Anda di halaman 1dari 14


What is Passive Income?

It is the profit or gain earned by the
taxpayer without effort or labor
Ordinarily, Passive Income is subject to
Final Tax, and shall be withheld by
the payor/withholding agent and
remits the same to the BIR.
What are income classified under
Passive Income?
• Interest income
• Rent income
• Dividend income
• Annuities
• Prizes and winnings
• Recovery of Bad debts
• Tax refund
Types of Income RC/NRC/RA NRA-ETB
a. Interest Income
• Interest Income - Philippines 20%
• Yields/Other monetary benefits – Phil.
• Interest Income from LT deposits (5 yrs. Up) Exempt
• If LT Deposit is pre-terminated:
4 – less than 5 years 5%
3 – less than 4 years 12%
Less than 3 years 20%
• Interest Income under E-FCDS 7.5% (NRC-Exempt) Exempt
b. Royalty Income
• In general 20%
• Books, literary works, musical works – Phil. 10%
c. Prizes and winnings (PCSO/Lotto exempted)
• In general 20%
• Less than P10,000 Subject to Basic Tax

• All Passive Income outside the Philippines earned by an RC shall included as part of the GI.
What are Leasehold Improvements?
Are additions, improvements, major renovation,
or complete new structure to the existing
property to improve the present condition,
appearance or working capacity.
What is the appropriate treatment of leasehold
improvements that will become the property of the
lessor at the end of the lease?

The monetary value of the improvement shall

be recognized as income by the lessor in
addition to the annual rent income. These
methods may be used to recognize income:
• Outright method
• Spread-out method
What is dividend income?
This is an income earned by a taxpayer from
distribution of earnings/profits of a corporation.
Dividend income not subject to final tax shall be
included in the GI of the taxpayer.
What are the forms of dividends?
• Cash dividend – subject to final tax based on cash
received. However, DC and RFC is tax exempt.
• Property dividend – subject to final tax based on
FMV of property at the time of declaration.
However, DC and RFC are tax exempt.
• Stock dividend – basically tax exempt but taxable if
representing distribution of earnings.
• Liquidating dividend – basically not taxable. But if
dividend exceeds the cost of investment, it is
subject to CGT.
• Scrip dividend – subject to final tax based on the
FMV of the note.
What is the treatment, if dividend is received from:
Recipient DC RFC NRFC
RC Included in GI. In
NRC 10% Final Tax case, income within
of RFC is:
RA Less than 50% - Included in GI
NRAETB 20% Final Tax NOT included in GI
NRANETB 25% Final Tax More than 50% up
to 85% - pro-rated
DC More than 85% and
RFC Exempt silent – included in
NRFC No Reciprocity – NA
30% Final Tax
W/ Reciprocity –
15% Final Tax
What are Annuities?
Annuity refers to the installment paid for life
insurance coverage returned by an insurance
If the annuity represents interest it is taxable
and included in the GI, while if it is just a
return of premium it is not taxable.
Of the bad debts recovered, how much should be
recognized as income in the period of collection or
Section 34 (E) of the NIRC indicates that the
amount of income to be recognized on bad debt
recovery shall be limited to the extent of the
income tax benefit of bed debt deduction. (Tax
Benefit Rule)
Rule on Tax Refund

Basic rule is that Tax Refund is

taxable. If it is deductible as
expense it is taxable; if not, NOT
The ff. tax refunds are NOT TAXABLE:
• Philippine Income Tax, except FBT
• Estate/Donor’s Tax
• Stock transaction Tax
• Tax Credit on IT paid in Foreign Country
• Income Tax deficiency and Special Assessment