Chapter 3

Question 1

Regarded as the best measure of taxpayers’ ability to pay tax.

Answer 1

Income

Question 2

The tax concept of income is simply referred to as _________ under the NIRC.

Answer 2

Gross Income

Question 3

The tax concept of income is simply referred to as _________ under the NIRC.

Answer 3

Gross Income

Question 4

A taxable item of income is referred to as an _______ or ________.

Answer 4

1. Item of gross income
2. inclusion in gross income

Question 5

Define Gross Income

Answer 5

It is broadly defined as any inflow of wealth to the taxpayer from whatever source, legal or illegal, that increases net worth.

Question 6

Enumerate the elements of gross income:

Answer 6

1. It is a return on capital that increases net worth.
2. It is a realized benefit.
3. It is not exempted by law, contract, or treaty.

Question 7

One of the elements of gross income, where gross income is a return on wealth that increases the taxpayer’s net worth.

Answer 7

Return on Capital

Question 8

Increases net worth is income subject to income tax

Answer 8

Return on capital

Question 9

It merely maintains net worth; hence, it is not taxable.

Answer 9

Return of capital

Question 10

It merely maintains net worth; hence, it is not taxable.

Answer 10

Return of capital

Question 11

An improvement in net worth indicates an ability to pay tax.

Answer 11

Return of capital

Question 12

These are incapable of pecuniary valuation.

Answer 12

Capital items deemed with infinite value

Question 13

It is anything received as a compensation for the loss on capital items deemed with infinite value.

Answer 13

Return of Capital

Question 14

Examples of Capital Items deemed with infinite value:

Answer 14

1. Life
2. Health
3. Human Reputation

Question 15

(True or False)
The proceeds of life insurance policies collected by an employer as a beneficiary from the life insurance of an officer or any person directly interested with his trade are not exempted in taxation

Answer 15

False, life insurance is exempted in taxation

Question 16

(True or False)
Any excess amount received over premiums paid by the insured upon surrender or maturity of the policy are taxable.

Answer 16

True (kay excess siya mo, meaning may gain. So, ang gain is subject to income tax.)

Question 17

(True or False)
Any compensation received in consideration for the loss of health, such as compensation for personal injuries or tortuous acts, is deemed a return of capital and is not exempted to tax.

Answer 17

False, it is subject to tax

Question 18

Return on capital is exempted from income tax, whereas return of capital is not.

Answer 18

False (baliskadanay)

Question 19

Examples that include moral damages:

Answer 19

1. Oral defamation or slander
2. Alienation of affection
3. Breach of promise to marry

Question 20

(True or False)
SSS law states that your retirement benefits should be taxable.

Answer 20

False, it should be exempted from taxes.

Question 21

(True or False)
SSS law states that your retirement benefits should be taxable.

Answer 21

False, it should be exempted from taxes.

Question 22

(True or False)
Individual taxpayers w/ annual taxable income amounting to P250k or below are still exempt from paying income tax.

Answer 22

True

Question 23

(True or False)
A taxpayer can make ammendmens if the income tax return is deficit but can only do so after 3 years.

Answer 23

True

Question 24

(True or False)
Minimum wage earner is still subject to tax

Answer 24

False

Question 25

(True or False) Loss of profits results in decrease in net worth

Answer 25

False, Loss of capital

Question 26

(True or False) The recovery of lost capital merely maintains net worth while the recovery of lost profits increases net worth.

Answer 26

True

Question 27

(True or False) The recovery of lost capital merely maintains net worth while the recovery of lost profits increases net worth.

Answer 27

True

Question 28

(True or False) Donations not exceeding P250,000 are exempt from donor's tax.

Answer 28

True

Question 29

Under this element of gross income, there is a benefit when there is an increase in the net worth of the taxpayer.

Answer 29

Realized Benefit

Question 30

________ means any form of advantage derived by the taxpayer.

Answer 30

Benefit

Question 31

The term _____ means earned. Requires that there is a degree of undertaking or sacrifice from the taxpayer to be entitled of the benefit.

