Income taxation by ampongan chapter 1 to 4

EXERCISES 1-1 10 D F, K I EXERCISES 12 11 K 12 J 13 A J J B E H C F F F F F F F F T 10 T M EXERCISES – 11 12 13 14 15 16 17 18 19 20 T T F F F F T T T T 21 22 23 24 25 26 27 28 29 30 F T T T T 31 32 33 34 35 F F T T T T F F F T EXERCISES –4 B 11 A A C 12 B A C 13 D D B 14 A B C 15 A B D 16 C C A 17 C B C 18 C C C 19 D B 10 C 20 C 10 C 11 12 13 14 15 16 17 18 19 20 B A A C C B D A C B 2 2 A A D D C D C D B C 31 32 33 34 35 D C B A A EXERCISE – The claim of the Commissioner should be denied Rule-making power must be confined to details for regulating the mode or proceedings in order to carry into effect the law as has been enacted, and it cannot be extended nor can it expand the statutory requirements or to embrace matters not covered by the statute Administrative regulations must always be in harmony with the provisions of the law because any resulting discrepancy between the two will always be resolved in favor of the basic law EXERCISE – YES Double taxation means taxing twice the same property twice when it should be taxed only once; that is “taxing the same person twice by the same jurisdiction for the same thing.” Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character There is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila to contribute to city revenues; (3) by the same taxing authority – the City of Manila; (4) within the same taxing jurisdiction –within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business Moreover, Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are “not otherwise specified in preceding paragraphs.” EXERCISE – Excise Community Due process Donor’s tax Shifting E Lifeblood Toll School Revenue 10 Tax amnesty L S H I F T L I F E B L C O X M E M U N X O I T R E Y T S I N G S C L O O D H N A V E N U E T S O R O L S E C O D S O R P E U E N M A X A T D EXERCISE 2–1 The query should be addressed to the Commissioner of Internal Revenue because the power to interpret the provisions of the National Internal Revenue Code (NIRC) and other tax laws is under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance Moreover, interpretation of officers, of laws which are entrusted to their administration, is entitled to great respect and have in their favor a presumption of legality (Anscor Container Corporation v CTA, GR No 38052, August 31, 1998) I will inform him that a compromise is not allowed anymore because the case has already been filed in court The moment the case is filed in court, it cannot be subject to compromise anymore Piolo is correct Under RA 1405 the BIR Commissioner’s power to inquire into a taxpayer’s bank deposit is not in conflict with the Bank Secrecy Law Based on the provision of the NIRC, the Commissioner is authorized to inquire into bank deposit: a To determine the gross estate of a decedent; and b When a taxpayer applies for a compromise of his tax liability by reason of financial incapacity I will request for a compromise of the assessed tax on ground that the financial position of the taxpayer demonstrates clear inability to pay the assessed tax Clearly, even if the case is decided against the taxpayer, he will not have the money to pay the assessed tax It is therefore an exercise in futility to forego with the case against him The claim for refund should be denied on ground of prescription Recovery of taxes erroneously paid or illegally collected are allowed only when filed within the two-year prescriptive period The two-year period should be computed from the time of actual filing of the Adjustment Return and final payment of the tax (Phil Bank of Communications vs CIR, 302 SCRA 241) Thus, the two year prescriptive period lapsed on April 5, 2008 The Commissioner may not grant the refund when there is a deficiency tax assessment against the claimant-taxpayer To award such refund despite the existence of the deficiency assessment is an absurdity and a polarity in conceptual effects (Commissioner vs CA and Citytrust Banking Corp, 234 SCRA 348) Yes Where a corporation paid quarterly corporate income taxes in any of the first three quarters during the taxable year but incurs a net loss during the taxable year, the two-year period for the filing of claim for refund or credit shall be counted from the date of the filing of the annual corporate income tax return (Commissioner vs TMX Sales, 205 SCRA 184) a The counting of the two (2) year period commences to run from the date of final payment Considering that the final payment was made on July 9, 2009, the prescriptive period will end on July 9, 2011 