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INCLUSION IN GROSS INCOME SUBJECT TO RCIT

 Compensation for services


o Employee benefits that are subject to regular tax
o Managerial or supervisory employees are not considered compensation income and are subject to
final tax
 Gross income from the conduct of trade, business, or exercise of profession
o Includes income from any trade or business, legal or illegal, and whether register or unregistered
o Business income not included in gross income
 Business income exempt from income tax
 Gross income from BMBE
 Gross income enjoying tax holiday incentives
 Business income subject to special tax regime
 PEZA and TIEZA -5% gross income tax
 Business income subject to final tax
 Sub-contractors of petroleum service contractors -8%
 Business income of FDCU and OBUs -10% final tax
 Gains from dealings in properties
o Dealings in capital assets other than domestic stock and real properties are also subject to RCIT
 Interest – refers to income other than passive interest income subject to final tax
o Must have been actually paid out of an agreement to pay interest
Examples of subject to RCIT Examples of not subject to RCIT
1. From lending activities 1. Earned by landowners
2. From bonds and promissory notes 2. Imputed interest income – does not
3. From bank deposits abroad constitute an actual income

 Rents – arises from leasing properties. Passive but not subject to final tax
o Special considerations
 Obligations of the lessor that are assumed by the lessee are additional rental income to
the lessor
 Advance rentals are
 Item of gross income upon receipt if
o Unrestricted or
o Restricted
 Not an items of gross income
o It constitutes a loan
o It is a security deposit to guarantee payment or rent subject to contingency
 Leasehold improvements made by the lessee on the leased property recognized by the
lessor as income using the spread-out method or outright method
 Royalties
o Generally subject to final tax except when they are active by nature and earned outside the
Philippines
 Dividends
o Dividends declared by foreign corporations.
o Cash, property, and script dividends from foreign corporations are items of gross income
 Annuities
o Excess of annuity payments received by the recipient over premium paid is taxable income the
year of receipts
INCLUSION IN GROSS INCOME SUBJECT TO RCIT

 Prizes and winnings


o That are exempted from final tax are not items of gross income subject to regular income tax
Within Abroad
P10,000 Regular Regular
More than P10,000 Final Regular
Winning other than PCSO Final Regular
and lotto
Note: lotto winnings from abroad are items of gross income subject to regular tax for taxpayers
taxable on global income
Prizes and winnings for corporations is not contemplated in the NIRC. Hence the taxable prizes
and winnings of corporations are subject to regular income tax
 Pensions –pensions and retirement benefits that fail to meet the exclusion criteria
 Partners distributive share from the net income of general professional partnership
o GPP are not taxable rather the partners are the ones subject to regular tax on their share in the net
income of the general professional partnership
GENERAL CRITTERIA FOR ITEMS OF GROSS INCOME
 Not subject to final tax, capital gains tax, and special tax regime and
 Not excluded or exempted by law, treaty, or contract from taxation
OTHER SOURCES OF GROSS INCOME SUBJECT TO RCIT
1. Income distribution from taxable estates or trusts
o Included in gross income subject to RCIT provided that such income must have not been
subjected to final ax or capital gains tax
2. Share from the net income of other pass-through entities
a. Exempt from joint venture
b. Exempt co-ownership
3. Farming income
a. Raise and sell operation –proceeds on sale in included in gross income, animal raising expenses
are items of deductions against gross income
b. Purchase and sell operation –gross profit from sale in included in gross income
4. Recovery of past deduction –should be analyzed whether or not they resulted in tax benefit to the
taxpayer :must be reverted back to gross income so that government will recover the tax lost from the
deduction
5. Reimbursement of expenses
6. Cancelation of indebtedness for a consideration
a. In consideration of service or goods –treated as income
b. Act of gratuity –treated as gift
c. As capital transaction such as forfeiting the right to receive dividends in exchange of the debt –
treated as dividend income

SPECIAL CONSIDERATION IN REPORTING OF GROSS INCOME


1. Accounting method –direct effect on the reportable amount of gross income; regardless of method
advanced income must be included in gross income in the period received
2. Situs rules –affects the extent of income
3. Effect of value added tax – taxpayers who are engaged in business or exercise of profession
4. Creditable withholding tax – tax credits that are deductible against the annual income tax due of the
taxpayer
5. Power of the CIR to redistribute income and expenses – in order to prevent to evasion of taxes or clearly
to reflect the income of any such organization, trade or business