Asaaa

DELA CRUZ | PASTRANA
TAXATION LAW REVIEW | ATTY. LUMBERA | FINALS
MAY 5, 2019
“If the income exceeds 250,000”

Meaning: If your income is 1M, yung tinatax lang talaga dun is 750,000 technically. Theirs is no tax for
the first 250,000. Pero never nangyari yung 1M – 250,000.
Note: You do not deduct 250,000, but you only benefit from 250,000 because the applicable the NIT tax
rate is 20-35%.
Compensation income earner has no deductible income.
REMEMBER: Pag ang income ay less than 3M, tapos yung option ay to be taxed at 8%. There is no
deduction. Forget all of these!
X (employer) Y (employee)
BUSINESS EXPENSE:
Basic Pay Basic Pay
Pag tinanggap ni Y,
De minimis benefit De minimis benefit COMPENSATION
Overtime pay Deduction in the Overtime pay
Holiday pay nature of business Holiday pay If Y is MWE: NO TAX
Hazard pay expense Hazard pay If Y is managerial/
Nightshift differential Nightshift differential supervisory/r&f: may tax
yung basic pay at ……..
RENTALS
If the lessee does not acquire any interest other No consequence. Y can never claim it as
than as a mere possessor, may be claimed as deduction.
deduction. Otherwise, (ie. Rent to own
agreement, if you purchase the property) X cannot
claim it as deduction. In lieu thereof, X may claim
DEPRECIATION of the assets.
CAPITAL EXPENSE
You have capital expense when you buy ordinary When you buy an asset, walang tawag yung
assets. You cannot claim it as a business expense. expense. As Y is concerned all the assets he buys
In lieu thereof, the asset can be depreciated. are considered CAPITAL ASSETS because he is not
engaged in trade or business.
Since capital in character, Y can never claim

business expense as a deduction. Neither can Y
claim depreciation of the asset because he is not
entitled to that.
Everything that you wear is a capital asset. Never

ka magdededuct, never magdededuct yung
magulang mo. Yung gastos ng magulang niyo,
considered as PERSONAL and LIVING EXPENSE.
INTEREST ON LOANS
Debtor side. Take note on the rule on Tax arbitrage
Tax Benefit rule:
1. Taxes
2. Bad debt
3. Casualty loss
BAD DEBT
If X is a creditor di siya nabayaran.
For the bad debt to be claimed as a deduction, it
should be classified as worthless or completely
charged of.
Meaning, there must be efforts exerted by

creditor X in collecting and despite these efforts
during the taxable period, it is futile, and the loan
obligation remains unpaid.
Di pwedeng nangutang sinabing “di ako

magbabayad” ay icclaim mon na. There must be
documents evidencing the efforts.
Declaration of insolvency is not required. These

are completely separate concepts. But of course,
if there is already a declaration of insolvency,
there is already a proof that the loan obligation,
cannot be satisfied anymore.
TAX BENEFIT RULE

If the bad debt is allowed to be claimed as a
deduction, and subsequently, in the succeeding
years or taxable periods, that loan is recovered,
then we apply the tax benefit rule.
Meaning: the amount of bad debt claimed as a

deduction and subsequently recovered after being
claimed as a deduction, will have to be included in
the gross income of the taxpayer in the year of
recovery.
TAXES
If X rents building from A for 30k. Part of the If Y rents house from A for 15k. Part of the
agreement is that the lessee shoulders the realty agreement is that the lessee shoulders the realty
tax. tax.
Q: Does A realizes income if X pays RPT of the Q: Does A realizes income if X pays RPT of the
property rented out? property rented out?
A: Yes. That is income on the part of A. A: Yes. That is income on the part of A.
Q: Can X claim the RPT paid on the rented building Q: Can Y claim the RPT paid on the rented house
as a deductible expense? as a deductible expense?
A: Yes. It is related to the trade of business that he A: No. Y is never entitled to any deduction.
is engaged in.
If Y buys the rented building, Y pays the RPT as he
If X buys the rented building, X pays the RPT as he is now the owner.
is now the owner. Q: Can Y claim the RPT paid as a deduction?
Q: Can X claim the RPT paid as a deduction? A: No. Never as he is a compensation income
A: Yes. It is an expense necessary in his trade of earner.
business.
As X is now the owner paying the RPT for 4k 2018. As Y is now the owner paying the RPT for 4k 2018.
Within the 2-year period for claiming tax refund, X Within the 2-year period for claiming tax refund, Y
realized that he paid more than what is due. X realized that he paid more than what is due. Y
claimed refund in 2018. 2k Refund was given in claimed refund in 2018. 1k Refund was given in
2020. What is the effect of the refund over the tax 2020. What is the effect of the refund over the tax
previously paid? previously paid?
A: Use the Tax Benefit Rule. It shall be treated as A: It is never an income on Y’s part. That is just a
income in the year of recovery. In 2020, X will have return of his capital.
to declare 2k as income.
Note: It is declared as income because it was

previously claimed as a deduction. Nag-zero out si
expense. Kaya nung sinoli, meron siyang income.
Nagbayad ng 4k. Nagdeduct ng 4. EXPENSE= 0