Answer 31

realized

Question 32

Requisites of a realized benefit:

Answer 32

1. There must be an exchange transaction 2. The transaction involves another entity 3. It increases the net worth of the recipient

Question 33

Types of transfers:

Answer 33

1. Bilateral transfers or exchanges 2. Unilateral transfers 3. Complex transactions

Question 34

These are referred to as a onerous transactions

Answer 34

Bilateral transfers or exchanges

Question 35

These are also referred to as "gratuitous transactions"

Answer 35

Unilateral transfers

Question 36

These are also referred to as "gratuitous transactions"

Answer 36

Unilateral transfers

Question 37

Partly gratuitous and partly onerous.

Answer 37

Complex transactions

Question 38

These are commonly referred to as "transfers for less than full and adequate consideration."

Answer 38

Complex transactions

Question 39

(True or False) The gratuitous portion of the transaction is subject to transfer tax while the benefit from the onerous portio is subject to income tax.

Answer 39

True

Question 40

Entity which are living persons

Answer 40

Natural persons

Question 41

Entity created by law such as partnerships and corporations

Answer 41

Juridical persons

Question 42

(True or False) The increase in wealth of the taxpayer in the form of appreciation or increase in the value of his properties or decrease in the value of his obligations in the absence of a sale or barter transaction is not taxable

Answer 42

True

Question 43

This referred to as appreciation in value of property but not yet materialized in an exchange transaction

Answer 43

Unrealized gains or holding gains

Question 44

(True or False) The forgiveness of debt out of affection or mere generosity of the creditor is a gratuitous transfer, and it is exempt from tax.

Answer 44

False, it is subject to transfer tax

Question 45

(True or False) The loan received from the bank constitutes a transfer but not a benefit

Answer 45

True

Question 46

Enumerate the mode of receipt or realization benefits

Answer 46

1. Actual Receipt 2. Constructive Receipt

Question 47

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

Answer 47

Actual Receipt

Question 48

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

Answer 48

Constructive Receipt

Question 49

(True or False) The inflow of wealth to a person that does not increase his net worth is not income due to the total absence of benefit.

Answer 49

True

Question 50

(True or False) In law, the proceeds of embezzlement or swindling where money is taken without an original intention ot return are considered as income becaus eof the increase of net worth of the swindler.

Answer 50

True

Question 51

Types of Income Taxpayers

Answer 51

1. Individuals 2. Corporations

Question 52

Enumerate different kinds of individuals

Answer 52

1. Citizen 2. Alien 3. Corporations

Question 53

(True or False) A person is considered a citizen of the Philippines at the time of adoption of the Constitution on February 2, 1987

Answer 53

True

Question 54

(True or False) A person is considered a resident citizen if he leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for an employment on a permanent basis.

Answer 54

False, he is considered as a non-resident citizen

Question 55

(True or False) Filipinos workng in Philippine embassies or Philippine consulat offices are considered resident citizen.

Answer 55

False, non-resident because Philippine embassies are extention of territory of the state.

Question 56

An individual residing in the Philippines but is not a citizen thereof

Answer 56

Resident alien

Question 57

An individual who is not residing in the Philippines who is not a citizen thereof

Answer 57

Non-resident alien

Question 58

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

Answer 58

Non -resident aliens engaged in business

Question 59

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

Answer 59

Non-resident aliens not engaged in business

Question 60

(True or False) Citizens staying abroad for a period of at least 183 days are considered non-resident.

Answer 60

True

Question 61

(True or False) aliens who are staying in the Philippines for not more than 1 year but more than 180 days are deemed non-resident aliens not engaged in business

Answer 61

False, NRA- engaged in business

Question 62

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

Answer 62

Estate

Question 63

Arrangement whereby one person transfers property to another person which wull be held under the management of a third party.

Answer 63

Trust

Question 64

(True or False) If a trust is irrevocably designated by the grantor is treated in taxation as an individual taxpayer

Answer 64

True

Question 65

(True or False) Trusts that are designated as revocable by the grantor are not taxable entties adn are not considered as an individual taxpayers. It is taxable to grantors

Answer 65

True

Question 66

corporation organized in accordance with Philippine laws

Answer 66

domestic corporation

Question 67

corporation that is organized under a foreign law

Answer 67

foreign corporation

Question 68

(True or False) A corporation that incorporates in the Philippines and the incorporators are foreigners is a foreign corporation under the Incorp. test

Answer 68

False, it is a domestic corporation even if it is controlled by foreigners