000 80,000 1,000,000 1,000,000
c. 1,558,000 908,000 908,000 908,000
d. 1,658,000 1,008,000 1,008,000 1,008,000
 Answer: C
Solution:
RC NRC, RA, NRA-ET
Rent, Philippines P1,000,000 P1,000,000
Rent, Hongkong 200,000 -
Interest, peso deposit, MBTC 20% FWT 20% FWT
Interest, US$ deposit, BDO 7.5% FWT 7.5% FWT for RA
Exempt foNRC&NRAET
Interest, deposit in Hongkong 50,000 -
Prize (cash) won in a local contest 8,000 8,000
Prize (TV) won in a local lottery 20%FWT 20%FWT
PCSO/Lotto winnings Exempt Exempt
Prize won in contest in U.S. 300,000 -
Lotto winning in U.S. 100,000 -
Dividend, domestic company 10% FWT 10%FWT for RA&NRC
20% for NRAET
Basic exemption (50,000) (50,000)
Additional exemption (50,000) (50,000)
Taxable net income P1,558,000 P908,000
NOTE:
• Taxable income:
= generally pertaining to incomes subject to basic income tax and included in
the income tax return of the taxpayer
• Passive income subject to final withholding taxes and capital gains subject to CGTs are
nonreturnable income.
• Passive income subject to FWT shall refer only to those derived from Philippine sources.
Passive incomes derived from abroad received by RCs are subject to basic tax.
• The final tax on interest income earned under FCDS (7.5% prior to 2018; 15% beginning Jan. 1,
2018) is applicable only to resident taxpayers.
• Prior to TRAIN Law, PCSO/Lotto winnings are exempt, except if received by NRANETB
• Prizes:
o Not more than P10,000 = basic tax
o More than P10,000 = 20%FWT; 25% FWT for NRANETB
Winnings:
o PCSO/Philippine Lotto
Prior to TRAIN Law; Exempt, except if received by NRANETB Beginning 2018;
 Not more than P10,000 = Exempt
 More than P10,000 = 20% FWT (RC, NRC, RA);
 Received by NRAETB = Exempt regardless of amount; not revised under TRAIN Law; one
of the obvious errors under the TRAIN Law
 Received by NRANETB = 25% FWT regardless of amount. All income received from
sources within the Philippines by NRANETB is subject to 25% FWT except for interest
income received under FCDS or FCDU
24. Assuming the taxable year is 2018, determine the taxable net income assuming he is:
RC NRC RA NRA-ETB
a. P80,000 P180,000 P830,000 P180.000
b. 180,000 80,000 1,000,000 ,000,000
c. 1,558,000 908,000 908,000 908,000
d. 1,658,000 1,008,000 1,008,000 1,008,000
Answer: D
RC NRC, RA, NRA-ET

Rent, Philippines P1,000,000 P1,000,000
Rent, Hongkong 200,000 -
Interest, peso deposit, MBTC 20% FWT 20% FWT
Interest, US$ deposit, BDO 15% FWT 15% FWT for RA
Exempt foNRC&NRAET
Interest, deposit in Hongkong 50,000 -
Prize (cash) won in a local contest 8,000 8,000
Prize (TV) won in a local lottery 20%FWT 20%FWT
PCSO/Lotto winnings Refer to NOTES above
Prize won in contest in U.S. 300,000 -
Lotto winning in U.S. 100,000 -
Dividend, domestic company 10% FWT 10%FWT for RA&NRC
20% for NRAET
Basic exemption NA NA
Additional exemption NA NA
Taxable net income P1,658,000 P1,008,000
Under RA No. 10963 (TRAIN Law), personal exemptions (basic and additional) as
deductions from gross income are no longer allowed beginning January 1, 2018.
25.
RC NRC NRAET NRA-ET
a. P553,000 P490,000 P550,000 P150,500
b. 121,500 90,000 150,000 687,500
c. 131,000 90,000 90,000 90,000
d. 142,000 90,000 150,000 150,000
Answer: B
Solution: RC&RA NRC NRA NRA-NET
Interest, peso deposit, MBTC @ 20%; 25% P20,000 P20,000 P20,000 P25,000
Interest, US$ deposit, BDO @ 71% 31,500 exempt exempt exempt
Prize (TV) won in a local lottery @ 20%; 25% 10,000 10,000 10,000 12,500
PCSO/Lotto winnings exempt exempt exempt 500,000
Dividend, domestic company @ 10% 60,000 60,000 - -
Dividend, domestic company @ 20% - - 120,000 -
Dividend, domestic company @ 25% - - - 150,000
Total FWT P121,500 P90,000 P150,000 P687,500
26. Assuming the taxable year is 2018, determine the total final tax assuming he is:
RC NRC RA NRA-ET
a. P553,000 P490,000 P150,000 P687,500
b. 121,500 90,000 121,500 150,000
c. 131,000 90,000 90,000 90,000
d. P553,000 P490,000 P550,000 P687,500
 Answer: A
Solution:
RC&RA NRC NRA NRA-NET
Interest, peso deposit, MBTC @ 20%; 25% P20,000 P20,000 P20,000 P25,000
Interest, US$ deposit, BDO @ 71% 31,500 exempt exempt exempt
Prize (TV) won in a local lottery @ 20%; 25% 10,000 10,000 10,000 12,500
PCSO/Lotto winnings exempt exempt exempt 500,000
Dividend, domestic company @ 10% 60,000 60,000 - -
Dividend, domestic company @ 20% - - 120,000 -
Dividend, domestic company @ 25% - - - 150,000
Total FWT P121,500 P90,000 P150,000 P687,500
***The exemption of PCSO/Lotto winnings for NRA-ETB was not repealed under TRAIN Law
Use the following data for the next two (2) questions:
Ana, a resident citizen of the Philippines, provided the following data for year current taxable
year:
Gross income from business P700,000
Business Expenses 300,000
Royalty from books 40,000
Gain on direct sale to buyer of shares of stock of a domestic corporation
held as capital asset 70,000
Loss on sale of land in the Philippines held as capital asset with cost of
P1,500,000 when the zonal value is P1,200,000 500,000
27. Assuming the taxable year is 2017, how much is the total income tax expense of Ana?
a. P116,500 c. P159,500
b. P207,500 d. P156,000
 Answer: C
Solution:
 Basic Income Tax P80,000***
 Final Tax on Passive Income (40,000 x 10%) 4,000
 CGT on shares of stock (P70,000 x 5%) 3,500
 CGT on real properties (P1.2M x 6%) 2,000
SP = Cost - Loss = P1.5M - 5M = P1M
ZV = P1,200,000
TOTAL Income Tax Expense P159,500

Business Expenses (300,000)
Basic personal exemption (50,000)
Taxable Net Income P350,000
Tax Due; old graduated rate
[(P50,0000 + (P100,000 x 30%)] P80,000**
INCOME TAX EXPENSE = basic income tax + FWT on passive income + CGTaxes
28. Assuming the taxable year is 2018, how much is the total income tax expense of Ana?
a. P116,500 c. P159,500
b. P207,500 d. P156,000
 Answer: A
Solution:
 Basic Income Tax P30,000**
 CGT on real properties (P1.2M x 6%) 73,000
SP = Cost - Loss = P1.5M - .5M = P1M
ZV = P1,200,000
Basic personal exemption NA
Tax Due (TRAIN Law) P30.000
Use the following data for the next eight (8) questions:
Juan, married, supporting his three (3) minor children had the following data for The current
taxable year (Exchange Rate $1 = P50);
Philippines Abroad
Business income P1,000,000 $20,000
Professional income 400,000 10,000
Salaries 200,000 -
Business and professional expenses 250,000 8,000
Income tax paid - 4,000
29. If Juan is a resident citizen and taxable year is 2017, his income tax payable is:
a. P434,000 c. P589,000
b. P570,500 d. P509,000
 Answer: D
PHILIPPINES ABROAD TOTAL

Business income (Philippines and abroad) P1,000,000 P1,000,000 P2,000,000
Professional income 400,000 500,000 900,000
Salaries 200,000 - 200,000
Business and professional expenses (250,000) (400,000) (650,000)
P1,350,000 1,100,000
Additional personal exemption (3 x P25,000) (75,000)
Income Tax Due (old tax table) P709,000
Less: INCOME TAX CREDIT
Actual ($4,000 x P50) = 200,000
Vs. Limit = 1,100/2,325 x P709,000 = P331,872
Allowed = Lower amount Income (200,000)
Tax Payable P509,000
A resident citizen is taxable on income within and without
 Income tax paid abroad by a resident citizen is allowed as a tax credit against
the income tax due, unless the taxpayer opted to classify the tax payment
abroad as part of operating expenses.
30. If Juan is a resident citizen and taxable year is 2018, his income tax payable is:
a. P434,000 c. P589,000
b. P570,500 d. P509,000
 Answer: A
PHILIPPINES ABROAD TOTAL
Business income (Philippines and abroad) P1,000,000 P1,000,000 P2,000,000
Professional income 400,000 500,000 900,000
Salaries 200,000 - 200,000
Business and professional expenses (250,000) (400,000) (650,000)
P1,350,000 1,100,000
Basic personal exemption -

Additional personal exemption) -
Less: INCOME TAX CREDIT
Actual ($4,000 x P50) = 200,000
Vs. Limit = 1,100/2,325 x P709,000 = P331,872
Allowed = Lower amount Income (200,000)
Tax Payable P434,000
 Personal expenses are no longer allowed under the TRAIN Law.

31. If he is a resident alien and the taxable year is 2017, his income tax payable is:
a. P360,580 c . P384,380
b. P358,020 d. P357,000
 Answer: D
Solution:
Business income (Philippines only) P1,000,000
Professional income 400,000
Salaries 200,000
Business and professional expenses (250,000)
Income Tax Due/Payable (old table) P357,000
 A resident alien is taxable on income within only.

 Tax credit is applicable only to RCS
32. If he is a non-resident citizen and the taxable year is 2017. his income tax due after tax credit,
if any is:
a. P360,580 c. P384,380
b. P358,020 d. P357,000
 Answer: D
 Same solution in the preceding paragraph

33. If he is a resident citizen and the taxable year is 2018, his income tax payable is:
a. P295,000 c. P384,380
b. P358,020 d. P357,000
 Answer: A
Salaries 200,000
Basic personal exemption -
Additional personal exemption (3 x P25,000) -
34. If he is a non-resident alien engaged in trade or business in the Philippines but without
the benefit of Reciprocity Law, the income tax payable assuming the taxable year is 2017 should
be:
a. P397,000 c. P405,500
b. P378,500 d. P338,500
 Answer: A
Salaries 200,000
 Prior to 2018, NRA-ETB is entitled to personal exemptions only if

there is reciprocity
35. If he is a non-resident alien not engaged in trade or business, disregarding
professional business data, the total income tax that should be withheld from his income is:
a. P50,000 c. P31,500
b. P18,500 d. P338,500
 Answer: A
 Income Tax Due = Salaries of P200,000 x 25% = P50.000
 Regardless of the taxable period (before or after TRAIN Law)
36. If he is a Special Alien Employee, disregarding professional and business data, the
total income tax that should be withheld from his income assuming the taxable year is 2017
should be: a. P18,500 c. P11,500
b. P30,000 d. None
 Answer: B
 Income Tax Due = Salaries of P200,000 x 15% = P30,000
 Prior to 2018, Special Alien Employees are taxable at 15% on
their compensation income.
 Beginning January 1, 2018, Special Employees are already subject to basic
income tax on their compensation income.
37. Mr. and Mrs. Dela Cruz, both CPA's and residents of the Philippines, with 5 minor
children. Had the following data for taxable year 2015:
Salaries, wife P150,000
Bonus (13th month pay), wife 42,000
Professional Fees, (net of 10% withholding tax) 450,000
Expenses – Practice of profession (15% nondeductible) 120,000
Rental income (net of 5% withholding tax 190,000
Rental expenses 80,000
Other income, husband (20% non-taxable) 80,000
The taxable income of Mr. Dela Cruz is:

a. P173,000 c. P266,000
b. P275,000 d. P234,000
 Answer: A
38. The taxable income of Mrs. Dela Cruz is:
a. P371,000 c. P419,000
b. P359,000 d. P410,000
 Answer: B
Mr. Mrs.
Salaries P- P150,000
Professional fees (P450,000/90%)/2 250,000 250,000
Rental income (P190,000/95%)/2 100,000 100,000
Other income (P80,000 x 80%) 64,000
Professional expenses (P120,000 x 85%)/2 (51,000) (51,000)
Rental expenses (P80,000/2) (40,000) (40,000)
Basic personal exemption (50,000) (50,000)
Additional personal exemption (100,000) -
Taxable Net Income P173,000 P359,000
 The tax exempt 13th month pay and other bonuses prior to 2018 is P82,000.
SELF-EMPLOYED and/or PROFESSIONALS

