Passive Income (Final Tax)

  This is subject to final withholding income tax as follows:    
    Citizen/Res. Alien NRA EB
1. Interest savings deposit (Phil. currency) 20% 20%
2. Interest time deposit (Phil. currency) 20% 20%
3. Yield from deposit substitute or MM placement (Phil. 20% 20%
  currency)    
4. Yield from trust funds or similar arrangements (Phil. 20% 20%
currency)    
5. Royalties on:    
  a. Books, other literary works and musical compositions   10%

 

b. All others 10% 20%
6. Prizes, except prizes amounting to P10,000 or less which 20%  
   
shall be subject to tax as passive income in the AITR. 20% 20%
7. Winnings, except PCS and Lotto winnings. 20% 20%

 

  1. Interest income from depository bank under the expanded foreign currency deposit system, received by a resident

 

individual but not by a non-resident individual.                                   7½%                               Exempt

  1. Interest income from long-term deposit or long-term investment in banks (Phil. currency) pre-terminated or

 

withdrawn:    
Less than 3 years 20% 20%
3 years to less than 4 years 12% 12%
4 years to less than 5 years 5% 5%
5 years and over Exempt Exempt
  1. Cash and/or property dividend from domestic corporation and distributive share in the net income after income tax of taxable partnership, effective:
    6% 20%
January 1, 1998      
January 1, 1999   8% 20%
January 1, 2000   10% 20%
Tax on dividend shall apply only on income earned by the  
investee  domestic  corporation  on  or  after  January  1,  
1998.      
11. Income from cinematographic film and similar works   25%

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JONATHAN RUIZ CPA, MIB

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Documentary stamp tax

Documentary stamp tax

  1. On deeds of sale and conveyance of real property – All conveyance, deeds, instruments, or writing, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, shall be collected a documentary stamp tax, at the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value as determined by the Commissioner or fair market value as shown in the schedule of values of the Provincial and City Assessors, whichever is higher. Provided that when one of the contracting parties is the Government, the tax herein imposed shall be based on the actual consideration.

A. When the consideration, or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, does not exceed one thousand pesos (P1,000), fifteen pesos (P15.00); and

B. For each additional one thousand pesos (P1,000), or fractional part thereof in excess of one thousand pesos (P1,000) of such consideration or value, fifteen pesos (P15.00).

  1. On sales, agreement to sell, memoranda of sales, deliveries or transfer of shares or certificates of stock (not through the local stock exchange) – There shall be collected a documentary stamp tax at the rate of P0.75 on each P200 or fractional part thereof, of the par value of the share of stock. (Sale, barter, or exchange of shares of stock listed and traded through the local stock exchange is now permanently exempt from the DST, effective March 20, 2009, under R.A. No. 9648).
  2. Payment of documentary stamp tax

A. In general – Any person liable to pay documentary stamp tax upon any document shall file a tax return and pay the tax in accordance with the rules and regulations prescribed by the Secretary of Finance, upon the recommendation of the Commissioner.

B.  Time for filing and payment of the tax – The tax return shall be filed within five (5) days after the close of the month when the taxable document was made (notarized), signed, issued, accepted, or transferred, and the tax thereon shall be paid at the same time the aforesaid return is filed.

C. Where to file – Except in cases where the Commissioner otherwise permits, the aforesaid tax return shall be filed with and the tax due shall be paid through the authorized agent bank within the territorial jurisdiction of the Revenue District Office which has jurisdiction over the residence or principal place of business of the taxpayer. In places where there is no authorized agent bank, the return shall be filed with the Revenue District Officer, collection agent, or duly authorized Treasurer of the city or municipality in which the taxpayer has his legal residence or principal place of business.

D. Exception – In lieu of the foregoing, the tax may be paid either through purchase and actual affixture, or by imprinting the stamps through a documentary stamp metering machine, on the taxable document, in the manner as may be prescribed by rules and regulations promulgated by the Secretary of Finance, upon the recommendation of the Commissioner.