Sinoli si 2k= INCOME
X may biniling kawali worth 30k in 2018. Y may biniling kawali worth 15k.
X cannot claim it as a deduction because it is a
capital expenditure. Deduction X
Depreciation X
Kawali is an ordinary asset, particularly, it is Casualty loss X
property used in trade or business which subject Reason: He is a purely compensation income
to allowance for depreciation. earner.
Q: If ordinary asset, is it VATABLE? In 2021, ninakaw ni M yung kawali. Since di siya

naglilista sa book, we will use the FMV in 2021. In
2021, the FMV is 7k.
Deduction X Q: Income on the part of M?
Depreciation  A: Yes.
Casualty loss  Q: Can Y claim casualty loss?
A: Never.
2018 2019 2020 2021 2022 2023
24K 18K 12K 6K 0 Q: In 2023, M returned the kawali. The value of
which is now 1k pesos. What is the effect of the
Every year, X claims depreciation expense of 6k. subsequent recovery?
Pag dating ng 2024, wala na/ it is fully A: It is not income. It is a mere return of capital.
depreciated. Ubos na yung presyo ng No deduction.
pagkakabili mo ng kawali. But it does not mean
na pag 2024 wala nang value yung kawali. Pag
ginagamit mo pa, may economic value/ salvage
value.
Q: In 2021, ninakaw ni M yung kawali. Income

on the part of M?
A: Yes. Income of 12k.
CASUALTY LOSS DEPRECIATION

EXPENSE
Loss arising from Q: So kung ninakaw in
theft, robbery, 2021. Can X still claim
embezzlement, fire, depreciation expense
storm, shipwreck, or in 2022 and 2023?
any other natural A: No more. Wala
calamity, the loss is nang kawali. There is
sustained in nothing to depreciate
connection with trade as there is no asset
or business and not anymore.
compensated by
insurance.
Note: Nung ninakaw

ni M in 2021, X can
claim 12k as casualty
loss.
Natransform si deduction to depreciation

expense of 12k to casualty loss of 12. So
basically, napalitan lang ang nature ng
expenditure.
Note:
Pag bumili kang asset = the business expense is
converted to capital expenditure. Because it is a
capital expenditure, you purchased an ordinary
asset. In lieu thereof, instead of business expense,
the deduction is converted to depreciation. Once
you lose the asset by casualty loss, you stop
depreciation. The expense is transformed to
another form in the nature of casualty loss.
Purcase of Capital asset = business expense 

capital expenditure subject to depreciation
Claim of casualty loss = stop depreciation
Bumili -> Ninakaw -> nagcasualty loss -> sinoli ->

ginagamit ulit -> dineclare mong income at 3k
Q: In 2023, M returned the kawali. The value of
which is now 3k pesos. Kawali is still serviceable.
So remember, fully claimed na si depreciation at si
Casualty loss. What is the effect of the subsequent
recovery?
A: We apply tax benefit rule. X will now declare it
in his 2023 gross income.
Q: So nadeclare in his GI. Ginagamit as ordinary

asset. Can X claim the depreciation of the kawali?
A: No more. When you were allowed to claim bad
debt of 12k (?) (feeling ko casualty loss dapat
sinabi ni maam), nawala na siya. Nung narecover,
dineclare mo siya as income. Therefore,
depreciation can no longer be claimed because
upon recovery, it was declared as income.
Note: You cannot claim depreciation for income.

We do not depreciate income. Remember we are
talking about deductions in expenditures not in
income.
Income Taxable Deductible Donor’s tax and Estate tax

CI/RI 100K  w/in no X Y X Y
NSNPEI 100k  w/in no Yes. Subject to No. No. Provided No. At all
5% and 10% rule. not more than times. No
Gov 100k  w/in no Full: Priority No. 30% is used condition.
development for
projects administration
purposes.
If not: Apply the
5% and 10% rule
CHARITABLE CONTRIBUTIONS CHARITABLE CONTRIBUTIONS
X gave 100k to CI, RI, NSNPEI, and government Y gave 100k to CI, RI, NSNPEI, and government
Income Taxable Charitable/Religious 100K
CI/RI 100K  w/in no institution
NSNPEI 100k  w/in no NSNPEI 100k
Gov 100k  w/in no Government 100k
Income tax:
Not subject to income tax because gifts, Same rules except donor’s/Estate tax Refer to
bequest, and devices are items of EXCLUSIONS table above.
Donor’s tax:
No. Provided not more than 30% is used for
administration purposes.
Estate tax:
Deduction?
Yes. But subject to 10% and 5% restriction.