b Augusto has thirty days from receipt of the decision of the CIR to file an appeal with the CTA Since it was received on May 15, 2011, he has until June 14, 2011 to file his appeal with the CTA c He is given 30 days from receipt of the CIR’s decision but not exceeding years from the date of final payment Hence, he has until July 12, 2011, or the day following the receipt of the decision, to file an appeal with the CTA EXERCISE 2-2 MULTIPLE CHOICE C A The National Bureau of Investigation and the Bureau of Immigration are under the Department of Justice The Bureau of Local Government Finance is under the Department of Interior and Local Government A The BIR is inferior to the Court of Tax Appeals in terms of tax cases Thus, the BIR is not empowered to review the decision of a superior court B D C The power to decide tax cases is more of a power and duty of the Commissioner rather than the Bureau of Internal Revenue B The Community Tax is levied under the Local Government Code of 1991 The Overseas Communication Tax and the Gross Receipts Tax are business taxes under Section 120 and 121, respectively, of the National Internal Revenue Code The documentary stamp tax is levied under Title VII of the NIRC A The power to interpret the provisions of the NIRC is under the exclusive original jurisdiction of the Commissioner of Internal Revenue, subject to review by the Secretary of Finance D Under RA 1125, as amended, the decisions of the Commissioner of Internal Revenue on cases pertaining to disputed assessments, refunds of taxes, fees and other charges, penalties, etc is appealable only to the Court of Tax Appeals 10 D The limited power of the Commissioner does not conflict with RA 1405 because the provision of the Tax Code granting this power is an exception to the Secrecy of Bank Deposits Law The Commissioner or his duly authorized representative may be allowed only to inquire into the bank deposits of the taxpayer on the following cases: a To determine the gross estate of the decedent b Where the taxpayer has filed an application for compromise of his tax liability by reason of financial incapacity; and c When there is a waiver duly signed by the taxpayer 11 C Revenue Audit Memorandum Order, Revenue Special Order and Revenue Travel Assignment Order are not exercises of legislative power Revenue Regulations are more detailed interpretation of the tax laws It is issued by the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue 12 D The case cannot be compromised anymore if the case is filed already before the courts of justice and if the case involves fraud 13 B 14 B Corporations are not allowed to be registered by the Securities and Exchange Commission for the purpose of practice of public accountancy (RA 9298) 15 C A withholding agent is a party in interest having sufficient legal interest to bring a suit for refund of taxes illegally collected from him The claim for refund must be filed with the CIR before any suit in Court of Tax Appeals is commenced The computation of the two-year period starts from the filing of the final adjustment return because it was only then that it could be ascertained whether the taxpayer made profits or incurred losses in its business operations 16 D The last day to claim refund is June 30, 2009 or two (2) years from the date of final payment 17 A Taxpayers are given 30 days from receipt of BIR decision but within two (2) years from the date of payment, to appeal the decision to the Court of Tax Appeals 18 D When the 2-year period is about to lapse, the suit or proceeding must be started in the Court of Tax Appeals without awaiting for the decision of the Commissioner, or the 30-days reglementary period from receipt of decision to appeal to the CTA 19 C The best action is to file an appeal with the Court of Tax Appeals before the lapse of the 2-year prescriptive period, without waiting for the decision of the Commissioner of Internal Revenue 20 D The counting of the 30 day prescriptive period for appeal starts from the date of receipt of the decision because it would be unfair on the part of the taxpayer to include in the counting the date while the decision is still in the table of the Commissioner or it is still in transit EXERCISE 2–3 The proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another Even if Petron passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser An excise tax is an indirect tax where the tax burden can be shifted to the customer but the tax liability remains with the manufacturer or producer The excise taxes are collected from manufacturers