Use the following data for the next four (4) questions:
Ana, a self-employed resident citizen provided the following data for 2018 taxable year:
Sales P2,800,000
Interest income from peso bank deposit 80,000
Interest income from bank deposit under FCDS 120,000
Gain on direct sale to buyer of shares of stock of a domestic
corporation held as capital asset 150,000
Gain on sale of land in the Philippines held as capital asset
with cost of P1,500,000 when the zonal value is P1,200,000 500,000
39. How much is the total income tax expense of Ana for the year?
a. P321,500 c. P351,500
b. P342,500 d. P358,000
 Answer: C
 Interest income from FCDS (P120,000 x 15%) 18,000
 CGT on real properties (P2M x 6%) 120,00
SP = Cost + Gain = P2M vs.
ZV = P1,200,000
Gross income from business P1,675,000
Taxable Net Income P1,025,000
Tax Due [P130,0000 + (P225,000 x 30%)] P197,500**
40. How much is the total income tax of Ana assuming she opted to be taxed at 8%?
a. P321,500 c. P351,500
b. P342,500 d. P358,000
 Answer:
 CGT on real properties (P2M X 6%) 120,000
ZV = P1,200,000
Gross Sales P2,800,000
Less: Tax exempt income (250,000)
Taxable Net Income P2,550,000
Tax Due (P2,550,000 x 8%) P204,000**
 The 8% income tax rate is based on Gross Sales and/or receipts and other non
operating income in excess of P250,000.
41. Assuming Ana is a vat-registered taxpayer, how much is her total income tax
expense assuming she opted to be taxed at 8% income tax rate?
a. P321,500 c. P351,500
b. P342,500 d. P358,000
 Answer: C
 Same solution with the 1st question. because she is not allowed to avail the 8% tax for
being a vat registered taxpayer. The 8% tax is IN LIEU of Basic Income Tax (Graduated
Tax Rate) and 3% OPT under Section 116 of the Tax Code, as amended Ana, is subject
to vat, not 3% OPT under Section 116.
42. Using the same data except that her gross sales for the year was P3,800,000, how much is her
total income tax expense assuming she opted to be taxed at 8% income tax rate?
a. P321,500 c. P351,500
b. P342,500 d. P652,000
 Answer: D
Solution:
 Basic Income Tax P498,000
 CGT on real properties (P2M x 6%) 120,000
ZV = P1,200,000
 Gross income from business P2,675,000
 Business Expenses (650,000)
 Taxable Net Income P2,025,000
 Tax Due [P490,0000 + (P25,000 x 32%)], P498,000**
 Ana is not allowed to avail the 8% tax because her gross sales for the year exceeded
the revised vat threshold of P3,000,000. Hence, she is subject to vat (business tax) in
addition to income tax. The 8% tax is IN LIEU of Basic Income Tax (Graduated Tax Rate)
and 3% OPT under Section 116 of the Tax Code, as amended. Ana, is subject to vat, not
3% OPT under Section 116.
43. Ana is a mixed income earner. She is a self-employed resident citizen and currently the
Finance manager of Omega Corporation. The following data were provided for 2018 taxable
year:
Compensation income P1,800,000
Sales 2,800,000
Cost of sales 1,125.000
Interest income from bank deposit under FCDS 120,000
120,000 Gain on direct sale to buyer of shares of stock of a
domestic corporation held as capital asset 150,000
Gain on sale of land in the Philippines held as capital asset with
cost of P1,500,000 when the zonal value is P1,200,000 500,000
How much is her total income tax expense assuming she opted to be taxed at 8%?
a. P321,500 c. P808,000
b. P788,500 d. P358,000
 Answer: C
Solution:
 Basic Income Tax P654,000
 Final Tax on Passive Income (80,000 x 20%) 16,000
 CGT on shares of stock (P120,000 x 15%) 18,000
 CGT on real properties (P2M x 6%) 120,000
ZV = P1,200,000

X 8%
8% Tax P224,000
Add: Basic tax on compensation income
1st P800,000 = P130,000
Excess over P800,000 @ 30% = P300,000 430,000
Total Basic Income Tax Due P654,000**
 If the self-employed or practitioner is a mixed income earner, the 8% income tax rate is
based on Gross Sales and/or receipts and other non-operating income without
deducting P250,000.
The compensation income is not subject to 8% tax rate.
44. PURELY S.E.P. using 8% tax rate but whose gross sales/receipts and other non-
operating income exceeded the revised VAT threshold of P3,000,000 during the year.
In 2018, Pedro signified his intention to be taxed at 8% income tax rate on gross sales in his 1st
quarter income tax return.
His gross sales during the year exceeded the vat threshold of P3M as follows:
Q1 Q2 Q3 Q4/Annual
(8% tax) (8% tax) (8% tax) (Graduated)
Sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of sales (300,000) (300,000) (1,200,000) (1,200,000)
Gross Income 200,000 200,000 800,000 1,800,000
Operating expense (120,000) (120,000) (480,000) (720,000)
Net taxable expense P80,000 P80,000 P320,000 P1,080,000
How much is Pedro's annual income tax payable?

a. P220,000 c. P509,200
b. 289,200 d. P2,060,000
 Answer: B
Solution:
Sales P6,500,000
Gross Income 3,500,000
Operating expenses (1,440,000)
Net taxable income P2,060,000
Income Tax due using graduated rate P509,200

Less: Quarterly tax payments (01-03) based on 8%
tax rate ([P3M-250,000)*8%) (220,000)
Annual Income Tax Payable P98,200
NOTE:
 Unless the taxpayer signifies in the 1 Quarter Return of the 21st year intention to elect
the 8% income tax, the taxpayer shall be con 39 anno availed of the graduated rates
under Section 241A) of the Tax code, as it and such election shall be irrevocable.
Provided that, at any time during a given taxable year, a taxpayers grosses receipts
exceeded the VAT Threshold (P3,000,000, as amended previously P1,919,500), he/she
shall automatically be subjected to the graduated rates under Section 24(A)(2)(a) of the
Tax Code, as amended, with the following rules/guidelines
 The taxpayer shall be allowed an income tax credit of quarterly payments initially made
under the 8% income tax option.
 Taxpayer is likewise liable for business tax/es), in addition to income a A percentage tax
pursuant to Section 116 of the Ta. Code as amended shall be imposed on the first
P3,000,000. The excess of the threshold shall be subject to VAT .
 Percentage tax due on the P3,000,000 shall be collected without penalty if timely paid
on the due date immediately following the month the threshold was breached,
Special Alien Employees (SAES) and Special Filipino Employees or Filipino Counterparts
45. As a rule, the following individuals are liable for final income tax equal to 15% of their
gross compensation income prior to 2018 taxable year, except
a. An alien employee of an Offshore Banking Unit
b. An alien employee of Petroleum Service Contractors and Subcontractors
c. An alien employee of Regional, or Area Headquarters of Multinational Companies
d. An alien employee of a Resident Foreign Corporation
 Answer: D
46. Statement 1: Prior to 2018 taxable year. SAEs as well as SFES of regional or area headquarters
established in the Philippines by multinational companies shall be subject final tax of 15% on
their gross compensation income in the Philippines.
Statement 2: Generally, a nonresident alien not engaged in trade or business is subject to 25%
creditable withholding tax on their gross income in the Philippines.
 Answer: D
Statement 1: The statement is False. Refer to the following rules:
 Prior to 2018, SAEs are subject to 15% preferential income tax rate on
 SFEs employed in PCs and OBUs are likewise subject to 15% preferential income tax rate
on their compensation income. However, compensation income of SFES employed by
RHQs/ROHQs may be taxed under section 24A of the tax code (basic income tax) or 15%
preferential income tax rate at the option of the SFE provided the three (3) conditions
provided under RR11-2010 were all complied with. Refer to the next question for the
three (3) requirements to qualify for 15% preferential income tax rate.
Statement 2: The statement is False.

 NRA-NETB is subject to final withholding tax of 25% rather than creditable withholding
tax.
47. Prior to 2018 taxable year, Filipino counterparts of aliens employed by regional or area
headquarters and regional operating headquarters of multinational companies in the
Philippines, which are engaged in international trade with affiliates and subsidiary branch
offices in the Asia-Pacific region may be taxed at 15% preferential tax rate subject to the
following rules:
I. The employee must occupy managerial or technical position and must be exercising such
functions pertaining to said position.
II. The employee must have received or is due to receive under a contract of employment,
a gross taxable compensation income of at least P975,000 (actually/constructively
received).
III. The employee must be exclusively working for the RHQ or ROHQ as a regular employee
and not just a consultant or contractual personnel.
a. I and II only c. All of the above
b. I and III only d. None of the above
 Answer: C
48. Statement 1: Prior to 2018 taxable year, a change in the compensation income of a
Filipino employee employed by a regional or area headquarters and regional operating
headquarters of multinational companies in the Philippines, as a consequence of which, the
employee subsequently receiving less than the compensation threshold for the calendar year
when the change becomes effective, result in the employee being subject to the regular income
tax rate.
Statement 2: Prior to 2018 taxable year, a special Filipino employee employed by an Offshore
Banking Unit or Petroleum Contractors/Subcontractors receiving gross compensation income
lower than P975,000 for the calendar year shall result in the employee being subject to the
regular income tax rate.
A B C D
Statement 1 True False True False
 Answer: C
 The three (3) requirements (position test, compensation threshold test and exclusivity
test) to qualify for the fifteen percent (15%) preferential tax rate on compensation
income shall apply only to SFEs employed by a regional or area headquarters or regional
operating headquarters of multinational companies in the Philippines.
 BEGINNING JAN. 1. 2018, SAES AND SFES ARE NOW SUBJECT TO BASIC INCOME TAX ON
THEIR COMPENSATION INCOME. HENCE, FOR INCOME TAXATION PURPOSES, THEY
SHALL NO LONGER BE CLASSIFIED AS SPECIAL EMPLOYEES.
49. For purposes of computing the P975,000 compensation threshold of SFEs employed by
a regional or area headquarters and regional operating headquarters of multinational companies
in the Philippines prior to 2018 taxable year, "gross compensation income” shall include:
I. Salaries, wages and compensation
II. Annuities and remuneration
III. Other emoluments such as honoraria and allowances, including income subject to fringe
benefit tax
a. I and II only c. II and III only
b. I and III only d. I, II and III
 Answer: A
 Item Ill" is wrong, it shall exclude FBs subject to FBT
 Under the Tax Code, EXCLUDE the following:
 FBs subject to FBTs
 Retirement benefits (taxable or not)
 Separation pay (taxable or not)
50. Statement 1: An employee occupying “managerial position" is one who is vested with powers
or prerogatives to lay down and execute management policies and/or employees.
Statement 2: "Exclusivity" means just having one employer at a time.
 Answer: C
51. "Technical Position" as described in RMC 41-09 (as amended) are limited only to positions
that are:
I. Highly technical in nature
II. Where there are no Filipinos who are competent, able and willing to perform
the services for which the aliens are desired.
a. I only c. Both I and II
b. ll only d. Neither I nor II
 Answer: C
52. The 15% preferential tax imposed upon aliens and qualified Filipinos, prior to 2018
taxable year, should be treated as:
A B C D
Final withholding tax, True False True False
Creditable W. Tax True False False True
 Answer: C
53. In 2017, Jaime (resident citizen) is employed by an offshore banking unit holding
managerial position. His compensation income is subject to a preferential tax rate of 15%.
Assume that Jaime likewise earned interest income from a depository bank under the Expanded
Foreign Currency Deposit System in the Philippines, the applicable tax on such income shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. graduated rate
 Answer: A
 Prior to the effectivity of TRAIN Law, "other income" of Special
Filipino Employees (SFEs) shall be taxable in the same manner as resident
citizens.
Use the following data for the next six (6) questions
Hajib, a Russian national who is an employee in the regional area headquarter of a multinational
corporation, occupying “managerial position, had the following data for taxable year 2016:
Salaries received P600,000
Allowances and honoraria 50,000
Other emoluments 100,000
Monetary value of fringe benefits subject to fringe benefit tax 170,000
De minimis benefits (within the ceiling) 50,000
Interest income from foreign currency deposit under FCDS 20,000
PCSO winnings (gross) 1,000,000
Raffle draw winnings 80,000
Gain from sale of shares of a domestic corporation sold directly to a buyer 150,000
Gain from sale of a vacant lot in Quezon City held as investment 500,000
(SP=P1,500,000; Cost=P1,000,000; Zonal Value=P2,500,000)
54. The amount of income subject to a preferential tax rate of 15% should be:
a. P0 c. P750,000
b. P650,000 d. P910,000
 Answer: C
Solution:
Total P750,000
55. The capital gain's tax is:

a. P10,000 b. P160,000
b. P40,000 d. P165,000
 Answer: C
On shares of stock = P100,000 x 5% + (50,000 x 10%) P10,000
On real property = P2.5M x 6% 150,000
TOTAL CGT P160,000
56. The total income tax expense of Hajib in the Philippines is:
a. P535,000 c. P570,000
b. P595,000 d. P315,000
 Answer: B
Solution:
Subject to preferential tax rate = P750,000 x 15% P112,500
Subject to 15% FBT = P170,000/85% x 15% 30,000
CGT (as computed in the preceding number) 160,000
Income subject to 25% FWT:
Dividend income from DC P40,000
Interest income - FCDS Exempt
PCSO winnings 1,000,000
Total 1,170,000
Tax Rate 25% 292,500
TOTAL INCOME TAX EXPENSE P595,000
 Income Tax Expense = Basic Tax + FWT on Passive Income + CGTS