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CPA Mentor,

JONATHAN RUIZ CPA, MIB

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Filing and Return of CGT

Filing of return and payment of the tax:

  1. Sold outside the Philippine Stock Exchange – capital gains tax return is filed and payment of the tax is made within 30 days after each sale transaction and a final consolidated return of all transactions during the taxable year is filed on or before the 15th day of the 4th month following the close of the taxable year.

2. Sold through the Philippine Stock Exchange (now classified as percentage tax) – the stockbroker shall deduct the tax and remit to the BIR within 5 banking days from collection date.

Installment method (applicable only to not traded shares) – it shall be governed by Sec. 49 (Installment Method) of the tax code. The capital gains tax return shall be filed and the tax paid within 30 days after receipt of each installment.

Questions to Ponder:

  1. Ligaya sold 1,500 shares of her stock investment in a domestic corporation. The par value per share was P85 but were acquired by her at P90. On the date of sale, the shares had a selling price of P120 per share. The capital gains tax on the sale if the shares are not listed and traded in the Philippine Stock Exchange is:

A. P2,250     B.  P2,625           C. P14,000             D.  P11,375

2. In item No. 1, the documentary stamp tax due on the sale is:

A. P478.50   B. P638.00          C. P675.00             D.  P900.00

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CPA Mentor,

JONATHAN RUIZ CPA, MIB

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Sale or exchange of shares of stock

Sale or exchange of shares of stock in a domestic corporation considered capital asset:

  1. Persons liable to the tax:

A. Individual taxpayers – citizen or alien

B. Corporate taxpayers – domestic or foreign

C. Other taxpayers such as estate, trust, trust funds and pension, among others

  1. Persons exempted:

A. Gain derived by dealers in securities

B. Shares sold or disposed of through the Philippine Stock Exchange (now a percentage tax)

  1. Rates of tax:
    1. Sales outside of the Philippine Stock Exchange (not traded) – on net capital gain:
      Not over P100,000 5%
      Over  100,000 10%

      2. Sales through the Philippine Stock Exchange (listed and traded) – 1/2 of 1% imposed on the gross selling price (now classified as percentage tax).

Computations:

A. Selling price:

  1. FMV of the shares, transferred or exchanged.
  2. Traded through the Philippine Stock Exchange – FMV is the actual selling price.
  3. Not traded, but listed – FMV is the highest closing price on the date of sale. Where no sale was made, it is the highest closing price on the date nearest.
  4. If not listed – FMV is the book value nearest.

B. Cost or basis:

  1. If can be identified – actual purchase price (specific identification method)
  2. If cannot be identified – FIFO method
  3. If books are maintained – moving average
  4. In all cases – it has to have a cost (for stock dividend)

c. Nature:

  1. Non–deductibility of wash sales.

2. Capital losses may be      deducted   from   the capital        gains     for  the           same       taxable    year only. Net capital loss carryover is not allowed.

3.  No holding period for both capital gains and capital losses.

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CPA Mentor,

JONATHAN RUIZ CPA, MIB

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CAPITAL GAINS (FINAL TAX)

For citizens, resident aliens, and non-resident aliens (both engaged or not engaged in business), as follows:

  1. Sale, exchange or other disposition of real property located in the Philippines considered as capital asset:
  • TRANSACTIONS AFFECTED – Sale or exchange or other disposition of real property located in the Philippines held as capital asset. Sale shall include “pacto de retro” sale and other conditional sales.
  • PERSONS LIABLE TO THE TAX:

A. Every individual and domestic corporation

B. Estate and trust

RATE OF TAX – The final capital gain tax is 6% based on the gross selling price or fair market value of the property at the time of the sale, whichever is higher.

ALTERNATIVE TAXATION – In case of sale or other disposition of real property located in the Philippines held as capital asset by an individual to the Government or any of its political subdivisions or agencies or to a government owned or controlled corporation, the tax shall be either the capital gains tax of 6% or the graduated rates of 5% to 32%, at the option of the taxpayer.

GROSS SELLING PRICE – Means the amount of any money received plus the fair market value of property (other than money) received. Interest included in installment shall not form part of the amount realized but shall be treated as ordinary income.

PAYMENT OF TAX IN INSTALLMENT – The tax maybe paid in installment basis if the initial payments do not exceed 25% of the selling price.