or producers before removal of the domestic products from the place of production Although excise taxes can be considered as taxes on production, they are really taxes on property as they are imposed on certain specified goods When Petron removes its petroleum products from its refinery in Limay, Bataan, it pays the excise taxes due on the petroleum products thus removed Petron, as manufacturer or producer, is the person liable for the payment of the excise tax as shown in the Excise Tax Returns filed with the BIR Stated otherwise, Petron is the taxpayer that is primarily, directly and legally liable for the payment of the excise taxes However, since an excise tax is an indirect tax, Petron can transfer to its customers the amount of the excise tax paid by treating it as part of the cost of the goods and tacking it on to the selling price Silkair as the purchaser and end consumer, ultimately bears the tax burden, but this does not transform petitioner’s status into a statutory taxpayer In the refund of indirect taxes, the statutory taxpayer is the proper party who can claim the refund Petitioner should invoke its tax exemption to Petron before buying the aviation jet fuel Petron, however, remains the statutory taxpayer on those excise taxes CHAPTER EXERCISES 31 The partnership is not liable to pay income tax considering that no income was earned during the year The increase in the net assets was caused by the additional contribution of P10,000 by the partners The contention of Judge Nitafan is wrong Payment of income tax by judges is not covered by the constitutional protection against diminution of their salaries during their continuance in office Income taxation for the members of the judiciary give substance to the equality among the three branches of the government consisting of the executive, legislative and the judiciary a Face value Less: Discount (100,000 x 20%) Income subject to tax/Fair discounted value P 100,000 20,000 80,000 b Discount x Due in 2008 Income subject to tax, 2008 P 20,000 50% 10,000 c Income reportable in 2009 ( P20,000 x 50%) P 10,000 Whenever a stockholder is indebted to the corporation and said creditor corporation decides to condone the debt, such condonation has the effect of a payment of dividend to the stockholder Therefore, the condonation made by Dial Corporation to Rodolfo is in effect a payment of dividend by Dial Corporation to Rodolfo If Rodolfo is the creditor while Dial Corporation is the debtor and the former decides to condone the debt of the latter, the amount is considered as an additional investment by Rodolfo to the corporation Larry is not required to report income on the condonation considering that the condonation of debt was given without requiring him to render services The P50,000 constitutes more as a taxable gift rather than as a taxable income Yes the amount of P30,000 is in the nature of a remuneratory donation; it is subject to income tax Under the tax benefit rule, whenever a bad debt is claimed as deduction from gross income and it resulted to a reduction in its tax liability, the recovery of such is subject to tax Thus, when Pamco wrote off the accounts and claimed it as deduction from gross income, there was a corresponding reduction in the tax liability It being the case, the recovery of such debt is taxable to PAMCO but only up to P90,000, the amount that has been beneficial to PAMCO a b c d e f g h i j Value-added tax Real property tax Income tax Stock transaction tax Special assessment Occupation tax Estate tax Income tax paid to a foreign country Community tax Excise tax - not taxable - taxable - not taxable - not taxable - not taxable - taxable - not taxable - taxable if claimed as deduction - taxable - taxable a Yes, the dividends are subject to a final tax of 10% b The dividends paid are in effect property dividends They are subject to a final tax of 10% c The dividends paid are actually stock dividends They are not subject to tax d Although some stockholders were paid stock dividends, since others were paid cash, such declaration and payment resulted to a change in proportionate interest Thus, both the stockholders who were paid stocks and cash dividends are subject to final tax 10 a Dividends received from domestic – not taxable b Dividends received by resident foreign - not taxable from domestic c Dividends received by nonresident foreign corporation from domestic – 15% final tax if the country in which the nonresident foreign corporation is domiciled shall allow tax credit of 17% in its income tax payable in such foreign