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FUNDAMENTALS OF INCOME TAXATION
FUNDAMENTALS OF INCOME TAXATION ‘Gross Income -all waaith which flawe ints the TP thar than a mace raters af eanital and inehaelac ain ‘Tax Accounting Methods * Advanced income is taxable upon receipt (service income) * Prepayments are nan-deduetible 1. Principal Method a. Cash Basis - add prepaid exp., end and less prepaid exp., beg b. Accrual Basis - add adv, Income, end and less adv. Income, beg. (¢. Hybrid Basis - combi of cash and accrual 2. Deferred Payment Sales 4. Installment Method - reporting of ineame is based on the pattern af collection ~ only if initial payment does not exceed 25% af the selling price, except dealers of movables 3. Long-term Construction Contracts a. Percentage of Completion b. Completed contract basis 4. Farming Income 4. Animals - cash ar accrual basis b. Crops bi. short-term crops -cash or accrual basis b2. long-term crops 4. perennial corps - eapenses during the growth yrs are capitalized and amortized during harvest b. non-pererinial erops- erop year basis ~enpenses during the growth yrs are capitalized and deducted fram the sale 5. Leasehold improvement 4. Outright Method -at the time of completion b. Spread-out method- ever the lease term ‘Two-fold Obligation 1. Payment of tax (self-assessment) 2. Remittance of withhalding taxes ‘Typesof Tax Return 1 Income Tax Returns a. Regular Income Tax b. Capital Gains Tax Form 4704 - Individuals Form £706 - Individuals Form 1702 - Corporations Form 1707 - Corporations 2. Withholding Tax Returns a. Compensatio b. Final withholding tax (passive income) —¢. Expanded withholding tax ‘Who shall file ITR? 1. Resident Filipino citizen 4. RA- income within PH 2. NRC - income within PH 4, NRA-ETB or in exercise of profession or income within PH ‘Who are nat required to file ITR? 1 Individual - gross income does not exceed 2,500 except if engage in business or profession 2. Individual - pure compensation w/in PH where IT is correctly withheld except concurrent employees 3. Individual - income ig subjected to final ineorne tax 4. Individual - exempt pursuant to other provisions of the Tax Code and other laws b. Partnership bi. Generel Professional Partnership - exempt, partners are taxable b2. Business Partnership - taxable as corporation ec. Joint Venture - engaged in eil exploration and constru: d. Estate 1. Judicial - taxable as individual ction are exempt 2, Extrajudicial - taxable as corporation 2. Trust 1. Revocable - taxable to the grantor 22. Irrevocable - taxable as individual ‘E Co-ewnership #L Preservation of property / income collection - exempt #2, Re-invest to other income-producing properties - treated as partnership, taxable as corporation ‘Situs of Income 1 Interest - debtor's residence 2. Dividends a. Domestic Corp - within Philippines b. Foreign Corp income deminance test“ -date of declaration (3 yrs prier) 3. Service- place of performance of the service 4. Rent - location of the property 5. Royalties - place where the intagible is used 6. Gain on Sale 8. Real property - location of the pb. Personal ¢, Domestic shares of stock - always within th 7. Mining - location af mine 8. Farming - location of farm 9, Merchandising - place of sale jot least 50% - 6 x Dividend received = within less than 50%6 - 100% x Dividend received = without | property - place of sale/agreement e PH 10. Manufacturing - place of production and place of sale - crosshorder operations - transfer pricing rule (arm's length price) ~ advanced pricing agreemen ‘Tax Accounting Periods 1. Regular it {contract of TP and gov't) a.Calendat - 12 masending Dec 3b. Fiscal ~ ary 12 mos period ending other than Dec 31. - individual or corporation et 2. Short - less than 12 mas a. death of TE d. dissolution of b. newly organized bus. W pOFAtION Orly bie. termination of acct period by the CIR ¢. change in acctg period (CY to FY = old end+ 1 day ta new end; F¥ to C¥; FY to FY) ‘Tax Payments 15th dayof the 4th month ff the elose of TP's taxable year {C# - April 15) 
