Gross Income means all income derived from whatever source, including, but not limited to,
the following items:
1. Compensation for services in whatever form paid, including, but not limited to, fees,
salaries, wages, commissions, and similar items.
2. Income derived from the conduct of trade or business or the exercise of a profession
3. Gains derived from dealings in property
4. Interest
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions
11. Partner's distributive share from the net income of a general professional partnership
Compensation Income means all remuneration for services performed by an employee for
his/her employer under the employee-employer relationship, unless expressly excluded by the
Tax Code.
Director's Fee
If the director is at the same time an employee of the company, the director's fee shall be
included as part of gross taxable income. If the director is not an employee, the director's fee
shall be subject to creditable withholding tax as follows:
a. 10% if the fee is P720,000 and below; and
b. 15% if the fee exceeds P720,000
Separation Pay
Separation pay is taxable if voluntary on the part of the employee. Payment of separation
pay is not taxable on account of:
a. Sickness
b. Disability
c. Death
d. Reorganization of the company
e. Bankruptcy of the company
Retirement Pay
5. Company's own share of stock FMV of stock at the time services are
rendered
6. Cancelation of debt a. Presence of employee-employer
relationship - taxable amount is equal to
the debt canceled
b. Cancelation of debt without
consideration - amount canceled is a gift
or donation
c. Cancelation of debt of stockholder
without consideration - debt canceled
represents dividend payment
Business Income
Gross income derived from business shall be equivalent to gross sales less sales returns,
discounts and allowances and cost of goods sold.
Gross sales or receipts xxxxxx
Less:Sales returns and allowances xxxxxx
Sales discounts xxxxxx xxxxxx
Net Sales xxxxxx
Less:Cost of Sales xxxxxx
Gross Income xxxxxx
Installment Method
The following may report income under e installment method:
1. A taxpayer who regularly sells a personal property on installment basis
2. A taxpayer who makes a casual sale of personal property, other than inventory, on installment
basis, provided the selling price exceeds P1, 000 and the initial payments do not exceed 25% of
the selling price
3. A taxpayer who sells or disposes real property on installment basis, provided the initial
payments do not exceed 25% of the selling price
b. On subsequent collection
Income to be reported = Gross Profit x Amount of installment collection received
Contract Price
2. Mortgage assumed by the buyer does not exceed the cost to the seller
Selling price xxxxx
Less : Mortgage assumed by the buyer xxxxx
Contract price xxxxx
Interest Income
1. Interest income on bank deposits
a. Earned within the Philippines - subject to 20% final tax
b. Earned outside the Philippines - included in gross taxable income subject to
schedular tax rate.
2. Interest income arising other those from bank deposits - included in gross taxable
income subject to schedules tax rate.
Rent Income
Taxable rent income is the sum of
1. Current rent or lease payment;
2. Advance rent payment or security deposit without restriction in the tear received
regardless of the accounting method used;
3. Payment of the lessee to the third parties in behalf of the lessor;
4. Uncollected rent income earned already (accruals) at the end of the period; and
5. Income from leasehold improvements.
Dividend Income
Received from domestic by :
3. Resident citizen, non-resident citizen, resident alien - subject to 10% final tax
4. Non-resident alien engaged in business in the Philippines - subject to 20% final tax
5. Non-resident alien not engaged in business in the Philippines - subject to 25% final
tax
6. Domestic or resident or resident foreign corporation - tax-exempt
7. Nonresident foreign corporation - subject to 30% final tax effective January 1, 2009
with reciprocity of 15%
Received from resident foreign corporation non-resident foreign corporation - included
as part of gross taxable income.
c. Taxpayers taxable within and without the Philippines - recognized full amount of
dividend as taxable income
d. Taxpayers taxable only within the Philippines - recognized dividend income earned
only within based on the ratio of gross income for the preceding three ears prior on
declaration of dividends realized in the Philippines against the total income.
6. Ratio is less than 50% - income of foreign corporation is purely without
7. Ratio is 50% to 85% - income of foreign corporation is partly within and partly
without
8. Ratio is more than 85% - income of foreign corporation is within the Philippines
9. Problem is silent - income of foreign corporation is assumed realized within the
Philippines
Tax Refunds
1. Tax refund is taxable - if refunded tax is a deductible tax
2. Tax refund is non-taxable - if refunded is not deductible tax
Computation of Income Within When Production Price or Independent Factory Has not Been Established
Allocation based on gross sales xxxxx
Add:Allocation based on value of property xxxxx
Taxable income within
a. Moral damages arising from grief, anxiety, libel, defamation, slander, breach of promise
to marry
b. Exemplary damages
c. Actual and liquidated damages for injuries
d. Damages to compensate loss of goods or belongings
e. Amounts received through Accident or Health Insurance or under Workers
Compensation Act
f. Amounts of any damages received, whether by suit or agreement, on account of such
injuries or sickness
Taxable compensation for injuries
a. Damages to compensate loss of income or profit
b. Compensatory damages
c. Payment of interest on non-taxable damages
6. Retirement Benefits
a. Retirement benefits received under Republic Act. No. 7641 and those received by officials
and employees of private firms, whether individual or corporate, in accordance with a
reasonable private benefit plan maintained by the employer provided:
That the retiring official or employee has been in the service of the same
employer for atleast 10 years;
The retiring official or employee is not less than 50 years of age at the time of
his/her retirement;
The benefits granted shall be availed of by an official or employee only once.
c. Benefits received from or enjoyed under the Social Security System in accordance with the
provisions of Republic Act No. 8282
d. Benefits received from the GSIS under Republic Act. No. 8291, including retirement gratuity
received by government officials and employees.
e. Payment of benefits due or to become due to any person residing in the Philippines under the
laws of the United States administered by the United States Veterans Administration.
f. Socials security benefits, retirement gratuities, pensions, and other similar benefits received
by resident or non-resident citizens of the Philippines or aliens who come to reside permanently
in the Philippines from foreign government agencies and other institutions, private, or public.