country 11 a Mr Sips is entitled to 10% of the value of confiscated smuggled goods but not exceeding P1,000,000 Since 10% of the value of the smuggled goods is P10,000,000 (P100,000,000 x 10%), Mr Sips is entitled only to P1 million as tax informer’s reward b The reward received by Mr Sips is subject to a final withholding tax of 10% Hence, the amount of tax to be withheld in favor of the government is P100,000 (P1,000,000 x 10%) 12 a Under Outright Method, the lessor is required to report as income the fair market value of the improvement at the time of completion Thus, she has to report an income of P100,000 on the leasehold improvement and P48,000 (P4,000 x 12) on the rent, or a total amount of P148,000 b Rent (P4,000 x 12) Add: Income on leasehold improvement Cost of improvement Less: Accumulated depreciation (100,000/25 x 18.5) Book value, end of lease (26,000 / 18.5 x ½ ) P 48,000 P 100,000 74,000 26,000 703 48,70 c Rent ( 4,000 x 6) P24,0 00 Leasehold improvement: Cost P 100,000 Less: Depreciation - July 1, 2009 to June 30, 2010 (100,000 / 25) 4,000 Book value upon termination 96,000 Less: Amount already reported as 703 income Income of lessor in 2010 3-2 TAX BENEFIT RULE 3ANSWER: B 2.1: Case – P 40,000 Case - 20,000 Case - 40,000 Case 70,000 (85,000 – 15,000) 32.2: (1) ANSWER: D Gross profit 800,0 00 30,00 830,00 Add: Bad debts recovered Total Less: Accounts writtenoff Deductible expenses Net income before income tax 32.3: P 50,000 440,000 490,00 340,00 (2) ANSWER: D Gross income before taxes Less: Deductible taxes Amusement tax Local business taxes Net loss P 90,000 P 80,000 40,000 120,00 ( 30,00 95,2 97 119,2 97 1,575,00 Book value upon termination Less: income Amount declared as 2008 2009 2010 2011 21,429 42,857 42,857 42,857 Total 150,00 1,425,0 00 1,440,0 00 EXERCISE 3-3.2: ANSWER: A Rent (2,000 x 12) 24,0 00 1,000,0 00 1,024,0 00 Leasehold improvement Income using outright method ANSWER: C Rent (2,000 x 12) Leasehold improvement: Cost Depreciation for years (1,000,000/20 x 9) Book value, end of lease Annual income (550,000/ years) Income under spread-out method 24,00 1,000, 000 450,0 00 550,00 61,111 85,111 ANSWER: C Annual income reportable x No of years of reporting Loss incurred by Bryant 61,11 61,111 Note: It is presumed that Bryant had already reported his entire income on leasehold improvement for the taxable year 2010 but not his income from January to February 28, 2011 EXERCISE 3–3.3: ANSWER: B Rent income Income on leasehold improvement: Cost of improvement Less: Depreciation for 15 years (600,000/30 x 15) Book value, end of lease Divide by remaining term of lease (years) Annual income to be reported 36,0 00 600,00 300,0 00 300,0 00 20,00 56,00 EXERCISE 3–3.4 ANSWER: A The income from rent received by Vic is taxable to him, while the amount given as loan is not because there was no gain realized by Vic in this transaction As a matter of fact, there was no gain realized whether as payment for services, interest or profit from investment ANSWER: C Cost of improvement Less: Depreciation for years(P2,000,000/50 x 8) Book value, end of lease Rent income Income from leasehold improvement (P1,680,000 / 8) Total income using spread-out method ANSWER: D EXERCISE 3–4.1: ANSWER: D P 2,000,00 320,00 1,680,00 P 10,000 210,000 220,000 Value of promissory note Less: Discount (P120,000 x 20%) Taxable income, 2007 P 120,000 24,000 96,000 ANSWER: D Discount Less: Income to be reported in 2008 (24,000 x 50%) Taxable income, 2009 24,00 12,000 12,000 EXERCISE 3–4.2: ANSWER: C Value of promissory note Less: Discount (P50,000 x 25%) Taxable income, 2008 P 50,000 12,500 37,500 ANSWER: B Value of promissory note Less: Amount already declared as income Taxable income, 2009 P 50,000 37,500 12,500 EXERCISE 3–4.3: ANSWER: C Payment for services rendered by promissory note which can be discounted, is taxable to the payee at its fair discounted value EXERCISE – MULTIPLE CHOICE ANSWER: B A schedular system of taxation is a system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer It is distinguished from global system in the sense that the latter is employed where the tax system views indifferently the tax base and generally treats in common all categories of taxable income of individual (Tan vs Del Rosario, 237 SCRA 324, 331) ANSWER: C Dividends received by a domestic and resident foreign from a domestic corporation are not subject to income tax Dividends received by a resident citizen from a domestic corporation are subject to a final tax of 10% Dividends received by a domestic corporation from a