22 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 5: Exclusion from Gross Income CHAPTER EXCLUSION FROM GROSS INCOME Problem – TAXABLE Nontaxable Taxable Nontaxable Nontaxable with IT Taxable Taxable Nontaxable Nontaxable Taxable 10 Nontaxable OR NONTAXABLE with income tax 11 Taxable 21 Taxable 12 Nontaxable 22 Nontaxable 13 Taxable 14 Nontaxable 15 Nontaxable 16 Nontaxable 17 Taxable 18 Taxable 19 Nontaxable 20 Taxable Problem – TAXABLE OR NONTAXABLE with income tax Nontaxable 12 Nontaxable, if not exceeding 10 days Nontaxable 13 Taxable Nontaxable 14 Taxable (based on proceeds or selling price or zonal value, whichever is higher) Nontaxable 15 Taxable Nontaxable 16 Taxable Nontaxable 17 Taxable, except when BIR registered with 50 year old retiree; 10 years service and first time to avail Nontaxable 18 Taxable Taxable 19 Nontaxable if Philippine Sweepstakes and Lotto Nontaxable 20 Taxable 10 Taxable 21 Taxable 11 Taxable 22 Nontaxable Problem – TRUE OR FALSE False – nontaxable True True False – Proceeds of life insurance is not taxable regardless of whoever would be the recipient, except when the insured person outlived his life insurance and received the proceeds The excess of proceeds over premium paid is taxable False – include in gross income False – Bequest is a personal property True True True 10 False – Nontaxable 11 True 12 False – Nontaxable 13 False – Some prizes and awards are not taxable Eg Ramon Magsaysay Awards 14 True 15 True 16 False – Include in gross income because income from gift is subject to income tax 17 False – Exempt from income tax 18 True Problem -4 A D C D D B A A C 10 C 11 A 12 D 13 D 14 A 15 B Problem –6 D Availed 10-day sick leave pay Problem -5 B D A D C D C C C 10 C P1,500 23 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 5: Exclusion from Gross Income Problem –7 C Take home pay Nontaxable 13 th month pay Withholding tax Other income subject to normal tax Taxable income P212,000 ( 17,500) 13,500 20,000 P228,000 In general, a MWE is not subject to WTW and income tax on his compensation income But if he has other income that is subject to normal tax, his entire income during the year will be subject to income tax, his compensation income, however, will not be subject to WTW Problem –8 C Net pay Withholding tax Advances 3th month pay Christmas bonus (de minimis) SSS contribution Totals Problem –9 Taxable P265,000 50,000 6,000 (27,000) ( 5,000) P289,000 Nontaxable Taxable P13,000 Tax-exempt C Net take home pay SSS contributions PAG-IBIG contributions Union dues contributions Office party contributions Charitable contribution (deductible only from business income) Withholding income tax Totals Problem –10 Monthly salary D Problem –11 Rent of apartment Reimbursement Taxable benefits A Problem –12 Reportable taxable income D P300 100 100 75 25 400 P13,500 P500 P15,000 P 50,000 20,000 P70,000 P - - Problem –13 B Proceeds of life insurance received by insured person Return of premium Total premium paid Taxable income Problem –14 P27,000 5,000 4,000 P36,000 P500,000 40,000 (490,000) P 50,000 D Zero, because, the P270,000 cash surrender value is just a return of contribution of P360,000 Problem –15 D Nontaxable Actual damages for unrealized profit Interest on non-taxable damages Actual damages for lost products Exemplary damages Moral damages Actual liquidated damages Total Problem –16 Taxable income A Problem –17 D P200,000 50,000 50,000 80,000 P380,000 Taxable P100,000 20,000 P120,000 P -0Taxable Nontaxable 24 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 5: Exclusion from Gross Income Terminal pay Life insurance SSS death benefit Donations Totals P 60,000 500,000 10,000 40,000 P610,000 P - - Problem –18 A The termination is due to cause within the control of Jalosjos Problem –19 D Last pay ujpon resignation from his first employer P100,000 Problem –20 A Zero, all items enumerated are not subject to income tax Problem –21 D P50,000 business income for year Problem –22 C Interest income from bank savings deposit P4,000 Problem –23 D Zero All gifts enumerated are not subject to income tax Problem –24 D Total income (P100,000 x 10 months) Total average expenses (P20,000 x 10 months) Income subject to income tax P1,000,000 ( 200,000) P 800,000 Problem –25 D Zero All winnings received by Miss Lara are subject to tax because she has entered into a contest as Miss International Problem –26 Lotto Philippine winnings A Problem –27 B Ramon Magsaysay award Athlete of the year award Prize for winning the silver Olympic medal Gift from Mr Lim Gift from Nissan Winnings – Philippine sweepstakes Total winnings/ awards not subject to income tax P10,000,000 P 50,000 100,000 500,000 250,000 1,000,000 100,000 P2,000,000 Problem –28 D Zero Interest and gain on sale of investment in a 5-year government bonds is exempt from income tax Problem –29 B Interest received from bond investment P 120,000 Problem –30 B Interest income Multiplied by final tax rate on interest income Income tax P120,000 20% P 24,000 Problem –31 D Interest on expanded foreign currency deposit P100,000 Problem –32 A Income from sale of invented products Sale of technology Total revenue Less: Research and development costs Nontaxable income P5,000,000 2,000,000 P7,000,000 800,000 P6,200,000 25 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 5: Exclusion from Gross Income Note: The cost of product produced need not to be deducted anymore because of the term “income from sale of invented products.” Problem –33 C Interest income on bank savings deposit P10,000 Problem –34 C Interest income from foreign currency deposit (P2,000,000 x 7.5%) Interest income from time deposit (P1,000,000 x 20%) Income tax paid by BBC Problem –35 Compensation income (P5,000 x 10) P150,000 200,000 P350,000 P 50,000 Retirement benefits Salary earned Gross income P500,000 50,000 P550,000 Same answer with No P 50,000 Problem –36 Winnings from charity horse race sweepstakes from PCSO Interest on government debt securities Damages for breach of contract (P1,000,000 x 60%) Gains from redemption of shares in mutual fund Gain from sale of bonds with maturity of more than five years Gifts from friends Total exclusion from gross income P 500,000 100,000 600,000 300,000 60,000 200,000 P1,760,000 Problem –37 Proceeds of his life insurance (P2,000,000) – (P15,000 x 25) Proceeds of his mother’s life insurance Cash gift Inheritance Rent income Total Exclude P 375,000 1,000,000 50,000 3,000,000 P4,425,000 Include P1,625,000 100,000 P1,725,000 Problem –38 No, the P1,500,000 transfer to be received by Miss Tandana is to be included for income taxation because the transfer is in recognition of her services rendered It is not to be included as a part of estate tax Problem –39 All enumerated items are not subject to normal (tabular) tax  ... costs Nontaxable income P5,000,000 2,000,000 P7,000,000 800,000 P6,200,000 25 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 5: Exclusion from Gross Income Note: The... Interest income from time deposit (P1,000,000 x 20%) Income tax paid by BBC Problem – 35 Compensation income (P5,000 x 10) P 150 ,000 200,000 P 350 ,000 P 50 ,000 Retirement benefits Salary earned Gross income. ..23 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 5: Exclusion from Gross Income Problem –7 C Take home pay Nontaxable 13 th month pay Withholding tax Other income