 De minimis benefits are tax exempt Interest income from bank deposit under FCDS is
exempt.
 Prior to 2018, SAEs are treated as NRAS-NETB with respect to their other income.
Consequently, such interest income is tax exempt.
57. Assuming the taxpayer is a Special Filipino Employee, the amount of income subject to
a preferential tax rate of 15% should be:
a. P0 c. P650,000
b. P600,000 d. P750,000
 Answer: A
 Since the total compensation composed of salaries, allowances/honoraria and one
emoluments is not at least P975,000. The SFE shall be subject to basic income tax under
section 24(A) instead of 15% preferential tax rate.
58. Using the assumption above, the SFE's total combined taxes on all income from the
Philippines is:
a. P380,500 c. P595,000
b. P304,000 d. P410,500
 Answer: D
CGT (as computed in the foregoing number) P160,000
FBT (P170,000/85% x 15%***) 30,000
FWT on Passive incomes:
Dividend income from DC @ 10% P4,000
Interest income from peso bank deposit @ 20% 10,000
Interest income-FCDS @ 7.5% 1,500
PCSO winnings Exempt
Raffle draw winnings @ 20% 16,000 31,500
BASIC INCOME TAX:
Salaries, allowances, honoraria P750,000
Basic Personal exemption (50,000)
Basic Tax under Section 24(A) 189,000
 ***The SFE (as discussed in preceding numbers) is not qualified for the 15% preferential
tax rate. However, the fringe benefits received shall still be subject to 15% FBT because
under RR 11-2010, the option to be subject to 15% preferential tax rate and the
coverage of fringe benefit tax are independent to each other. Thus, as provided in the
aforementioned RR, there would be instances where a Filipino employee shall enjoy 15%
preferential tax rate. But may not be covered by fringe benefit tax for not being a
supervisory/managerial employee. Likewise, there would be instances where such SFE
may not be subject to 15% preferential tax rate due to failure to meet any of the three
(3) tests discussed earlier but may be subject to 15% FBT for being a "managerial"
employee. The taxpayer in this particular case is occupying a managerial position.
59. Assuming the taxpayer is a Special Filipino Employee employed by an Offshore Banking
Unit, the amount of income subject to a preferential tax rate of 15% should be:
a. P0 c. P650,000
b. P600,000 d. P750,000
 Answer: D
Prior to the effectivity of TRAIN Law, if the SFE is employed by an OBU or PC/SC, the
compensation income shall be subject to 15% preferential tax rate. The option to be
taxed at 15% preferential tax rate if the SFE is an employee of ROHQ/RHQ is not
applicable for SFEs employed by OBUs and PCs/SCs.
60. Bryan is a Filipino executive employed by a regional operating headquarters (ROHQ) in the
Philippines, begins his employment on June 1, 2015. His employment contract stipulates that he
shall receive an annual compensation income of P975,000 inclusive of 13th month pay. At the
end of the year, he received P568,750 composed of P525,000 basic pay (P975,000/13 x 7months)
and P43,750 as 13th month pay. Based on the above data, can Bryan choose to be taxed at 15%
preferential rate?
a. Yes, because his employment contract states that he shall receive an
annual compensation income that meets the threshold, whether he actually receives
this or not
b. Yes, because an employee of ROHQ is qualified to be taxed at 15% preferential rate.
c. No, because his total gross compensation income at the end of the year does not meet
the threshold amount.
d. No, Filipinos employed by ROHQs do not have the option to be taxed at 15% preferential
tax rate,
 Answer: C.
61. Leomar, resident citizen, is the Head for Operations of a regional operating
headquarters (ROHQ) in the Philippines. His compensation income during 2018 amounted to
P1,800,000 exclusive of 13th month pay and other bonuses. Can Leomar choose to be taxed at
15% preferential rate?
a. Yes, because he is expected to receive an annual compensation income that exceeds the
threshold
b. b. Yes, because an employee of ROHQ is qualified to be taxed at 15% preferential
rate even during the effectivity of RA No. 10963 (TRAIN Law).
c. No, because his total gross compensation income at the end of the year does not meet
the threshold amount
d. No, the 15% preferential tax rate is no longer applicable beginning January 1, 2018 as
provided for under RA No. 10963, otherwise known as the TRAIN Law.
 Answer: D
62. A Malaysian occupying a managerial position in an Offshore Banking Unit located in

Taguig had the following data for taxable year 2015.
De minimis benefits 5,000
Interest income from deposit substitutes 20,000
Interest income from long-term Philippine Bank Deposit 10,000
Gain from sale of shares of stock of a domestic corporation
held as investment sold outside of the local stock exchange 175,000
The total income tax expense of the taxpayer is:

a. P73,000 c. P63,000
b. P70,500 d. P83,000
 Answer: D
15% Preferential Tax (P170k x 15%) P25,500
25% on other income (P180k x 25%) 45,000
CGT [(100k x 5%) + (75k x 10%)] 12,500
Total taxes expense P83,000
 NRAs-NETB and SAEs are not exempt from tax on their interest income derived from
long-term bank deposit in the Philippines.
63. Assuming the taxpayer is a Special Filipino employee, his total income tax expense is:
a. P56,500 c. P57,000
b. P58,500 d. P83,000
 Answer: C
15% Preferential. Tax (P170k x 15%) P25,500
Final Tax on deposit substitute (P20,000 x 20%) 4,000
Interest income on long-term deposit exempt
Dividend income from DC (P150,000 x 10%) 15,000
CGT(as previously computed) 12,500
 As previously discussed, SFEs employed by OBUs and PCs/SCs shall always be subject to
15% preferential tax rate on their gross compensation income.
64. Abdul, a foreign national employed by a regional area head quarter of a

multinational corporation, occupying managerial position, had the following data for taxable year
2018:
Gain from sale of shares of a domestic corporation sold directly to a 150,000
buyer
Gain from sale of shares of a domestic corporation listed in the local
stock exchange 85,000
The total income tax expense of Abdul in the Philippines is:

a. P127,500 c. P140,510
b. P140,000 d. P152,7500
 Answer: B
Solution:
Basic income tax based on P750,000 P117,500
[P30,0000 + (P350,000 x 25%)]
CGT (P150,000 x 15%) 22,500
 The de minimis benefits (within the ceiling) is tax-exempt

 The sale of shares of domestic corporation listed in the local stock exchange is exempt
from income tax. However, it is subject to a business tax of 6/10 of 1% of gross selling
price.
Use the following data for the next three (3) questions:
Jaime (resident citizen) is employed by an offshore banking unit holding managerial position. His
compensation income is subject to a preferential tax rate of 15%.
65. Assuming 2017 as the taxable year and Jaime likewise earned interest income from
a depository bank under the Expanded Foreign Currency Deposit System in the Philippines, the
applicable tax on such income shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: A
 As “income other than compensation", Jaime shall be taxed as a resident
citizen.
66. Assume that Jaime is an alien employee, the applicable tax on his interest income from
FCDS deposit shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: D
 As to his income “other than compensation income", a Special Alien Employee
(for taxable year prior to 2018 shall be taxed as a nonresident alien not engaged
in trade or business .
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: B
Final Taxes on Passive Income derived from Philippine Sources

68. 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 B C D
Statement 2. True False False True
 Answer: C
Statement 2 is False. The liability of the taxpayer for passive incomes subjected to the
withholding taxes is already PO because the taxes withheld already constitute final and
te payment of the applicable tax. Hence, shall not be included anymore in the
determination of "taxable income" of the taxpayer subject to basic income tax
under Section 24A of the tax code. Consequently, such income shall be excluded in the
ITR of the taxpayer.
69.Statement 1: Tax on certain passive income is a capital gains tax

Statement 2: Other income, for income tax purposes, is excluded in the determination of an
individual taxpayer's returnable income.
A B C D
 Answer: B
 Certain passive incomes are subject to final taxes
 Other incomes are returnable (included in the computation of the taxpayers
taxable income subject to graduated tax rate)
70. Which of the following shall not be subject to the 20% final tax beginning January 1, 2018?
a. Amount of interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar
arrangements
b. Winnings other than Philippine Charity Sweepstakes and Lotto winnings,
regardless of amount
c. Philippine Charity Sweepstakes and Lotto winnings exceeding P10,000
d. Prizes amounting to ten thousand pesos (P10,000) or less
 Answer: D
 “D” is subject to basic tax

a. To be subject to final tax, passive income must be from Philippine sources.
b. An income which is subject to final tax is excluded from the computation of
income subject to Section 24 (A) of the tax code.
c. Lotto winnings in foreign countries are exempt from income tax in the
Philippines.
 Answer: C
 Subject to basic tax if the taxpayer is a resident citizen.

I. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10.000 received by
citizens, residents and non-resident aliens engaged in trade or business are exempt from
income tax.
II. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 received by
citizens, residents and non-resident aliens engaged in trade or business are subject to
20% final withholding tax.
III. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10.000 received by
non-resident aliens not engaged in trade or business are exempt from income tax.
IV. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 receiver by non-
resident aliens not engaged in trade or business are subject to 25% final withholding tax.
a. I only c. I and IV only
b. I and II only d. All of the above
 Answer: A
 "ll" is wrong. PCSO and Lotto winnings are exempt from income tax under
TRAIN Law if the taxpayer is classified as NRANETB.
 “III and IV" are false. NRANETB is subject to 25% regardless of the amount of
PCSO and Lotto winnings.

I. Prizes of not more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are exempt from income tax.
II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or
business are exempt from income tax. IV.
IV. Prizes of more than P10,000 received by non-resident aliens not engaged in trade or
business are subject to 25% final withholding tax.
a. Il only c. II and III only
b. I and II only d. II and IV only
 Answer: A
 "l"is wrong. It is subject to basic income tax.
 “lll and lV" are wrong. Prizes received by NRANETB are subject to 25% FWT
regardless of amount.
 If silent, assume the income is derived from sources within the Philippines.
74. Statement 1: All royalty income derived from sources within the Philippines are subject
to final withholding tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by
resident citizens are subject to basic income tax.
 Answer: C
How much is her total income tax expense assuming she opted to be taxed at 8%?
a. P321,500 c. P808,000
b. P788,500 d. P358,000
 Answer: C
Solution:
 Basic Income Tax P654,000
 Final Tax on Passive Income (80,000 x 20%) 16,000
 CGT on shares of stock (P120,000 x 15%) 18,000
 CGT on real properties (P2M x 6%) 120,000
ZV = P1,200,000

X 8%
8% Tax P224,000
Add: Basic tax on compensation income
1st P800,000 = P130,000
Excess over P800,000 @ 30% = P300,000 430,000
Total Basic Income Tax Due P654,000**
 If the self-employed or practitioner is a mixed income earner, the 8% income tax rate is
based on Gross Sales and/or receipts and other non-operating income without
deducting P250,000.
The compensation income is not subject to 8% tax rate.
44. PURELY S.E.P. using 8% tax rate but whose gross sales/receipts and other non-
operating income exceeded the revised VAT threshold of P3,000,000 during the year.
In 2018, Pedro signified his intention to be taxed at 8% income tax rate on gross sales in his 1st
quarter income tax return.
His gross sales during the year exceeded the vat threshold of P3M as follows:
Q1 Q2 Q3 Q4/Annual
(8% tax) (8% tax) (8% tax) (Graduated)
Sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of sales (300,000) (300,000) (1,200,000) (1,200,000)
Gross Income 200,000 200,000 800,000 1,800,000
Operating expense (120,000) (120,000) (480,000) (720,000)
Net taxable expense P80,000 P80,000 P320,000 P1,080,000
How much is Pedro's annual income tax payable?
a. P220,000 c. P509,200
b. 289,200 d. P2,060,000
 Answer: B
Solution:
Sales P6,500,000
Gross Income 3,500,000
Operating expenses (1,440,000)
Net taxable income P2,060,000
Income Tax due using graduated rate P509,200

Less: Quarterly tax payments (01-03) based on 8%
tax rate ([P3M-250,000)*8%) (220,000)
Annual Income Tax Payable P98,200
NOTE:
 Unless the taxpayer signifies in the 1 Quarter Return of the 21st year intention to elect
the 8% income tax, the taxpayer shall be con 39 anno availed of the graduated rates
under Section 241A) of the Tax code, as it and such election shall be irrevocable.
Provided that, at any time during a given taxable year, a taxpayers grosses receipts
exceeded the VAT Threshold (P3,000,000, as amended previously P1,919,500), he/she
shall automatically be subjected to the graduated rates under Section 24(A)(2)(a) of the
Tax Code, as amended, with the following rules/guidelines
 The taxpayer shall be allowed an income tax credit of quarterly payments initially made
under the 8% income tax option.
 Taxpayer is likewise liable for business tax/es), in addition to income a A percentage tax
pursuant to Section 116 of the Ta. Code as amended shall be imposed on the first
P3,000,000. The excess of the threshold shall be subject to VAT .
 Percentage tax due on the P3,000,000 shall be collected without penalty if timely paid
on the due date immediately following the month the threshold was breached,
Special Alien Employees (SAES) and Special Filipino Employees or Filipino Counterparts
45. As a rule, the following individuals are liable for final income tax equal to 15% of their
gross compensation income prior to 2018 taxable year, except
a. An alien employee of an Offshore Banking Unit
b. An alien employee of Petroleum Service Contractors and Subcontractors
c. An alien employee of Regional, or Area Headquarters of Multinational Companies
d. An alien employee of a Resident Foreign Corporation
 Answer: D
46. Statement 1: Prior to 2018 taxable year. SAEs as well as SFES of regional or area headquarters
established in the Philippines by multinational companies shall be subject final tax of 15% on
their gross compensation income in the Philippines.
Statement 2: Generally, a nonresident alien not engaged in trade or business is subject to 25%
creditable withholding tax on their gross income in the Philippines.
 Answer: D
Statement 1: The statement is False. Refer to the following rules:
 Prior to 2018, SAEs are subject to 15% preferential income tax rate on
 SFEs employed in PCs and OBUs are likewise subject to 15% preferential income tax rate
on their compensation income. However, compensation income of SFES employed by
RHQs/ROHQs may be taxed under section 24A of the tax code (basic income tax) or 15%
preferential income tax rate at the option of the SFE provided the three (3) conditions
provided under RR11-2010 were all complied with. Refer to the next question for the
three (3) requirements to qualify for 15% preferential income tax rate.
Statement 2: The statement is False.