foreign corporation are subject to ordinary income tax ANSWER: C Winnings in lotto are tax exempt ANSWER: C Value-added tax, other percentage taxes and excise tax on certain goods are taxes found under Titles IV, V and VI, respectively of NIRC, which contain the provisions on business taxation; whereas, income taxation is discussed in Title II of the same code ANSWER: B The amount of P3,000 raised by Mon is a gift which should be excluded from gross income because when a financial aid is asked, that means that there is no legally demandable obligation on the part of other people to give him money ANSWER: D Income refers to earnings, lawfully acquired, without consensual recognition, express or implied of an obligation to repay and without restriction as to their imposition (James vs US, 366 US 213) ANSWER: C The amount received by Ceidi and Ador fall within the ambit of “income from whatever source derived” because these are income not expressly excluded or exempted from the class of taxable income The above phrase is so broad that it includes all income not expressly excluded or exempted from the class of taxable income, irrespective of voluntary or involuntary action of the taxpayer in producing the income (Gutierrez vs CIR, CTA Case No 65) ANSWER: D The amount of indebtedness cancelled due to services rendered by the debtor is considered as compensation income It is just like paying an employee by an amount equivalent to the services he had rendered to his employer-creditor ANSWER: C The money value of accumulated leave credits not exceeding 10 days is not taxable to the employee Travelling expenses received by an employee who was sent on a business trip are not taxable to the employees provided that these employees are required to liquidate said expenses Tips received by waitresses directly from customers which are not accounted for by the employer to the employer are considered taxable income ANSWER: D If a corporation to which a stockholder is indebted forgives the debt, the transaction has the effect of a payment of dividend (Sec 5, Rev Regs No 2) 1 ANSWER: B The money given to Lazaro is a remuneratory donation It is deemed an income, subject to income tax ANSWER: C Tips Liability condoned after rendering service Taxable income 5,0 00 25,000 30,000 ANSWER: A Selling price (115 x 200) Less: Cost (100 x 200) Gain on sale 23,000 20,000 3,000 Date Cost per share Shares 1-24-2008 P 100 200 Total Cost P 20,000 2-05-2008 200 22,000 4-12-2008 (400 x 5%) 20 420 New cost per share (42,000/420) P 100 42,000 110 ANSWER: D Selling price (115 x 200) 23,00 19,046 3,954 Less: Cost (95.23 x 200) Gain on sale No of Shares Date Old Cost 1-24-2008 P20,000 New Cost per Share New 200 210 P 95.23 ANSWER: C Market value of shares - Mina Company x No of Common shares Property dividend 120 150 18,000 ANSWER: D Market value of stocks dividends per share Stock dividend received by Rosa (1,000 x 20%x10%) Dividend income 30 20 600 ANSWER: A Selling price (30 x 25) Less: Cost (5,000/125) x 25 Loss 750 1,000 ( 250) Amount Number Shares P 5,000 100 Dividend (100 x - 25%) 25 Total 5,000 125 ANSWER: D Sale of dividends (P60 x 40) 2,40 Less: Cost 200 (200 20 (200 x P55) x 20%) 220 11,0 00 - 11,0 00 (11,000/220) x P40 2,000 400 Gain on sale ANSWER: A Total sale (P400,000 + 50,000) 450,00 Less: Cost 240,00 35,0 00 Book value of farm equipment Gain on sale Add: Other income Gross income 275,00 175,00 12,50 187,50 EXERCISE 4–1 CROSSWORD PUZZLE % D Y T W E R A L V L E M N K & F R S E I N G S I S E C L O M T H EXERCISES 4-2 a Interest on corporate bonds b Salary c Tips d Winnings in lotto e Winnings in jueteng f Money stolen from mother’s purse g Rice subsidy of P325 per month I N G S - Taxable - Taxable - Taxable - Not taxable (expressly exempt under the law) - Taxable (income from whatever source derived) - Taxable (income from whatever source derived) - Not taxable (de minimis benefit) The value of the free meals and lodging is not taxable to Yaya It is very clear that the couple required her to stay in their house for their own benefit Hence, the matter falls squarely within the “convenience-ofthe-employer rule.” No The equivalent value of the living quarter is not taxable to Kulas under the convenience-of-the-employer rule The purpose of the piggery farm in providing Kulas a room inside the premises is for the convenience of Habang Bata Pa Piggery Farm The P1,000 of the rice allowance is considered as a de minimis benefit which is exempt from income tax Thus, it is neither subject to creditable withholding tax nor to fringe benefit