FILING OF RETURN AND PAYMENT OF TAX

A. Cash sale – capital gains tax return is filed and payment of the tax is made within 30 days following each sale, exchange or other disposition of real property capital asset by the seller.

B. Installment sale – capital gains tax return shall be filed and the tax paid within 30 days following the receipt of such installment payment by the seller. The date shown in the instrument of sale shall be presumed to be the date of actual receipt unless the contrary is shown by the seller.

EXCEPTION FROM THE TAX – Requisites:

A. Seller is a natural person (individual);

B. Real property sold is his principal residence;

C. Proceeds of the sale is fully utilized in acquiring or constructing a new principal residence within 18 calendar months from the date of sale. Otherwise, any unused portion shall be subject to the capital gains tax, as follows:

Gross selling price or FMV at date of sale, whichever is higher

 

Unutilized amount = Taxable portion
x   Gross selling price

D. The BIR is duly notified of the taxpayer’s intention to avail of the tax exemption within 30 days from the date of sale through a prescribed return;

E. The tax exemption can only be availed of once every 10 years; and

F. 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.

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JONATHAN RUIZ CPA, MIB

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Exclusion from Compensation Income

What are excluded from compensation income?

The following are the items of “exclusions”:

  1. Proceeds of a life insurance policy.
  2. Amount received by the insured as return of premium.
  1. Compensation for  injuries  or  sickness  received  by  an  employee  pursuant  to  an. Accident or Health Insurance or under the Workmen’s Compensation Act.
  2. Income exempt under Treaty or International commitments of the Philippine Government (e.g., compensation income of U. S. Military Service Personnel while serving the U. S. Military bases in the Philippines).
  3. Retirement and separation benefits.

A. Retirement benefits – retirement benefits are taxable as a general rule, except when received by an employee under the provisions of Republic Act No. 7641, in which case, such benefits are tax exempt. However, the following requisites must be present:

  1. The private retirement or pension plan must be duly registered and approved by the B.I.R.;
  2. The retiring employee must retire at least at age 50;
  3. The retiring employee must have served the employer for at least ten (10) years prior to retirement; and
  4. The retiring employee must avail of the tax exemption only once.

B. Separation benefits – separation benefits are taxable as a general rule. However, if the employee was separated from employment because of death, sickness, or other physical disability or for causes beyond his control (e.g. retrenchment, redundancy and installation of labor-saving device), then his separation pay shall be exempt from income tax.

6. SSS and GSIS benefits.

7. Prizes and awards in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement but only if the recipient was selected without entering such contest or proceedings and will not be required to render substantial future services as a condition to receiving the prize or award.

8. Prizes and awards in sports competition, whether local or international, sanctioned by their National Sports Associations.

9. 13th month pay and other benefits (productivity incentives, loyalty award, 14th month pay, gifts in cash or in kind and Christmas bonus) not exceeding P82,000 (under R.A. 10653).

10. GSIS, SSS, Philhealth, Pag-ibig contributions and Union dues (employee’s share).

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CPA Mentor,

JONATHAN RUIZ CPA, MIB

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COMPENSATION INCOME

Under the new tax code, individual taxpayer’s items of income are grouped together as follows:

I. Compensation – derived from employment    
II. Capital gains – derived from sales of real property and shares of stock  
III.  Passive income – derived  from   winnings,  cinematographic film  and similar  works,  prizes,
  royalty, interest, dividends and share  in  net income of  taxable or business
  partnership (W/C PRIDS)    
IV. Business income – derived from trade, business, practice of profession and other income

What is included? It includes all income arising from an employer-employee relationship (whether monetary or non-monetary), such as:

  • Salaries, wages, compensation, tips, commissions, emoluments and honoraria
  • Bonuses
  • Allowances
    1. Straight allowances, such as transportation, representation, entertainment
    2. Reimbursement or advance-type of allowance (non-taxable)
  • Fringe benefits
  • Retirement and separation benefits
  • Fees, including director’s fees
  • Pensions
  • Other income of a similar nature

Note: Payment received by a partner from a general professional partnership for services rendered shall not be considered compensation income, but rather as ordinary business income.

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