 NRA-NETB is subject to final withholding tax of 25% rather than creditable withholding
tax.
47. Prior to 2018 taxable year, Filipino counterparts of aliens employed by regional or area
headquarters and regional operating headquarters of multinational companies in the Philippines,
which are engaged in international trade with affiliates and subsidiary branch offices in the Asia-
Pacific region may be taxed at 15% preferential tax rate subject to the following rules:
IV. The employee must occupy managerial or technical position and must be exercising such
functions pertaining to said position.
V. The employee must have received or is due to receive under a contract of employment,
a gross taxable compensation income of at least P975,000 (actually/constructively
received).
VI. The employee must be exclusively working for the RHQ or ROHQ as a regular employee
and not just a consultant or contractual personnel.
a. I and II only c. All of the above
b. I and III only d. None of the above
 Answer: C
48. Statement 1: Prior to 2018 taxable year, a change in the compensation income of a
Filipino employee employed by a regional or area headquarters and regional operating
headquarters of multinational companies in the Philippines, as a consequence of which, the
employee subsequently receiving less than the compensation threshold for the calendar year
when the change becomes effective, result in the employee being subject to the regular income
tax rate.
Statement 2: Prior to 2018 taxable year, a special Filipino employee employed by an Offshore
Banking Unit or Petroleum Contractors/Subcontractors receiving gross compensation income
lower than P975,000 for the calendar year shall result in the employee being subject to the
regular income tax rate.
A B C D
 Answer: C
 The three (3) requirements (position test, compensation threshold test and exclusivity
test) to qualify for the fifteen percent (15%) preferential tax rate on compensation
income shall apply only to SFEs employed by a regional or area headquarters or regional
operating headquarters of multinational companies in the Philippines.
 BEGINNING JAN. 1. 2018, SAES AND SFES ARE NOW SUBJECT TO BASIC INCOME TAX ON
THEIR COMPENSATION INCOME. HENCE, FOR INCOME TAXATION PURPOSES, THEY
SHALL NO LONGER BE CLASSIFIED AS SPECIAL EMPLOYEES.
49. For purposes of computing the P975,000 compensation threshold of SFEs employed by
a regional or area headquarters and regional operating headquarters of multinational companies
in the Philippines prior to 2018 taxable year, "gross compensation income” shall include:
IV. Salaries, wages and compensation
V. Annuities and remuneration
VI. Other emoluments such as honoraria and allowances, including income subject to fringe
benefit tax
a. I and II only c. II and III only
b. I and III only d. I, II and III
 Answer: A
 Item Ill" is wrong, it shall exclude FBs subject to FBT
 Under the Tax Code, EXCLUDE the following:
 FBs subject to FBTs
 Retirement benefits (taxable or not)
 Separation pay (taxable or not)
50. Statement 1: An employee occupying “managerial position" is one who is vested with powers
or prerogatives to lay down and execute management policies and/or employees.
Statement 2: "Exclusivity" means just having one employer at a time.
 Answer: C
51. "Technical Position" as described in RMC 41-09 (as amended) are limited only to positions
that are:
III. Highly technical in nature
IV. Where there are no Filipinos who are competent, able and willing to perform
the services for which the aliens are desired.
b. ll only d. Neither I nor II
 Answer: C
52. The 15% preferential tax imposed upon aliens and qualified Filipinos, prior to 2018
taxable year, should be treated as:
A B C D
Final withholding tax, True False True False
Creditable W. Tax True False False True
 Answer: C
53. In 2017, Jaime (resident citizen) is employed by an offshore banking unit holding
managerial position. His compensation income is subject to a preferential tax rate of 15%.
Assume that Jaime likewise earned interest income from a depository bank under the Expanded
Foreign Currency Deposit System in the Philippines, the applicable tax on such income shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. graduated rate
 Answer: A
 Prior to the effectivity of TRAIN Law, "other income" of Special
Filipino Employees (SFEs) shall be taxable in the same manner as resident
citizens.
Use the following data for the next six (6) questions
Hajib, a Russian national who is an employee in the regional area headquarter of a multinational
corporation, occupying “managerial position, had the following data for taxable year 2016:
Monetary value of fringe benefits subject to fringe benefit tax 170,000
Interest income from foreign currency deposit under FCDS 20,000
PCSO winnings (gross) 1,000,000
Gain from sale of shares of a domestic corporation sold directly to a buyer 150,000
Gain from sale of a vacant lot in Quezon City held as investment 500,000
(SP=P1,500,000; Cost=P1,000,000; Zonal Value=P2,500,000)
54. The amount of income subject to a preferential tax rate of 15% should be:
a. P0 c. P750,000
b. P650,000 d. P910,000
 Answer: C
Solution:
Total P750,000
55. The capital gain's tax is:

a. P10,000 b. P160,000
b. P40,000 d. P165,000
 Answer: C
On shares of stock = P100,000 x 5% + (50,000 x 10%) P10,000
On real property = P2.5M x 6% 150,000
TOTAL CGT P160,000
56. The total income tax expense of Hajib in the Philippines is:
a. P535,000 c. P570,000
b. P595,000 d. P315,000
 Answer: B
Solution:
Subject to preferential tax rate = P750,000 x 15% P112,500
Subject to 15% FBT = P170,000/85% x 15% 30,000
CGT (as computed in the preceding number) 160,000
Income subject to 25% FWT:
Dividend income from DC P40,000
Interest income - FCDS Exempt
PCSO winnings 1,000,000
Total 1,170,000
Tax Rate 25% 292,500
 Income Tax Expense = Basic Tax + FWT on Passive Income + CGTS

 De minimis benefits are tax exempt Interest income from bank deposit under FCDS is
exempt.
 Prior to 2018, SAEs are treated as NRAS-NETB with respect to their other income.
Consequently, such interest income is tax exempt.
57. Assuming the taxpayer is a Special Filipino Employee, the amount of income subject to
a preferential tax rate of 15% should be:
a. P0 c. P650,000
b. P600,000 d. P750,000
 Answer: A
 Since the total compensation composed of salaries, allowances/honoraria and one
emoluments is not at least P975,000. The SFE shall be subject to basic income tax under
section 24(A) instead of 15% preferential tax rate.
58. Using the assumption above, the SFE's total combined taxes on all income from the
Philippines is:
a. P380,500 c. P595,000
b. P304,000 d. P410,500
 Answer: D
CGT (as computed in the foregoing number) P160,000
FBT (P170,000/85% x 15%***) 30,000
FWT on Passive incomes:
Dividend income from DC @ 10% P4,000
Interest income from peso bank deposit @ 20% 10,000
Interest income-FCDS @ 7.5% 1,500
PCSO winnings Exempt
Raffle draw winnings @ 20% 16,000 31,500
BASIC INCOME TAX:
Salaries, allowances, honoraria P750,000
Basic Personal exemption (50,000)
Basic Tax under Section 24(A) 189,000
 ***The SFE (as discussed in preceding numbers) is not qualified for the 15% preferential
tax rate. However, the fringe benefits received shall still be subject to 15% FBT because
under RR 11-2010, the option to be subject to 15% preferential tax rate and the
coverage of fringe benefit tax are independent to each other. Thus, as provided in the
aforementioned RR, there would be instances where a Filipino employee shall enjoy 15%
preferential tax rate. But may not be covered by fringe benefit tax for not being a
supervisory/managerial employee. Likewise, there would be instances where such SFE
may not be subject to 15% preferential tax rate due to failure to meet any of the three
(3) tests discussed earlier but may be subject to 15% FBT for being a "managerial"
employee. The taxpayer in this particular case is occupying a managerial position.
59. Assuming the taxpayer is a Special Filipino Employee employed by an Offshore Banking
Unit, the amount of income subject to a preferential tax rate of 15% should be:
a. P0 c. P650,000
b. P600,000 d. P750,000
 Answer: D
Prior to the effectivity of TRAIN Law, if the SFE is employed by an OBU or PC/SC, the
compensation income shall be subject to 15% preferential tax rate. The option to be
taxed at 15% preferential tax rate if the SFE is an employee of ROHQ/RHQ is not
applicable for SFEs employed by OBUs and PCs/SCs.
60. Bryan is a Filipino executive employed by a regional operating headquarters (ROHQ) in the
Philippines, begins his employment on June 1, 2015. His employment contract stipulates that he
shall receive an annual compensation income of P975,000 inclusive of 13th month pay. At the
end of the year, he received P568,750 composed of P525,000 basic pay (P975,000/13 x 7months)
and P43,750 as 13th month pay. Based on the above data, can Bryan choose to be taxed at 15%
preferential rate?
e. Yes, because his employment contract states that he shall receive an
annual compensation income that meets the threshold, whether he actually receives
this or not
f. Yes, because an employee of ROHQ is qualified to be taxed at 15% preferential rate.
g. No, because his total gross compensation income at the end of the year does not meet
the threshold amount.
h. No, Filipinos employed by ROHQs do not have the option to be taxed at 15% preferential
tax rate,
 Answer: C.
61. Leomar, resident citizen, is the Head for Operations of a regional operating
headquarters (ROHQ) in the Philippines. His compensation income during 2018 amounted to
P1,800,000 exclusive of 13th month pay and other bonuses. Can Leomar choose to be taxed at
15% preferential rate?
e. Yes, because he is expected to receive an annual compensation income that exceeds the
threshold
f. b. Yes, because an employee of ROHQ is qualified to be taxed at 15% preferential
rate even during the effectivity of RA No. 10963 (TRAIN Law).
g. No, because his total gross compensation income at the end of the year does not meet
the threshold amount
h. No, the 15% preferential tax rate is no longer applicable beginning January 1, 2018 as
provided for under RA No. 10963, otherwise known as the TRAIN Law.
 Answer: D
62. A Malaysian occupying a managerial position in an Offshore Banking Unit located in

Taguig had the following data for taxable year 2015.
De minimis benefits 5,000
Interest income from deposit substitutes 20,000
Interest income from long-term Philippine Bank Deposit 10,000
Gain from sale of shares of stock of a domestic corporation
held as investment sold outside of the local stock exchange 175,000
The total income tax expense of the taxpayer is:
a. P73,000 c. P63,000
b. P70,500 d. P83,000
 Answer: D
15% Preferential Tax (P170k x 15%) P25,500
25% on other income (P180k x 25%) 45,000
CGT [(100k x 5%) + (75k x 10%)] 12,500
 NRAs-NETB and SAEs are not exempt from tax on their interest income derived from
long-term bank deposit in the Philippines.
63. Assuming the taxpayer is a Special Filipino employee, his total income tax expense is:
a. P56,500 c. P57,000
b. P58,500 d. P83,000
 Answer: C
15% Preferential. Tax (P170k x 15%) P25,500
Final Tax on deposit substitute (P20,000 x 20%) 4,000
Interest income on long-term deposit exempt
CGT(as previously computed) 12,500
 As previously discussed, SFEs employed by OBUs and PCs/SCs shall always be subject to
15% preferential tax rate on their gross compensation income.
64. Abdul, a foreign national employed by a regional area head quarter of a

multinational corporation, occupying managerial position, had the following data for taxable year
2018:
Gain from sale of shares of a domestic corporation sold directly to a 150,000
buyer
Gain from sale of shares of a domestic corporation listed in the local
stock exchange 85,000
The total income tax expense of Abdul in the Philippines is:
a. P127,500 c. P140,510
b. P140,000 d. P152,7500
 Answer: B
Solution:
Basic income tax based on P750,000 P117,500
[P30,0000 + (P350,000 x 25%)]
CGT (P150,000 x 15%) 22,500
 The de minimis benefits (within the ceiling) is tax-exempt

 The sale of shares of domestic corporation listed in the local stock exchange is exempt
from income tax. However, it is subject to a business tax of 6/10 of 1% of gross selling
price.
Jaime (resident citizen) is employed by an offshore banking unit holding managerial position. His
compensation income is subject to a preferential tax rate of 15%.
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: A
 As “income other than compensation", Jaime shall be taxed as a resident
citizen.
66. Assume that Jaime is an alien employee, the applicable tax on his interest income from
FCDS deposit shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: D
 As to his income “other than compensation income", a Special Alien Employee
(for taxable year prior to 2018 shall be taxed as a nonresident alien not engaged
in trade or business .
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: B
Final Taxes on Passive Income derived from Philippine Sources
68. 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 B C D
Statement 2. True False False True
 Answer: C
Statement 2 is False. The liability of the taxpayer for passive incomes subjected to the
withholding taxes is already PO because the taxes withheld already constitute final and
te payment of the applicable tax. Hence, shall not be included anymore in the
determination of "taxable income" of the taxpayer subject to basic income tax
under Section 24A of the tax code. Consequently, such income shall be excluded in the
ITR of the taxpayer.
69.Statement 1: Tax on certain passive income is a capital gains tax

Statement 2: Other income, for income tax purposes, is excluded in the determination of an
individual taxpayer's returnable income.
A B C D
 Answer: B
 Certain passive incomes are subject to final taxes
 Other incomes are returnable (included in the computation of the taxpayers
taxable income subject to graduated tax rate)
70. Which of the following shall not be subject to the 20% final tax beginning January 1, 2018?
e. Amount of interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar
arrangements
f. Winnings other than Philippine Charity Sweepstakes and Lotto winnings,
regardless of amount
g. Philippine Charity Sweepstakes and Lotto winnings exceeding P10,000
h. Prizes amounting to ten thousand pesos (P10,000) or less
 Answer: D
 “D” is subject to basic tax

e. To be subject to final tax, passive income must be from Philippine sources.
f. An income which is subject to final tax is excluded from the computation of
income subject to Section 24 (A) of the tax code.
g. Lotto winnings in foreign countries are exempt from income tax in the
Philippines.
h. None of the above
 Answer: C
 Subject to basic tax if the taxpayer is a resident citizen.

V. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10.000 received by
citizens, residents and non-resident aliens engaged in trade or business are exempt from
income tax.
VI. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 received by
citizens, residents and non-resident aliens engaged in trade or business are subject to
20% final withholding tax.
VII. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10.000 received by
non-resident aliens not engaged in trade or business are exempt from income tax.
VIII. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 receiver by non-
resident aliens not engaged in trade or business are subject to 25% final withholding tax.
a. I only c. I and IV only
b. I and II only d. All of the above
 Answer: A
 "ll" is wrong. PCSO and Lotto winnings are exempt from income tax under
TRAIN Law if the taxpayer is classified as NRANETB.
 “III and IV" are false. NRANETB is subject to 25% regardless of the amount of
PCSO and Lotto winnings.