tax The excess of P200 over the P1,000 ceiling per employee is part of “Other Benefits” which maybe subject to income tax if the total other benefits exceed P30,000 Otherwise, it is exempt from income tax The free parking, courtesy discounts, and rice subsidy of P1,000 a month fall under the “de minimis benefits” which are exempt from income tax The excess of the laundry allowance in the amount of P450 (P750300) is part of gross income if such excess is beyond the P30,000 ceiling for “other benefits.” The rental value of the residential property is subject to fringe benefits tax which is subject to final tax Therefore, not part of the gross income The cost of the educational assistance extended by the University of Saint Anthony to its teachers are supposed to be treated as part of the teacher’s gross compensation income considering that the teachers are neither classified as managerial nor supervisory employees; they are still classified as rank-and-file employees However, since there is a condition that they should remain in the employ of the employer for at least ten years after graduation, the expenditure shall be considered as for the convenience of the employer’s trade or business Therefore, whether the granting of the benefit is extended through a qualifiying or competitive examination or not, it is not part of the gross compensation income of the employees The cost of the tuition fees are attributable to the operation and conduct of business of the employer Therefore, the same shall be deducted from the gross income of the school ANSWERS TO EXERCISE 4–3 ANSWER: C Fringe benefit expense Fringe benefit tax expense Deductible expense ANSWER: C Fringe benefit expense Divide by Grossed-up monetary value ANSWER: 34,00 16,000 50,000 34,0 00 68% 50,000 A The fringe benefit tax is imposed only if the fringe benefit is given to managerial or to supervisory employees Accounting clerks, janitors and the security guards are rank-andfile employees Only the company’s general manager is a managerial or supervisory employee Therefore, the fringe benefit tax must have been given to him ANSWER: B The one sack of rice is not subject to fringe benefit tax on the first P1,000 per employee per month; the excess maybe also be exempt if forming part of the other benefits not exceeding P30,000 A corporation, though exempt from tax, is not exempt from the payment of fringe benefit tax The equivalent value of free lodging given to a driver of an obstetrician falls under convenience of the employer rule which is not subject to fringe benefit tax The employer’s share in the GSIS contribution is not subject to income tax EXERCISE 4-4 ANSWER: B Fees in civic club Life insurance premium Monetary value Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 5,000 15,400 20,400 68% 30,000 32% 9,600 ANSWER: B Fees in a civic club Life insurance premium Total Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 5,000 15,400 20,400 68% 30,000 32% 9,600 ANSWER: B To rank and file employees: Christmas bonus Loan benefits [96,000 x (12%-8%) Medical allowance Uniform allowance To the supervisor: Christmas bonus 32,000 3,840 16,000 12,000 4,000 63,840 Fees in civic club Life insurance premium Uniform allowance Fringe benefit expense Fringe benefit tax expense Total deductions ANSWER: 5,000 15,400 3,000 27,400 91,240 9,60 100,84 C Rank and file: Christmas bonus (max: P 5,000 / employee 32,000 p.a.) Medical allowance (max: 150 per employee 14,000 p.m.) Uniform allowance (max: 3,000 / employee 12,000 p.a.) Supervisor: Christmas bonus Uniform allowance Total de minimis benefits ANSWER: 4,000 3,000 65,000 A EXERCISE: 45 ANSWER: C As a general rule, free meals and lodging furnished by the employer to the employees are taxable to the latter However, allowances furnished for and as a necessary incident to the property performance of his duties are not taxable because they fall under the “convenience of the employer rule.” ANSWER: C Tony’s gross income is P9,500 because his employer’s residence is not the place of business where the employer conduct a significant portion of his business On the other hand, Bert’s gross income should not include the monthly value of his free meals and living quarters because the provision enables Cristy to avail of the services of Bert at her convenience (RAMO 1-87) ANSWER: D The free meals are given by the employer to provide sanitary meals to its employees, while the free lodging are provided because they not want the workers to find difficulty in looking for boarding houses These benefits are obviously