INTRODUCTION TO INCOME TAX Flashcards
(27 cards)
kinds of taxpayers
- Individuals
- Corporations
- Partnerships
- Estates
- Trusts
KINDS OF INDIVIDUALS
or
General Categories of Individual Taxpayers
- Resident citizen
- nonresident citizen
- resident alien
- nonresident alien engaged in business
- nonresident alien not engaged in business
- special individual
- MWEs
- OCW/OFW
SITUS OF INCOME (WHERE)
Rule: Where it can be found
Exception:
1. Predominance test - dividends
2. incorporation test - sale of shares of stock
Basic concept, rate, and base of
Optional or Gross Receipts Tax
Also, who are disqualified to avail Optional or Gross Receipts Tax
Basic concept: In lieu of the normal income tax for micro earners.
Rate: 8%
Base: Gross receipts from business plus other income minus 250,000 exemption.
Disqualified to avail
1. Compensation earners
2. Annual Gross receipts exceeded 3M
Bawal ang lapas 3M gross receipts since pang micro businesses ra ni. If lapas, di na micro, but small business
3. VAT reg
4. Whose other percentage tax rate is higher than 3%
5. Partners in General professional partnership
An ________ is one levied on the income from property or an occupation. It is a direct tax upon the thing called income
income tax
Purpose of Income Tax
The imposition of the income tax is intended:
1. To raise revenue to defray the expenses of the government; and
2. To mitigate the evils arising from the inequalities of wealth by a progressive scheme of taxation which places the burden on those best able to pay.
means all wealth which flows into the taxpayer other than a mere return of capital
Income
Characteristics of Philippine Income Tax
- A national tax – It is imposed and collected by the National Government throughout the country.
- A general tax – It is levied without a specific or predetermined purpose. Thus, the revenue from income tax may be appropriated for general public purposes.
- An excise tax – It is imposed on the right or privilege of a person to receive or earn income.
- A direct tax – It is payable by the person upon whom it is directly imposed by law. It cannot be shifted or passed on to others.
- In general, a progressive tax for individual taxpayers – It is based upon one’s ability to pay. The higher the taxable net income of the individual, the higher the marginal tax rate.
- The income tax system is a comprehensive system. – It adopts the citizen principle, the residence principle, and the source principle.
- Semi-global or semi-schedular system
Some types of taxable income are compounded or grouped together without distinction, and after deducting expenses and other allowable deductions therefrom, are then subjected to the same set of tax rate(s).
Semi-global or semi-schedular system
This is known as the global tax system (or net income tax system)
Income is a gain derived from:
a) The use or employment of labor or capital, or both labor and capital; and/or
b) From the sale or other disposition of assets or property (both ordinary and capital).
Income Distinguished From “Capital”
Capital is a fund, income is a flow. Capital is wealth, while income is the service (or fruit) of wealth. Capital is the tree, income the fruit.
Amounts received as a return of capital are not income.
Requisites for Taxability of Income
- There must be a gain or profit whether in cash or its equivalent;
- The gain must be realized or received; and
- The gain must not be excluded by law or international treaty from taxation.
Determine its source of income
(1) Interest income
(2) Income from services
(3) Rent
(4) Royalty
(5) Gain on sale of real property
(6) Gain on sale of personal property purchased in one country and sold in another
(7) Dividend
A. From Domestic Corp.
B. From Foreign Corp.
(8) Sale of domestic shares
(9) Sale of foreign shares
(10) Income from transportation and other services rendered partly within and partly without the Philippines
- Residence of the debtor
- Place of performance
or
Location of service that produces the income - Location of property
- Place of use of intangible
- Location of property
- Place of sale
- A. Income within
B. Income without
Except: If 50% or more of the gross income of the foreign corporation for the preceding three (3) years prior to the declaration of dividend or for such part of such period as the corporation has been in existence, was derived from sources within the Philippines, then part of the dividend is income within.
Income within = (Phil. Gross Income/Total Gross Income) x Dividend - Income within
- Income without
- partly within and partly without the Philippines
The __________ is the place of taxation of the income or the country which has jurisdiction to impose the tax.
situs of the income
The income tax system of the Philippines may be characterized under two general categories, namely:
- Gross income taxation, whereby a final tax is imposed on the gross amount of specified types of income, such as interest income, royalty, prizes, dividends, and capital gains. This is also known as the schedular system of taxation.
- Net income taxation, whereby certain deductions are allowed and subtracted from the aggregate of incomes not subject to final tax, and the tax computed is based on the resulting net income therefrom. This is also known as the global system of taxation.
Types of Taxable Income
- “Returnable” Income –> Income Tax Return
- Passive Income –> Final Tax
- Capital Gains –> Capital Gains Tax
unsa na Type of taxable income
- Compensation income from being an employee
- Earned without any further action on the part of the taxpayer
- Income from trade, business, or practice of a profession
- Gain from sale of ordinary assets
- Sale of real property in the Philippines classified as capital asset
- Net capital gain from sale of
“other capital assets” - Other taxable income not subject to FT or CGT.
- Sale of shares of domestic
corporations
(provided the seller
or taxpayer is not a
dealer in securities)
- “Returnable” Income
- Passive Income
- “Returnable” Income
- “Returnable” Income
- Capital Gains
- “Returnable” Income
- “Returnable” Income
- Capital Gains
How to compute returnable income
Gross Income xxx
Less: Deductions (xxx)
Net taxable income xxx
then
Compute Tax (using
graduated rate table)
Under Sec. 1, Art IV of the 1987 Constitution, the following are citizens of the Philippines:
(1) Those who are citizens at the time of the adoption of the 1987 Constitution; or
(2) Those whose fathers and mothers are citizens; or
(3) Those born before January 17, 1973 of Filipino mothers, and who elect Philippine citizenship upon reaching majority age; or
(4) Those who are naturalized in accordance with law.
AND
Whose residence is within the Philippines
Resident citizen
a. Citizen who establishes the fact of his physical presence abroad with a definite intention to reside therein;
b. Citizen who leaves for abroad either as an immigrant, or for employment on a permanent basis;
c. Citizen who derives income from abroad which requires him to be physically present abroad most of the time (≥ 183 days) during the year
Non-resident citizen
a) Citizen working or deriving income from abroad. Must be registered with the POEA;
b) Seaman who is a citizen and works as a member of the complement of a vessel engaged exclusively in international trade
OFW/OCW
Not a citizen but whose residence is within the Philippines.
- His purpose in coming to the Philippines requires an extended stay in the country, and makes his home temporarily in the Philippines (ex. expatriates or those employed in the Philippines).
- Not a mere transient or sojourner as determined by his intention regarding the nature and length of stay.
Resident Alien
Not a citizen, not a resident of the Philippines
- If stay in the Philippines is for > 180 days during the year
Non-Resident Alien ETB
Not a citizen, not a resident of the Philippines
- If stay in the Philippines is for ≤ 180 days during the year
Non-Resident Alien ETB