I. Prizes of not more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are exempt from income tax.
II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or
business are exempt from income tax. IV.
IV. Prizes of more than P10,000 received by non-resident aliens not engaged in trade or
business are subject to 25% final withholding tax.
a. Il only c. II and III only
b. I and II only d. II and IV only
 Answer: A
 "l"is wrong. It is subject to basic income tax.
 “lll and lV" are wrong. Prizes received by NRANETB are subject to 25% FWT
regardless of amount.
 If silent, assume the income is derived from sources within the Philippines.
74. Statement 1: All royalty income derived from sources within the Philippines are subject
to final withholding tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by
resident citizens are subject to basic income tax.
 Answer: C
75. A non-resident alien not engaged in trade or business derived P50.000 interest income I his
long-term bank deposit here in the Philippines. How much is the income tax due said alien?
a. P10,000 c. P5,000
b. P12,500 d. nil
 Answer: B
 FWT = P50,000 x 25% = P12,500.
 Tax exemption on long-term bank deposit or investment is not applicable to NRANETB

a. Interest income on bank deposit or investment with maturity period of at least five
years is exempt from income tax.
b. Interest income on treasury-bond with maturity period of at least five (5) years is
exempt from income tax.
c. The tax exemption on long term bank deposit or investment extends to all types of
taxpayers.
d. All of the above
 Answer: A
“B” is subject to 20% FWT. The exemption is applicable only to long-term bank deposit or
investment “C” is wrong. The exemption is not applicable to NRANETBS
77. Which of the following income of an individual taxpayer is subject to final tax?
a. P10,000 prize in Manila won by a resident citizen.
b. Dividend received by a resident citizen from a resident foreign corporation.
c. Shares in the net income of a general professional partnership received by a resident
citizen.
d. Dividend received by a non-resident alien from a domestic corporation.
 Answer: D
"A" is subject to basic income tax. The amount is not more than P10,000
“B” and “C” are likewise subject to basic income tax
78. Which of the following interest income derived within the Philippines is subject to basic
income tax?
a. Interest income from bank deposits
b. Interest income from loans
c. Interest income from deposit substitutes
d. Interest income from trust funds
 Answer: B
 A, C and D are subject to 20% FWT
79. Statement 1: "Deposit Substitutes", as defined in Section 22(Y) of the NIRC of 1997. amended
means an alternative form of obtaining funds from the public other than deposits through the
issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for
the purpose of re-lending or purchasing of receivables and other obligations, or financing their
own needs or the needs of their agent or dealer.
Statement 2: "Public", is defined as borrowing from twenty (20) or more individual or corporate
lenders at any one time.
A B C D
Statement 1 True True True False
Statement 2. True True False False
 Answer: A
80. Statement 1: Any income of nonresident individual taxpayers from transactions

with depository banks under the expanded foreign currency deposit system shall be exempt from
income tax.
Statement 2: Any income of nonresident individual taxpayers from transactions with offshore
banking units shall be exempt from income tax.
 Answer: C
81. Which of the following interest income by a resident taxpayer is subject to 15%?
a. Interest income from peso bank deposits
b. Interest income from deposit substitutes
c. Interest income trust funds
d. Interest income on dollar deposits
 Answer: D
The tax rate prior to 2018 was 7 12%
82. Which of the following statements is true?

a. The final tax on compensation income of special aliens is 25% of the gross income.
b. Interest income from a foreign currency depository unit in the Philippines of a non
resident alien is not subject to final tax
c. Prizes exceeding P10,000 derived by non-resident alien not engaged in trade of
business here in the Philippines is subject to a final tax of 20%
d. Share in earnings received by non-resident alien from a domestic partnership is
subject to basic tax.
 Answer: B
The 15% FWT on interest income derived from a foreign currency bank deposit under
FCDS or FCDU (previously 7 22%) is applicable only to "resident" taxpayer "nonresident”
taxpayers are exempt from such tax.
83. If an account in a depository bank under the foreign currency deposit system is jommy" name
of a nonresident citizen such as an overseas contract worker, or a Filipino seaman, and his spouse
or dependent who is a resident of the Philippines, the interest on such deposit shall be (assume
2018 taxable year):
a. Exempted in its entirety.
b. Subject to final withholding tax of 15% in its entirety.
c. 50% exempt and 50% subject to final withholding tax of 15%.
d. Subject to regular income tax rates for individuals.
 Answer: C
Interest income on foreign currency deposits under FCDS/FCDU is subject to 15% FW.
beginning January 1, 2018 under TRAIN Law (previously 7 12%) except if the depositor is
a nonresident as discussed in the preceding number. Since the deposit in this particular
case is "jointly” in the name of a resident and a nonresident, only 50% of the income
shall be taxable.
84. A non-resident alien derived interest income only in his bank deposit here in the Philippines
under the FCDU system of a domestic bank. The interest amounted to $500. How much is the
income tax due of the said alien? ($1=Php50)
a. P0 c. P8,000
b. P3,000 d. P10,000
 Answer: A
85. A taxpayer received during the taxable year the following passive income derived from
within the Philippines:
Interest on bank deposit under FCDU (net) P231,250
Royalty on a software application (gross) 95,000
Dividend income RFC (gross) 150,000
If taxpayer is a non-resident alien engaged in business, the final tax on the above passive income
would amount to
a. P52,750 c. P28,250
b. P19,000 d. P37,750
 Answer: B
Solution:
FCDU Exempt
Royalty (P95 x 20%) 19,000FWT
DI from FC Subject to basic tax
86. Which of the following passive income is exempt from tax when received by resident or
citizen and nonresident 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 evidenced by certificates
prescribed by Bangko Sentral ng Pilipinas
c. Yield or any other monetary benefit from trust funds and similar arrangements
d. Other winnings
 Answer: B
Interest income derived from long-term bank deposit or investment in the Philippines is
exempt from income tax. Nonetheless, such exemption is not applicable to NRAS-NETB
and SAEs.
87. Which of the following statements about interest income from long-term deposit is false?
a. Interest income from long-term deposit or investment is exempt from income tax.
b. If a long-term deposit or investment is pre-terminated, the applicable tax rate on the
interest income is 0% if the holding period is 5 years or more.
c. If a long-term deposit is pre-terminated, the applicable tax rate on the interest
income is 0% if the holding period is 4 years to less than 5 years.
d. If a long-term deposit is pre-terminated, the applicable tax rate on the interest
income is 12% if the holding period is 3 years to less than 4 years.
 Answer: C
88. An instrument with a maturity period of ten (10) years was held by juan (resident citizen)
for two (2) years and was transferred to Smith (resident alien), who, in turn, held it for eight (8)
years. The final withholding tax should be as follows:
A B C D
Juan - 12% final tax True True True False
Smith – exempt True False False True
 Answer: A
89. An instrument with a maturity period of ten (10) years was held by Juan (nonresident, went
citizen) for three (3) years and transferred it to Smith, a resident alien. Smith held it for two (2)
years before subsequently transferring it to Pedro (resident citicen who held it until the day of
maturity or for a period of five (5) years. The final withholding tax should be as follows:
A B C D
Juan - 12% final tax True True True True
Smith - 20% final tax True True False False
Pedro - exempt True False False True
 Answer: A
90. An instrument with a maturity period of ten (10) years was held by Smith (nonresident
alien engage in trade or business) for three (3) years and transferred it to Juan, a resident citizen.
Juan held it for two (2) years before subsequently transferring it to James (resident alien) who
pre-terminated it after four (4) years. The final withholding tax are as follows:
A B C D
Smith – 12% final tax True True True True
Juan - 20% final tax True True False False
James - exempt True False False True
 Answer: B
91. Mr. X, a resident citizen, appoints Bank A-Trust Department to manage his money created
through a trust agreement. Bank A Trust Department then invests said money in a long term
investment (10-year corporate bond) of XYZ Corporation under the account name “Bank A - Trust
Department". Mr.X did not withdraw his money from such trust agreement for at least five (5)
years. The interest of Mr. X from the corresponding trust agreement is.
a. Exempt from income tax
b. Subject to 15% preferential tax rate
c. Subject to 20% final tax
d. Subject to basic income tax
 Answer: C
The long-term deposits or investment certificates should be under the name of an
individual and not under the name of a corporation or a bank or a trust department unit
of a bank.
92. On January 1, 2016, Pedro purchased at face value 1,000 P1,000 face value bonds of San
Miguel Corporation, a domestic corporation. The bonds were dated January 1, 2016 and mature
on January 1, 2028. The bonds pay 10% annual interest every December 31. Pedro sold the
investment directly to Juan on December 31, 2018 at 102. Which of the following statements is
true?
a. The interest income from the investment is subject to a final withholding tax of 5%
b. The interest income from the investment is subject to a final withholding tax of 12%
c. The gain on sale is subject to a final withholding tax rate of 20%
d. The gain on sale is subject to basic income tax
 Answer: D
 The interest income is subject to 20% FWT (deposit substitute)
 Gain on sale is subject to basic tax, unless qualified for exemption (sale of long-
term debt securities with maturity period of more than five years). Since the
investment was sold within two (2) years from purchase, any gain on sale is
taxable.
93. On January 1 2014. Lorna invested P1,000,000 to BDO's 5-year, tax-free time deposit. The
long-term deposit pays 10% annual interest every January 1. In need of cash, Lorna pre
terminated her investment on July 1, 2017. How much is the final tax due?
a. P6,000 c. P17,500
b. P12,000 d. P42,000
 Answer: D
 FWT = P1M X. 10% x 3.5 years x 12% tax rate on pre-termination = P42,000
In case of pre-termination of the long-term

deposit or investment, depending
on the holding period: Exempt Exempt 25%
 5 years or more 5% 5% 25%
 Less than 3 years
94. Assuming the same information in the problem above, except that the investment was
made by a domestic corporation, how much final tax is withheld in the year of pre-termination?
a. P2,500 c. P10,000
b. P6,000 d. P12,000
 Answer: C
 FWT = P1M x 10% x.5 year x 20% = P10,000
 The investment is not under the name of an individual taxpayer, hence, not
subject to tax rules on pre-termination.
95. Which of the following royalties earned within the Philippines is not subject to 10%
final withholding tax?
a. Royalties from computer software
b. Royalties from books
c. Royalties from literary works
d. Royalties from musical compositions
 Answer: A
96. Which of the following statements is not correct?
a. Interest income from long term deposit is exempt from income tax.
b.Winnings from Philippine Charity Sweepstakes prior to 2018 taxable year are
exempt from income tax.
c. Royalties on books, literary works and musical compositions are subject to 10% non
creditable withholding tax.
d. A prize of P10,000 is subject to 20% final tax.
 Answer: D
 The amount is not more than P10,000, hence, subject to basic income tax.
 Royalty income is subject to final tax, hence, non-creditable.
97. Lebron James received royalty fee from Viva Records Corporation, a domestic corpora for his
musical compositions under the album "Whatever it Takes". James is an Amell composer and has
never set foot in the Philippines.
The royalty fee shall be subject to:

a. 15% FWT c. 25% FWT
b. 20% FWT d. 5%-32% graduated tax rate
 Answer: C James is classified as NRA-NETB in the Philippines.
98. If the amount of prize received did not exceed P10.000, what type of income tax will apply?
a. Final withholding tax on passive income
b. Capital gains tax
c. Basic income tax
d. Fringe benefit tax
 Answer: C
99. If the amount of prize in the preceding number was received by a non-resident alien
not engaged in trade or business, what type of income tax will apply?
a. Final withholding tax
c. Basic income tax
 Answer: A
100. The following winnings are exempt from income tax prior to the effectivity of RA No.
10963 (TRAIN Law), except?
a. Lotto winnings
b. Winnings from PCSO
c. Winnings from raffle of a private company
 Answer: C
101. If the amount of PCSO/Philippine lotto winnings received by a resident citizen in 2018
did not exceed P10,000, what type of income tax will apply?
c. Basic income tax
d. Exempt
 Answer: D
Exempt from income tax
102. If the amount of PCSO/Philippine lotto winnings received by a nonresident alien not engaged
in trade or business did not exceed P10,000, what type of income tax will apply?
C. Basic income tax
d. Exempt
 Answer: A
If the recipient is NRANET, it shall be subject to 25% FWT regardless of the amount of the
winnings.
103. If the amount of PCSO/Philippine lotto winnings received by a resident citizen and
resident alien in 2018 is more than P10,000 , what type of income tax will apply?
c. Basic income tax
d. Exempt
 Answer: A; 20%FWT
104. If the PCSO/Lotto winning in the preceding number was received by a non-resident
alien engaged in trade or business, what type of income tax liability will apply?
c. Basic income tax
d. Exempt
 Answer: D; the provision on PCSO/Lotto winnings received by NRA-ETB was not

amended under the TRAIN Law.
105. The following taxpayers who received a dividend income from a domestic corporation
will received net of 10% final withholding tax, except:
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Non-resident alien engaged in trade or business
 Answer: D
RECEIVED BY
RC NRC RA NRAET NRANET
Cash and/or Property Dividend from
 Domestic Corporation 10% FWT 20% FWT 25% FWT
 From Foreign Corp. (RFC, NRFC) Basic Tax Basic Tax 25% FWT
Stock dividend/ Liquidating Dividend from
 Domestic Corporation Generally non-taxable
 From Foreign Corp. (RFC, NRFC)
106. Which of the following cash and/or property dividends actually or constructively received by
an individual shall not be subject to final tax but to regular income tax for individuals?
a. Cash and/or property dividends from a domestic corporation or from a joint
stock company
b. Cash and/or property dividends from insurance or mutual fund companies
c. Cash and/or property dividends from regional operating headquarters o
companies operating headquarters of multinational companies
d.Cash and/or property dividends from a nonresident foreign corporation
 Answer: D
 A Subject to basic tax (refer to table above)
107. Which of the following income of a non-resident citizen will be taxed differently if
the taxpayer is non-resident alien engage in trade or business?
a. Interest income
b. Royalties
c. Dividends
d. Prizes
 Answer: C
108. Which of the following income will be taxed in the same manner regardless of
the classification of the taxpayer?
a. Capital gain on sale of land and/or building
b. Capital gain on sale of shares of stock of a domestic corporation
c. Ordinary gain on sale of land and/or building
d. Ordinary gain on sale of shares of stock of a domestic corporation
 Answer: B
Situs of Dividend Income

Sandara, a nonresident Korean stockholder, received a dividend income of P300,000 in 2018 from
Super Bowl Corporation, a foreign corporation doing business in the Philippines. The gross
income of the foreign corporation from sources within and without the Philippines for the past
three years preceding 2018 is provided as follows:
Source 2015 2016 2017
Philippines P16,000,000 P15,000,000 P17,000,000
Abroad 8,000,000 11,000,000 13,000,000
109. The amount of income subject to tax should be:

a. P0 c. P180,000
b. P120.000 d. P300,000
 Answer: C
 Dividend income is a passive income, not a business income. Hence. Sandara is
a nonresident alien not engaged in trade or business. She is taxable on "gross"
income derived from Philippine sources.
SITUS of Dividend Income .