furnished for the benefit of the employees and not to the advantage of the employer It is therefore, apparent that the allowances furnished are in the form of fringe benefits However, since they are given to ordinary workers which fall within the classification of rank-and-file employees, the benefits are taxable to them and are includible in the computation of their respective gross income ANSWER: D The grossed-up monetary value includes the monetary value of the fringe benefit received by the employee from his employer and the amount of fringe benefits tax due thereon which was paid by the employer ANSWER: D The use of aircraft owned and maintained by the employer shall be treated as business use and not subject to fringe benefits tax ANSWER: D Sikyo is a rank-and-file employee All fringe benefits given by his employer are not subject to fringe benefits tax The free meals and lodging given to Col Corporal are specifically exempt from fringe benefits tax Moreover, it is also furnished for the convenience of the employer (the Philippine Government) so that the military officer shall be readily available when his services are required The uniform allowance falls under de minimis benefits which are exempt from the fringe benefits tax ANSWER: B De minimis benefits are of relatively small value that they are exempt from the payment of fringe benefits tax and ordinary income tax ANSWER: B Fringe benefits given to rank and file employees are exempt from fringe benefits tax However, there are benefits which are subject to regular income tax depending upon the nature of benefits the employees have received from their employer ANSWER: D A residential property owned by the employer and assigned to an employer for use as his residence is subject to fringe benefits tax based on the 5% of the fair market value of the land and improvements 10 ANSWER: D Unlike other individual taxpayers, nonresident aliens not engaged in trade or business are subject to fringe benefits tax at a rate of 25% of the grossed-up monetary value EXERCISES 4-6 ANSWER: C Purchase of groceries Divide by Grossed-up monetary value Rate of tax Fringe benefit tax ANSWER: A Monthly salary Free meals and living quarters (P1,500 + 1,000) Monthly gross compensation income 4,00 2,500 6,500 ANSWER: B Salary 10,50 68% 15,441 32% 4,941 4,000 ANSWER: D Cost of first class ticket Rate subject to fringe benefit tax $ 2,500 30 % Fringe benefit Exchange value in Philippine currency Fringe benefit subject to fringe benefit tax Divide by Grossed-up monetary value Rate Fringe benefit tax ANSWER: D Monetary value (P800,000/5) x 50% Divide by Grossed-up monetary value Rate of tax Fringe benefit tax Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 5,00 68% 7,352 32% 2,353 ANSWER: C Interest at benchmark rate (P100,000 x 12% x 8/12) Less: Interest at special rate (P100,000 x 9% x 8/12) Interest foregone/value of benefit Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 80,00 68% 117,64 32% 37,647 ANSWER: B Monetary value (P10,000 x 50%) 750 40 30,000 68% 44,117 65 32 % 14,117 65 8,000 6,000 2,000 68% 2,941.1 32% 941.18 ANSWER: A Total expenses incurred Divide by 16,00 68% Grossed-up monetary value Rate of tax Fringe benefit tax ANSWER: D Salary of driver and housemaid (P4,000 + 2,000) Membership fees and dues (P75,000/12) Monetary value of benefit Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 10 Divide by Grossed-up monetary value Rate of tax Fringe benefit tax ANSWER: D Monetary value (P3,400 x50%) Divide by Grossed-up monetary value Rate Fringe benefit tax Add: Monthly rental Fringe benefit to clerk Deductible expense 12 6,00 6,250 12,250 68% 18,015 32% 5,765 ANSWER: A Fair market value (higher) 11 23,529 32% 7,529 ANSWER: 2,500,00 68 % 3,676,4 71 32 % 1,176,4 71 1,70 68% 2,500 32% 800 3,400 3,000 7,200 D Fringe benefit to supervisory employees Divide by Grossed-up monetary value Rate Fringe benefit tax 170,000 68% 250,000 32% 80,000 ... (1, 800,000/30 x 3.75) 15 ,000 1, 800,00 225,00 1, 575,00 Book value upon termination Less: income Amount declared as 2008 2009 2 010 2 011 21, 42 9 42 ,857 42 ,857 42 ,857 Total 15 0,00 1, 42 5,0 00 1, 44 0,0... value (P10,000 x 50%) 750 40 30,000 68% 44 ,11 7 65 32 % 14 ,11 7 65 8,000 6,000 2,000 68% 2,9 41 . 1 32% 9 41 . 18 ANSWER: A Total expenses incurred Divide by 16 ,00 68% Grossed-up monetary value Rate... Annual income (550,000/ years) Income under spread-out method 24, 00 1, 000, 000 45 0,0 00 550,00 61, 111 85 ,11 1 ANSWER: C Annual income reportable x No of years of reporting Loss incurred by Bryant 61, 11