 IF from DC = income within (in all cases)
 IF from Foreign Corp = GR: income without
However, if the ratio of gross income from Philippine sources over world income for the past
three (3) years is available, the following rules shall apply:
 Ratio is less than 50% = treated as derived purely from without the Philippines
 Ratio is at least 50% = treated as derived partly from within and without the Philippines.
 In the problem provided, the ratio of gross income from within the Philippines
over world income for the past three (3) years of the foreign corporation is 60%
computed as follows: Ratio of GL Phls./GI world = P48,000/80,000 = 60%
Therefore, income derived from within the Philippines = P300,000 x 60% =
P180,000
110. Sandara is subject to:

a. Basic income tax on P180,000
b. Basic income tax on gross income of P300,000
c. Final withholding tax of 25% on P180,000
d. Final withholding tax of 25% on gross income of P300,000
 Answer: C
 A nonresident alien not engaged in trade or business in the Philippines is
subject to 25% final withholding tax based on gross income.
111. Assuming Super Bowl is a domestic corporation, the amount of income subject to tax
should be:
a. P0 c. P180,000
b. P120,000 d. P300,000
 Answer: D
 Dividend income received from a domestic corporation is considered income
derived purely from Philippine sources.
112. Sandara, a nonresident citizen, received a dividend income of P300.000 in 2018 from
Super Bowl Corporation, a foreign corporation doing business in the Philippines. The gross
income of the foreign corporation from sources within and without the Philippines for the past
three years preceding 2018 is provided as follows:
Source 2015 2016 2017
Philippines P14,000,000 P10,000,000 P12,000,000
Abroad 10,000,000 16,000,000 18,000,000
113. The amount of income subject to tax should be:

a. P0 c. P165,000
b. P135,000 d. P300,000
 Answer: A
 The taxpayer is a nonresident citizen hence, taxable only on income derived
from Philippine sources.
 The ratio of gross income from within the Philippines over world income for the
past three (3) years of the foreign corporation is 45% (ratio = P36,000/80,000),
If the ratio is at less than 50%, the dividend income shall be treated as derived
purely from sources without the Philippines,
Share in the Net Income of a Partnership and Joint Venture

114. Share in the net distributable income of a general co-partnership by a resident citizen
is subject to:
a. 10% final withholding tax
b. 20% final withholding tax
c. 6% capital gains tax
d. Basic income tax
 Answer: A
 General partnerships or commercial/trading partnerships are treated as
corporate taxpayers for tax purposes. Therefore, share in income from such
partnerships shall be treated as dividend income.
115. Share in the net distributable income of a general professional partnership by a
resident citizen is subject to:
a. 10% final withholding tax
b. 20% final withholding tax
c. 6% capital gains tax
d. Basic income tax
 Answer: D
 General “professional" partnerships are tax exempt and not treated as
“corporate" taxpayers for tax purposes. Therefore, share in income from such
partnerships shall be not treated as dividend income.
116. If a non-resident citizen received his share in the income of a taxable joint venture,
what type of income tax that will apply on the said income?
c. Basic income tax
 Answer: A
 A The share in income from a taxable joint venture is treated as
dividend income.
117. Based on the preceding number, except that the joint venture is exempt from income
tax. what type of income tax will apply on the said income?
c. Basic income tax
 Answer: "C"
 The share in income from a tax-exempt joint venture is not treated as dividend
income
 TWO (2) types of tax exempt joint ventures:
 Joint venture formed for the purpose of undertaking construction projects pursuant to
Presidential Decree (PD) No. 929 (dated 4 May 1976) to assist local contractors in
achieving competitiveness with foreign contractors by pooling their resources in
undertaking big construction projects.
 Joint venture or consortium for engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium agreement under a service
contract with the government.
118. LJ and Fermin formed a joint venture. They agreed to share profit or loss in the ratio of
70% and 30%, respectively. The results of operations for 2017 taxable year were provided below:
Joint Venture LJ Fermin
Gross income P5,000,000 3,000,000 2,000,000
Business expenses 3,000,000 2,000,000 1,000,000
The total income tax expense of LJ in 2017 is:

a. P0 c. P269,000
b. P367,000 d. P582,600
 Answer: B
Joint Venture LJ Fermin
Gross income 5,000,000 3,000,000 2,000,000
Business Expense (3,000,000) (2,000,000) (1,500,000)
Basic Personal exemption – (50,000) (50,000)
Taxable Net income P2,000,000 P950,000 P450,000
Tax rate/ tax table 30%
• Corporate Income Tax P60,000
• Basic Tax using the Old Tax Table P268,000 P110,000
Distributable income (P2M-.6M) = P1.4M

Final tax @10% on share in income of JV
LJ = P1.4M x 70% x 10% 98,000
Fermin = P1.4M X 30% x 10% 42,000
Total income tax expense P600,000 P367,000 P152,000
119. Assume the joint venture is nontaxable, the total income tax expense of LJ is
a. PO c. P301,000
b. P367,000 d. P717,000
 Answer: D
Solution:
Joint LJ Fermin
Venture
Gross income P5,000,000 P3,000,000 P2,000,000
Business expenses (3,000,000) (2,000,000) (5,000,000)
Net Income P1,000,000 P1,000,000 P500,000
P2,000,000
Distributable income P2,000,000
Share in income
LJ = P2M x 70% 1,400,000
Patricia = P2M x 30% 600,000
Basic Personal Exemption (50,000) (50,000)
Taxable income P2,350,000 P1,050,00
Income Tax Expense (OLD Tax Table) P717,000 301,000
Capital Gains Tax
120. Which of the following sale transactions will be subject to capital gains tax?
a. Sale of shares of stock by a dealer in securities
b. Sale of shares of stock during an Initial Public Offering
c. Sale of shares of stock not through the local stock exchange by a person who is not
a dealer in securities
d. Sale of shares of stock through the local stock exchange by a person who is not
a dealer in securities
 Answer: C
Use the following data for the next four (4) questions:
Bryan sold the following shares of stock of domestic corporations which he bought for investment
purposes:
Listed and Traded Not Listed and Traded
Selling price 250,000 143,680
Selling expense 12,000 3,680
Cost 118,000 80,000
121. Determine the capital gains tax assuming the sale was made in 2017 (before effectivity
of TRAIN Law) and 2018 (upon effectivity of TRAIN Law)
2017 2018
a. P3,000 P9,000
b. 3,184 9,552
c. 3,184 9,000
d. 3,000 9,552
Answer: A
2017:
 CGT = 5% on 1st P100,000 gain; 10% in excess of P100,000 gain
 CGain = P143,680 - 3,680 - 80,000 = P60,000
 CGT = P60,000 x 5% = P3,000
2018 (TRAIN Law):

 CGT = 15% of capital gain
 CGT = P60,000 x 15% = P9,000
122. Bryan's total income tax expense for 2017 and 2018 is:
2017 2018
a. P3,000 P9,000
b. 4,250 30,552
c. 3,0552 9,000
d. 9,000 4,250
 Answer: A
 Income tax expense = Basic income tax + FWT on passive income + CGT.
 The sale of listed shares is not subject to income tax, but to stock transaction
tax of 12 of 1% of GSP prior to 2018 6/10 of 1% of GSP beginning Jan. 1, 2018
(TRAIN Law)
123. Assume Bryan is a dealer in securities, the capital gains tax in 2017 and 2018 is
2017 2018
a. P3,000 P9,000
b. 9,000 3,000
c. 0 9,000
d. 0 0
 Answer: D
 If the seller is a dealer in securities, the shares involved are assumed to be for
sale in the ordinary course, hence, the sale is subject to vat and the income on
both cases (listed or not) is subject to basic income tax. Likewise, the sale is not
subject to capital gains tax nor to stock transaction tax of 1/6 of 1% (as
amended) of gross selling price.
124. Assume the shares sold are shares issued by foreign corporations, the capital gains tax
in 2017 and 2018 is:
a. 2018
a. P3,000 P9,000
b. 9,000 3,000
c. 0 9,000
d. 0 0
 Answer: D
 Sale of shares of foreign corporations is subject to basic income tax.
Next three (3) questions are based on the following data:

Alex, a resident citizen, disposed the following shares of stock of a domestic corporation
whose ores are not listed and traded in the local stock exchange:
Date of Sale Cost Selling Price
Jan. 15, 2017 P80,000 135,000
Feb. 14, 2017 175,000 150,000
March 30, 2017 256,000 360,000
125. The capital gains tax on the Jan. 15, 2017 sale is -
a. P675 c. P2,750
b. P1,375 d. P55,000
 Answer: C
 Capital gain = P135,000 – 80,000 = P55,000
 CGT = P55,000 x 5% = P2,750
126. The capital gains tax on the Feb. 14, 2017 sale is -
a.P0 c. P3,000
b. P1,500 d. P4,500
 Answer: A; The transaction resulted to a capital loss of P25,000.
127. The capital gains tax on the March 30, 2017 sale is -
a. P0 c. P5,400
b. P5,200 d. P10,400
 Answer: C
 Capital gain = P360,000 - 256,000 = P104,000
 CGT = (P100,000 x 5%) + (P4,000 x 10%) = P5,400
128. The capital tax payable(refundable) when the consolidated return is filed on or before
April 15, 2017
a. PO c. P8,150
b. P250 d. P8,400
 Answer: B
 Consolidated Capital gain = P134000
 CGT on consolidated capital gains = [(P100k x 5%) + (34,000 x 10%)] = P8.400
 CGT Payable = P8,400 – payments of P2,750 and P5,400 = P250
 Filing of Tax Return for CGT on Shares of stock: Ordinary Return - 30 days after
each transaction Final Consolidated Return - on or before April 15 of the
following year
129. Statement 1: Tax CGT on sale of real properties shall be paid within 30 days from sale or
disposition,
Statement 2: The CGT on the unutilized portion of the proceeds in case of sale of a property
classified as a principal residence shall be paid within 30 days after the expiration of the eighteen
(18) month period.
A B C D
 Answer: A
130. Which of the following transactions is subject to 6% capital gains tax:
a. Sale of condominium units by a real estate dealer
b. Sale of real property utilized for office use
c. Sale of apartment houses
d. Sale of vacant lot by an employee
 Answer: D
 The real properties in “A”, “B” and “C” are ordinary assets, hence, subject to
value added tax and the income derived is subject to basic income tax.
 Only real properties classified as capital assets located in the Philippines are
subject to CGTs on real properties.
131. Statement 1: The determination of 6% capital gains tax on sale of real property is based on
net capital gains realized by the seller of real property.
Statement 2: Except for certain passive income, a nonresident alien not engaged in trade or
business shall be taxed at 25% of his gross income derived from sources within the Philippines
 Answer: B
 A Statement 1 is false. The basis of 6% capital gains tax is the higher between
the selling price and fair market value (FMV). FMV shall refer to the higher
between the fair market value as determined by the city or provincial assessors
(assessed value) and the zonal value as determined by the BIR.
132. Mike, a resident citizen taxpayer owns a property converted into apartment units with
a monthly rental of P10,000 per unit. He subsequently sold the property to Leomar, a resident
alien taxpayer. The sale shall be subject to:
a. 6% Capital gains tax
b. Basic income tax
c. 6% capital gains tax or basic income tax at the option of Mike
d. 6% capital gains tax or basic income tax at the option of Leomar
 Answer: B The property sold is classified as ordinary asset.

133. Statement 1: Proceeds of sale of real property classified as capital asset may be exempt from
the 6% capital gains tax.
Statement 2: Gain from sale of real property real property classified as capital asset to the
Government may be taxed under Section 24 (A) at the option of the individual taxpayer.
 Answer: C
 If the real property sold is a "principal residence" and the requirements 10
exemption were all complied with, such sale is exempt from CGT.
134. Vincent sold a residential house and lot held for P10.000.000 to his friend. Its FMV when he
inherited it from his father was P12,000,000 although its present FMV is P15,000,000. The tax on
the above transaction is:
a. P720,000 capital gains tax
b. P900,000 capital gains tax
c. 30% donor's tax
d. d. Value added tax
 Answer: B
 CGT = P15M x 6% = P900,000
 Although GSP is substantially lower than its FMV, the excess of FMV over SP is
not considered part of Gross Gift for donor's tax purposes (relate to donor's
tax–rules on insufficient consideration).

135. Assuming the house and lot was Vincent's principal residence and he used 12 of
the proceeds to buy a new principal residence within eighteen (18) months after the above sale.
Assume further that Vincent properly informed the BIR about the sale. It shall be:
a. Exempt from capital gains tax
b. Subject to P300,000 capital gains tax
c. Subject to R450,000 capital gains tax
d. Subject to P600,000 capital gains tax
 Answer: C
Solution:
CGT = Unutilized Proceeds

Selling Price x(Highest among SP, FMV and)x 6%
CGT = P10M X 12/P10M x P15,000,000 x 6%

CGT = P450,000
136. Based on the above problem, but assuming the residential house is located abroad,
the capital gains tax is:
a. P0 c. P450,000
b. P300,000 d. P480,000
 Answer: A Sale of RP abroad = Subject to basic income tax
137. Gain from sale of real property classified as capital asset located abroad by a resident citizen
is subject to
A B C D
6% capital gains tax True False True False
Section 24A of the tax code True False False True
 Answer: D
Personal Exemptions, Premium Payment on Health/Hospitalization insurance NOTE: THESE ARE

NO LONGER DEDUCTIBLE FROM GROSS INCOME BEGINNING JAN. 1, 2018.
138. An exemption allowed to a taxpayer who has qualified legitimate, illegitimate or

legally adopted children (Prior to 2018).
a. Additional personal exemption.
b. Special additional personal exemption.
c. Optional standard deduction.
d. Basic personal exemption.
 Answer: A
139. Under the Tax Code, who of the spouse is the proper claimant of the additional
exemption with respect to any of the dependent children?
a. The husband if his income is higher than the income of the wife.
b. The spouse who has the bigger income.
c. The husband.
d. The wife if her income is higher than the income of the husband.
 Answer: C
140. During 2017, a married taxpayer from Isabela province supports the following:
 Juan, legitimate child who turned 21 years old during the taxable year.
 Ana (recognized natural child), 18 years old, student of Excellent College in Manila. Ana
stayed most of the time during the year in Manila.
 Fe (illegitimate child), 20 years old, who got married during the year.
 BJ, a qualified foster child
 JJ, stepchild, son of Pedro's wife by a former marriage, 15 years old.
 Marta, widowed mother of his wife, 62 years old.
For income tax purposes, the taxpayer can claim:
Basic exemption Additional exemption
a. P50,000 P100,000
b. P50,000 P75,000
c. P50,000 P50,000
d. P50,000 P0
 Answer: A
 If the spouse or any of the dependents dies or if any of such dependents marries,
becomes twenty-one (21) years old or becomes gainfully employed during the taxable
you!" cialm the same exemptions as if the spouse or any of the dependents died,
married, became twenty-one (21) years old or became gainfully employed alle close of
such year.
 A foster, under RA 10165 (An Act to Strengthen and Propagate Foster Care) shall be
allowed to claim a foster child as qualified dependent subject to the following
conditions.
 The total number of qualified dependents, including a foster child and PWD, as the case
may be, for additional exemption purposes shall not exceed tour (4).
 The period of foster care is a continuous period of at least one (1) taxable year.
 Only one foster parent can treat the foster child as a dependent for a particular taxable
year.
The following terms for tax purposes were defined under the Foster Child Act as follows:
 “Child” refers to a person below eighteen (18) years of age, or one who is over
eighteen (18) but is unable to fully take care of or protect oneself from abuse, neglect,
cruelty, exploitation or discrimination because of a physical or mental disability or
condition.
 “Foster Care” refers to the provision of planned temporary substitute parental care to a
child by a foster parent. "Foster Child” refers to a child placed under foster care.
 “Foster Parent” refers to a person, duly licensed by the DSWD, to provide foster care
141. Pedro, single has the following dependents who live with him in 2016:
 Eddie, brother, 30 years old, mentally impaired
 Leah, sister, 16 years old, college student
 Faith, legally adopted child, gainfully employed.
 Robert, not related to the taxpayer, 70 years old, qualified senior citizen.
For income tax purposes, Pedro can claim in 2016:
a. 250,000 Zero
b. P50,000 P25,000
c. P50,000 250,000
d. P50,000 275,000
 Answer: A Eddie, his brother (within 4th civil degree of consanguinity) is a PWD under
RA 10754. hence, Pedro is entitled to additional exemption of P25,000.
Persons with Disability as defined under the Implementing Rules and Regulation 10754,
otherwise known as “An Act Expanding the Benefits and Privileges of Person Disability (PWD)",
are those who have long-term physical, mental, intellectus sensory impairments which in
interaction with various barriers may hinder their fu effective participation in society on an equal
basis with others. For purposes of these Rul and Regulations, persons with disability shall be
classified by the Department of He (DOH) through an issuance.
A benefactor of a senior citizen is entitled to a basic personal exemption of P50.000 wh is the

allowed basic personal exemption of all qualified individual taxpayers required to income tax
returns as provided under RA 9504. However, a senior citizen who is gainfully employed, living
with and dependent upon his benefactor for chief support will not entitle the benefactor to claim
additional personal exemption of P25,000.
142. Using the same data in the immediately preceding number except that the taxable year
is 2018, Pedro can claim:
a. Zero Zero
b. P50,000 P25,000
c. P50,000 P50,000
d. P50,000 P75,000
 Answer: A
143. Juan, a widower, supports the following dependents living with him:
 Martha, mother of his deceased wife, 68 years old, unemployed
 BJ, legitimate child of his wife from her first husband, 20 years old
 Ana, legitimate child, 18 years old
 Lorna, newly born child
 Loreto, brother, 24 years old, physically defective, gainfully employed
 Fe, nephew, 2 years old with hearing disability, illegitimate son of his deceased sister
 Magda, 26 years old sister, widow, with speech impairment, unemployed
 Gloria, legitimate daughter of his widowed sister, 3 years old
 Clifford, a 5 year old foster child During 2016, Ana got married and Magda became
gainfully employed
What is Juan's personal exemptions for taxable year 2016 and 2017?
2016 2017
a. P150,000 P150,000
b. P150.000 P125,000
c. P125,000 P125,000
d. P125,000 P100,000
 Answer: B
Qualified Dependents for 2016:
 Juan has 5 qualified dependents (Ana, Lorna, Fe, Magda and Clifford) but can
claim a maximum of 4 for the taxable year. Juan may still claim additional exempt on
Ana and Magda during 2016 because for personal exemption purposes, 1 18 assumed
that Ana got married as of the close of 2016 and as if Magda became gainfully employed
only as of the close of 2016.
 BJ is a qualified dependent only if Juan legally adopts him
 Martha is a senior citizen within 4th civil degree by affinity but not a PWD
 Loreto is a relative within 4th civil degree by consanguinity and a PWD, but gainfully
employed
Qualified Dependents for 2017:
 Juan has 3 qualified dependents (Lorna, Fe and Clifford)
 Ana and Magda are no longer qualified dependents for 2017 taxable year.
144. For taxable periods prior to 2018, one of the following is not qualified as dependent
for income tax purposes:
a. illegitimate child, 16 years old, living in the United States due to his studies.
b. Senior citizen, mother of the taxpayer, with a yearly income of P60,000, living with and
taken cared of by the taxpayer.
c. Legitimate child, 21 years old, with a monthly income of P2,000, living with the taxpayer
d. Brother, 30 years old, incapable of self support because of physical disability or being a
PWD.
 Answer: D The PWD (brother) is two civil degrees away from the taxpayer. The
requirement is within fourth civil degree by consanguinity or affinity .
145. During 2017, James Jones (an American, resident of California, USA) has P100,000 dividend
income from a domestic corporation in the Philippines. If he is married and his country's tax law
is allowing P30,000 tax exemption for Filipino businessmen doing business in his country, his
income earned in the Philippines is allowed in 2017 with this personal exemption of:
a. P30,000 c. 32,000
b. P50,000 d. P0
 Answer: D
146. An individual taxpayer, whose personal exemption allowed is the lower amount
provided between the Philippine Tax Code and his country's tax code (assume taxable year is
prior to 2018)
Citizenship Residency Business income
a. Filipino Within No
b. Filipino Outside Yes
c. Alien Within No
d. Alien Outside Yes
 Answer: D
147. Prior to 2018 taxable year, which of the following taxpayers is subject to the rule
on reciprocity under the Tax Code with respect to their allowed personal exemption?
a. Nonresident citizen with respect to his income derived from outside the Philippines
b. Nonresident alien who shall come to the Philippines and stay herein for an aggregate
period of more than 180 days during any calendar year.
c. Resident alien deriving income from a foreign country.
d. Nonresident alien not engaged in trade or business in the Philippines whose
country allows personal exemption to Filipinos who are not residing but are deriving income from
said country
 Answer: B
148. Prior to 2018 taxable year, a nonresident alien deriving income from Philippine sources
claims that he is entitled to personal exemptions. Which of the following is not a condition for the
allowance of personal exemptions to said taxpayer?
a. That he has stayed in the Philippines for an aggregate period of more than 180 days.
b. That his country has an income tax law that allows personal exemptions to
Filipinos not residing therein.
e. That he has filed a true and accurate return of his total income from all sources
within the Philippines. d. That he is married to a Filipina.
 Answer: D
149. The taxpayer is a married nonresident alien engaged in business in the Philippines with two
(2) qualified dependent children. His country gives a nonresident Filipino with income there from
a basic personal exemption of P25,000 & P12,500 additional personal exemptions for each
qualified dependent child. He is entitled to total personal exemptions in 2017 of:
a. P50,000 c. P75,000
b. P100,000 d. nil
 Answer: A
Total Personal exemption = Basic P25,000 and additional of P12,500 x 2 = P50,000
150. The following may claim personal exemption prior to 2018, except:
a. Nonresident alien not engaged in trade or business.
c.Resident alien.
d. Citizens.
 Answer: A
151. An overseas contract worker is allowed an additional exemption prior to 2018:
a.When he has no income from Philippines sources, and he has not waived his right
over the additional exemption for his dependent children.
b. When he has dependent children in the Philippines whom he provides chief
support with on a regular basis from his income wholly earned outside the Philippines.
c. When he and his wife have income from common property situated in the Philippines
that provides chief support to his minor dependents.
d.Only when his qualified minor dependent children actually live with him abroad.
 Answer: C
152. Armando, a resident citizen, is employed as a manager of a Regional Operating Headquarters
of a multinational company in the Philippines. His annual taxable compensation income in 2016 is
P1,000,000 He is married but estranged from his wife. He has, living with him and fully
dependent for support, his five (5) minor children, who are all unmarried and not gainfully
employed. What amount could Armando claim as his additional exemptions assuming he opted
to be taxed at 15% of his gross income?
a. P150,000 c. P50,000
b. P100,000 d. P0
 Answer: D
If he opted to be taxed at a preferential tax rate of 15% (a final withholding tax), he is no
longer entitled to personal exemptions.
153. Using the same data in the immediately preceding number but assuming he opted to
be taxed using the graduated tax rate, what amount could he claim as his total personal
exemptions?
a. P150,000 c. P50,000
b. P100,000 d. P0
 Answer: A
If he opted to be taxed using the graduated tax rate, he is entitled to personal
exemptions.
154. 1st Statement: If a taxpayer marries or has dependents during the year, or dies during
the year, or his spouse dies during the year, he/his estate may claim personal exemption (prior to
2018) in full for such year.
2nd Statement: If a dependent child dies within the year, or becomes twenty-one years old within
the year, the taxpayer may still claim additional exemption (prior to 2018).
A B C D
Basic personal exemption True True False False
Additional personal exemption True False True False
 Answer: A
155. Pedro, single, is a benefactor of a senior citizen, a 'relative within 4th civil degree
of consanguinity. Pedro is entitled to (taxable year – prior to 2018):
A B C D
Basic personal exemption Yes Yes No No
Additional personal exemption Yes No Yes No
 Answer: B
156. Ana, 35 year-old PWD is living with and dependent upon Pedro, her uncle. Ana is
the daughter of Pedro's first cousin. Pedro is entitled to (taxable year - prior to 2018):
A B C D
Basic personal exemption Yes Yes No No Additional
personal exemption Yes No Yes No
 Answer: B
Ana is five civil degrees apart from Pedro. The requirement is within fourth civil degree
by consanguinity or affinity.
157. Pedro, single, provides chief support for one (1) year to Ana (20 years old foster child). Pedro
is entitled to:
A B C D
Basic personal exemption Yes Yes No No
Additional personal exemption Yes No Yes No
 Answer: B
The age requirement for a foster child to qualify as dependent for purposes of additional
exemption is below eighteen (18) years of age, or one who is over eighteen (18) but is
unable to fully take care of or protect oneself from abuse, neglect, cruelty, exploitation
or discrimination because of a physical or mental disability or condition.
158. Deduction from gross income for Premium payment on health and/or
hospitalization insurance taken out by the individual taxpayer for his family is allowed if the
taxpayer is classified as:
I. Resident citizen
II. Nonresident citizen
III. Resident alien
IV. Nonresident alien engaged in trade
V. Nonresident alien not engaged in trade
a. I and II only c. l, ll, III and IV only
b. I, II and III only d. All of the above
 Answer: C
203. The income tax payable of Juan is:

a. P0 c. P43,250
b. P30,000 d. P73,250
 Answer: A
 Income Tax Payable = Basic Tax -- CWTx = P73.250 - 73,250 = PO
204. Statement 1: Meal allowance and lodging furnished by the employer to the employees are
exempt from tax if furnished for the "advantage or convenience of the employer".
Statement 2: Tax exempt meal allowance should be furnished within the premises employer.
 Answer: C
205. The amount of de minimis benefits conforming to the ceiling of de minimis benefits shall
be:
I. Exempt from income tax, regardless of the rank of the employee
II. Not be considered in determining the P82,000 ceiling of other benefits excluded from
the gross income under the Code, as amended.
b. Il only d. Neither I nor II
 Answer: C
206. The excess of the de minimis benefits over their respective ceilings prescribed under
the regulations shall be
a. Considered as part of other benefits subject to tax only on the excess over the
P90,000 ceiling.
b. Not be considered in determining the P90,000 ceiling of other benefits excluded from
the gross income under the Code, as amended.
c. Both "a" and "b"
d. Neither "a" nor "b"
 Answer: A; Prior to 2018 taxable year, the ceiling was P82,000
207. The amount of P90,000 under "other benefits” which are excluded from gross income shall
1. Not be applicable to self-employed individuals. II. Not be applicable to income generated from
the conduct of trade or business. III. Shall be applicable to all types of income
a. I only c. l, II and III
b. I and II only d. None of the above
 Answer: B
208. "Other Benefits" under revenue regulations include

I. Christmas bonus
II. Productivity incentive bonus
lll. Loyalty awards
lV. Gifts in cash or in kind and other benefits of similar nature actually received by
officials and employees of both government and private offices
a. I only c. I, II and III
b. I and III only d. I, II, III and IV
 Answer: D
Minimum Wage Earners and Senior Citizens

209. Minimun Wage Earners (MWEs) receiving "other benefits” exceeding P90,000 limit shall be
a. Taxable on the excess benefits only
b. Taxable on the excess benefits as well as his salaries, wages and allowances, just like
an employee receiving compensation income beyond the statutory minimum wage.
c. Exempt from income tax
 Answer: B
Prior to January 24, 2017, in relation to MWE as provided under RR 10-2008, an
employee who receives/earns additional “compensation" such as commissions,
honoraria, fringe benefits, benefits in excess of the allowable P90,000 taxable
allowances and other taxable income other than the statutory minimum wage, overtime
pay, holiday pay, night shift differential, hazard pay shall not enjoy the privilege of being
a minimum wage earner. However, the Supreme Court (SC) ruled that nothing to this
effect can be read from RA 9504 (Minimum Wage Earner Law). In the case of Soriano vs.
Secretary of Finance with GR No. 184450 dated January 24, 2017, the SC held that a
minimum wage earner who receives/earns additional "compensation" such as
commissions, honoraria, fringe benefits, benefits in excess of the allowable P90,000
under RA10963 (P82,000 prior to 2018) tax exempt bonuses and other benefits, shall still
enjoy the privilege of being a minimum wage earner. According to SC, RA 9504 is silent
on whether compensation-related benefits exceeding the P90,000 threshold (as
amended) would make an MWE lose exemption. RA 9504 has given definite criteria for
what constitutes an MWE, and RR 10 2008 cannot change this.
210. Pedro, single, is a minimum wage earner of Makibaka Corporation. In addition to his basic
minimum wage of P180,000 for the year, he also received the following benefits:
 Holiday pay, P32,000
 Overtime pay, 25,000
 Night shift differential, 18,000
The income subject to tax should be
a. P57,000 b. P75,000
c. P255,000 d. nil
 Answer: D
Pedro, single, is a minimum wage earner. In addition to his basic minimum wage of P180,000 for
the year, he also received the following benefits:
 De miniminis, P60,000 (P20,000 over the ceiling)

 13th month pay and other benefits, P112,000
211. Pedro's taxable income assuming the taxable year is 2017 should be:
a. P48,000 c. P82,000
b. P53,000 d. nil
 Answer: D
De minimis - over the ceiling P20,000
Total P132,000
Tax exempt benefits prior to TRAIN Law (82,000)
Balance P50,000
Less: basic exemption (50,000)
Taxable Net Income
 As provided for in a recent decision by the Supreme Court, an individual taxpayer
designated as MWE like Pedro, shall be exempt on his compensation income as MWE
regardless of the amount of his 13th month pay and other benefits.
 De minimis within the ceiling is tax exempt
 Excess of de minimis over the ceiling shall be added to other benefits
 The tax exempt benefits prior to 2018 was P82,000
 Personal exemptions are allowed prior to 2018
212. How much is the income tax due of Pedro assuming the taxable year is 2018?
a. P48,000 c. P82,000
b. P53,000 d. nil
 Answer: D
Solution:
De minimis - over the ceiling P20,000
Total P132,000
Tax exempt benefits under TRAIN Law (90,000)
Balance P42,000
Less: basic exemption -
Income Tax Due (revised tax table) -
 Beginning January 1, 2018, personal exemptions shall no longer be deductible However.

1st P250.000 of income under TRAIN Law is exempt from tax.
213. How much is the income tax due of Pedro in 2018 assuming he is also earned
P450,000 derived from his business of buying and selling various consumer products?
a. P48,000 c. P82,000
b. P53,000 d. nil
 Answer: B
Solution:
Business income P450,000
De minimis - over the ceiling 20,000
Total P582,000
Tax exempt benefits under TRAIN Law (90,000)
Balance P492,000
Less: basic exemption -
Income Tax Due (revised tax table) P53,000
 A minimum wage earner shall be taxable on his income derived from business and/or
practice of profession.
a. A senior citizen is taxable in the same manner as an individual taxpayer.
b. A person with disability (PWD) is taxable in the same manner as an individual
taxpayer,
c. Prior to 2018, a benefactor of a senior citizen may claim additional exemption of
P25,000.
 Answer: C
Premium Payment for Health/Hospitalization Insurance Miscellaneous topics before the

effectivity of TRAIN Law
215. Medy, resident citizen, single, supporting three minor illegitimate children, one of them
living abroad, has the following data for taxable year 2017:
Salary from XYZ Co. (net of P40,000 withholding tax) P350,000
Professional fee (net of 10% withholding tax) 135,000
Expenses incurred (25% pertains to living expenses) 80,000
Health and/or hospitalization insurance premium paid 5,000
The income tax payable is:
a. 251,700 c. P43,300
b. P49,300 d. 234,000
 Answer: D
Solution:
Salaries (gross) P390,000
Profe. Fees (P135,000/90%) 150,000
Professional expenses (P80,000 x 75%) (60,000)
Premium payment on health insurance -
Additional personal exemption (50,000)
(2 only; one is living abroad)

Less: CWT on salaries (40,000)
CWT on professional fees (15,000)
Income Tax Payable P34,000
 Premium payment on health/hospitalization insurance is not allowed in this
particular case because the family income exceeded P250,000
216. Based on the above problem, assuming his salary from XYZ Co. is P80,000 (gross
of withholding tax), how much is the taxable income?
a. P126,600 c. P121,000
b. P129,000 d. P67,600
 Answer: D
Salaries (gross) P80,000
Profe. Fees (P135,000/90%) 150,000
Professional expenses (P80,000 x 75%) (60,000)
Premium payment on health insurance (2,400)
Additional personal exemption (2) (50,000)
 Maximum amount deductible for premium payment on health/hospitalization insurance
is P2,400.
217. Pedro, a resident of Isabela Province had the following data for taxable year 2015: (Exchange
rate $1-P40).
Philippines Abroad
Salaries P165,000 $2,000
Business Income 450,000 6,000
Business expenses 120,000 1,500
Interest income:
Personal receivable 10,000
FCDU $2,500
On bank deposits (20% long-term) 25,000 3,000
Royalty income (20% from books) 22,000 1,000
Prize won in contest 10,000
Winnings from Phil. Charity Sweepstakes 80,000
Sale of shares of stocks of a domestic corp.
directly to a buyer (cost R10,000) 30,000
 Pedro received the following dividend income during the taxable year:
 P70,000 from a domestic corporation. P30% of its income is attributed to its
operations abroad.
 P60,000 from a resident foreign corporation. The ratio of its gross income in
the Philippines over worldwide income for the past three years is only 40%.
 P80,000 from a nonresident foreign corporation. The ratio of its gross income
in the Philippines over worldwide income for the past three years is 10%.
Pedro is married with the following dependents:

 Ana, 23 years old, disabled
 Ron, who turned 21 years old on January 1, 2015
 Lebron, 28 years old. He was recently retrenched by his employer
 Lorna, a college student, living in Manila
He also sold a condominium unit in Manila (residential) for P2,000,000 although its FMV is
P3,000,000 but with a zonal value of P4,000,000.
The taxable income of Pedro is:

a. P925,000 b. P950,000
c. P858,000 d. P928,000
 Answer: B
Solution:
Salaries (165k + (2K x P40) P245,000
Business Income (450k + (6k x P40)] 690,000
Business expenses [120k + (1.5k x P40)] (180,00)
Interest income
Personal receivable (10,000)
FCDU -
On bank deposits abroad (3k X P40) 120,000
Royalty income abroad (1k x P40) 40,000
Winnings from Phil. Charity Sweepstakes Exempt
Sale of shares of stocks of a domestic corp. directly to the CGT
buyer (cost P10,000)
DI – RFC and NRFC (100%) 140,000
Additional personal exemption (75,000)
TAXABLE INCOME
218. Pedro's total final taxes on his passive income is:
a. P15,460 c. P23,460
b. P22,460 d. P23,900
 Answer: B
Solution:
Interest Income FCDU (2,500 x 40 x 7.5%) P7,500
On bank deposits Phils. (P25,000 x 80% x 20%) 4,000
Royalty income Phils. – books (22K x 20% x 10%) 440
Other Royalty income Phils. (22k x 80% x 20%) 3,520
Total Final taxes on passive income P22,460
219. His total capital gain's taxes is:
a. P241,000 c. P240,000
b. P251,720 d. P257,000
 Answer: A
 Total CGT = CGT on shares and real properties
CGT on shares = SP30,000 - cost P10,000 = P20,000 x 5% = P1,000
CGT real properties = P4M x 6% = P240,000 Total CGT = P241,000
220. If he is a non-resident citizen his total final tax on passive income is:
a. P14,960 c. P23,460
b. P22,460 d. P23,900
 Answer: A
Interest Income FCDU (2,500 x 40 x 7.5%) P-
On bank deposits Phils. (P25,000 x 80% x 20%) 4,000
Royalty income Phils. – books (22k x 20% x 10%) 440
Other Royalty income Phils. (22K x 80% x 20%) 3,520
Total Final taxes on passive income P14,960
221. If he is a non-resident alien not engaged in trade or business his total combined taxes on all
income from Philippines is: (excluding business income)
a. P83,000 c. P336,500
b. P2410 d. P340,000
 Answer: C
Salaries Phils. P165,000
Interest income:
Personal receivable 10,000
FCDU -
On bank deposits Phils. incl.long-term deposit 25,000
Royalty income Phils. 22,000
Winnings from Phil. Charity Sweepstakes 80,000
Sale of shares of stocks of a domestic corp. directly to the -
buyer (cost P10,000)
DI-DC 70,000
DI - RFC and NRFC -
PERSONAL EXEMPTION -
TAXABLE INCOME P382,000
INCOME TAX:
 P382,000 X 25% P95,500
 Total CGT 241,000
Use the following data for the next five (5) questions:
Breezia Tan has the following data on his passive income earned during 2016:
Philippines Abroad
Interest income from long term peso bank deposits 45,000 25,000
Interest income from long term FCDU deposits 50,000 60,000
Royalties from books 20,000 30,000
Royalties from computer programs 20,000 40,000
Winnings from an electronic raffle during Smart
Communication's 50th anniversary (chosen randomly by the
network using smart subscribers' sim card numbers) 10,000 -
Dividend income from a domestic corporation 27,000 13,000
Dividend income from a foreign corporation 33,000 22,000
222. How much is the final withholding tax if the taxpayer is a resident citizen?
a. P13,450 c. P12,450
b. P9,700 d. P14,450
 Answer: D
Solution:
Peso bank deposit, P45k x 20% Exempt
FCDU deposit, P50,000 x 7.5% 3,750
Royalties – books P20,000 x 10% 2,000
Royalties - computer programs, P20,000 x 20% 4,000
Winnings, P10,000 x 20% 2,000
Dividend income from DC, P27,000 x 10% 2,000
Total Final taxes on passive income 14,450
223. How much is the final withholding tax if the taxpayer is a resident alien?
a. P13,450 c. P12,450
b. P9,700 d. P14,450
 Answer: D
 Same computation with “RC"
224. How much is the final withholding tax if the taxpayer is a non-resident citizen?
a. P13,450 c. P9,700
b. P8,700 d. P10,700
 Answer: D
Solution:
Peso bank deposit, P45k x 20%
FCDU deposit, P50,000 x 7,5%
Royalties - books P20,000 x 10%
Royalties - computer programs, P20,000 x 20%
Winnings, P10,000 x 20%
Dividend income from DC, P27,000 X 10%
Total Final taxes on passive income
225. How much is the final withholding tax if the taxpayer is a non-resident alien engaged in
trade or business?
a. P13,450 c. P9,700
b. P13,400 d. P13,750
 Answer: B
Solution:
Peso bank deposit, P45k x 20% Exempt
FCDU deposit, P50,000 x 7.5% Exempt
Royalties - books P20,000 x 10% 2,000
Royalties -- computer programs, P20,000 x 20% 4,000
Winnings, P10,000 x 20% 2,000
226. How much is the final withholding tax if the taxpayer is a non-resident alien not engaged
in trade or business?
a. P19,250 c. P43,000
b. P30,500 d. P29,000
 Answer: B
Solution:
Peso bank deposit, P45k x 25% 11,250
FCDU deposit, P50,000 x 7,5% E
Royalties - books P20,000 x 25% 5,000
Royalties - computer programs, P20,000 x 25% 5,000
Winnings, P10,000 x 25% 2,500
Filing of Income Tax Returns
227. Statement 1: Where an income tax return is required (e.g., in loan applications), and the
individual did not file an income tax return because of the rules on "substituted filing of income
tax return" the certificate of withholding income tax signed by the employer and the employee
will be the document to use Statement 2: The rules on substituted filing of income tax return
cannot apply if one of the spouses has business or mixed income
a. The first statement is true while the second statement is false
b. The first statement is false while the second statement is true
c. Both statements are true
d. Both statements are false
 Answer: C
228. 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.
 Answer: D
229. 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: an employee had three employers, on 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
 Answer: B
230. 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
 He also derived interest income from his peso bank deposit in BPI and the sale of his
shares in DEF Corporation (a closely-held domestic corporation) to Brian resulted to a
gain of P100,000.
Leomar:
o Deriving purely compensation income from XYZ Corporation, his only
employer for the taxable year.
o The correct amount of tax was withheld by XYZ
o Leomar's spouse is engaged in business
A B C D
Rianne Yes Yes No No
Leomar Yes No Yes No
 Answer: B
231. 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.
C. Statement 1 is false but statement 2 is true
 Answer: B
232. 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
 Answer: D
233. 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 professional who are availing the 8% income tax rate
c. Statement 1 is false but statement 2 is true
 Answer: B

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CHAPTER 12: SELF-TEST EXERCISES

T 5. The sale of foreclosed land by a bank is subject to regular income tax.

Multiple Choices: Theory - Part 1

1. Which capital asset is subject to the rules of capital gains tax?

a. Sale of office building

c. Sale of domestic common shares directly to a buyer

d. Donation of domestic stock

2. Which is true regarding taxation of ordinary gain?

3. The gain arising from the sale of ordinary assets is

4. The gain arising from dealings in capital assets is

6. Which is correct regarding gains from capital assets?

7. Which is not correct regarding rules in dealings in properties?

8. Which statement is incorrect?

c. Ordinary loss is deductible from ordinary gain.

d. Ordinary loss is deductible from capital gain.

a. Ordinary gain is taxable in full.

c. Net capital gain is taxable in full.

d. Net capital loss is deductible in full.

10. Statement 1: Ordinary gains and losses are offset.

12. Which statement is true?

b. Capital loss is deductible up to the extent of capital gain.

a. Statement 1 is true, c. Both statements are true.

Which statement is true?

a. Statement 1 is true. c. Both statements are true.

15. The short-term holding period is

16. Which statement is true regarding the holding period rule?

c. C. Applicable only to individual taxpayers

d. Applicable to any taxpayer

17. The holding period rule applies to

20. A short-term holding period means

21. A long-term holding period means

properties? Short term Long-term

a. Individual 50% 50%

c. C. Individual 50% 100%

d. d. Corporation 100% 50%

or loss of a corporate taxpayer?

taken into consideration by an individual taxpayer?

C. 100% of short-term ordinary gain

d. 50% of long-term capital gain

27. Which is incorrect regarding net capital loss carry over?

29. What is the tax basis of properties received by way of gitt?

c. Whichever is lower of A and B

d. Whichever is higher of A and B

30. What is the tax basis of properties received as inheritance?

c. Whichever is lower of A and B

d. Whichever is higher of A and B

Multiple Choices: Theory - Part 2 1.

Which is an ordinary asset?

a. Gold inventory c. Investment in stocks

2. Which is an ordinary asset?

3. Which is a capital asset?

4. Which is a capital asset?

5. All of the following are capital assets to a merchandising business except

b. Receivables from customers

c. Land currently under development

d. Raw land held for future development

regular income tax?

a Domestic stocks c. Stock rights and warrants

8. Which capital asset is subject to capital gains tax?