INDIVIDUAL ET/B CORPORATION
If X is an individual If x is a corporation, X
engaged in can only claim up to
tapsilugan business, 5% of the taxable
X can only claim up to income from
10% of the taxable tapsilugan prior to
income prior to this this deduction.
deduction.
“10% / 5% of the taxable income prior to this

deduction”
Meaning: Di siya 5/10% ng 100. It is 5% or 10%
v. actual amount of gift whichever is lower.
Example: Si x may tapsilugan na may income na

4M, so NIT. Entitled to deduction of 1.2M,
optional or itemized. Less operating expenses
or cost of sales of 500k (puhunan)
***I’m lost….numbers. hahaha***

3,500,000 3,500,000
-2,800,000 } expense (ata ito) -2,800,000 } expense (ata ito)
700, 000 } taxable income 700, 000 } taxable income
X 10% X 5%
70, 000 } deduction out of 35, 000 } deduction out of
the 100k domation the 100k domation
DONATION TO BF/GF 100K

Q: Income on the part of BF/GF?
A: Yes.
Q: Subject to income tax?
A: No.
Q: Subject to Donor’s tax?
A: No. 6% of the net gift in excess of 250k in one year. Exempted.
Q: Subject to Estate tax?
A: Yes. 6% of the net estate. Sa train law, kahit ang net estate mo ay 100, bayad kang buwis na 6php.
X cannot claim it as a deduction as it is not business-related expense.
Y can never claim as deduction.
CAMPAIGN CONTRIBUTION in the amount of 3M

Q: Income on the part of the candidate?
A: Yes.
Q: Subject to income tax and donor’s tax?
A: RULE: Campaign contribution will not be subject to income tax nor donor’s tax provided that the
following requisites are present.
Requisites:
1. Received during the campaign period
2. Fully utilized for election campaign expenditures provided for by the COMELEC
3. SOSE ISPILE ??
4. The 5% CWT is withheld and remitted to BIR by donor
Illustration:
X donated 3M to F. F bought posters from P. P earns, it is revenue on his part. It is an
expense on the part of X. X becomes the withholding agent of the 5% of the 3M nung
binayaran si P. Pag walang proof na winithhold si 5%, X will have to declare the entire
3M as part of his income, subject to income tax and also subject to donor’s tax. (*di
winithhold or di ginamit*)
Donor pays donor’s tax. The purpose of the gift is campaign contribution. If the gift
was not spent for campaing expenditure, the remedy of the donor is to REVOKE the
donation for failure to comply with the condition of the donation. If you did not
revoke, that means donor agreed that the purpose was altered. Therefore, he is liable
for the 6%.
If X is a corporation, under the Corporation Code, X corporation is not allowed to

donate to political parties /political candidate. So lahat ng yan, subject to income and
donor’s tax. Under the new rules (February 27, 2019), within the campaign period
pag National Election (senator yung donee), the corporation is now recognized to
provide for contributions for campaign purposes. Q: Subject bay an sa
income/donor’s tax? We apply the same rules now. Wala nang distinction.
Section 34. Giver’s side. Receiver’s side. Deductibility.
Note: Di pwedeng magbigay ng campaign contribution na nasa testamentary disposition. Estate tax
does not apply here.
PENSION
Illustration:
With private retirement plan
X maintains a private retirement plan, approved by the BIR, pays contribution, employers
side, 100 php per employee. Lahat ng pondo na naiipon ay iniinvest ng lahat ng er. On the
part of Y, the plan is non-contributory. Y contributes zero to the fund. When X pays 100
contribution to the retirement plan, is it deductible?
Yes.
Y contributes nothing to the plan. If Y retires, the retirement is 1.5M, the 1.5 is deducted from the fund
but not from X because X contributes to the fund. The retirement fund is considered a separate tax
entity.
The fund is taken out from X as an independent tax entity. Such that Y retires, the retirement benefit is
derived from the plan and not from X. Hence, it is not deductible as an expense.
With retirement plan

X Y
Retirement plan contribution is deductible Retirement pay is income on the part of Y
Retirement pay/benefits is not deductible It is not subject to income tax if: (50-10-1)
1. 50 years of age
2. Rendered continuous service of 10 years
3. This is the only retirement he avails of.
Without retirement plan
1.5 retirement pay is deductible on the Income on the part of Y.
part of X
It is not subject to income tax if: (60-20)
1. 60 years of age
2. Rendered continuous service of
20 years
Without retirement plan

Illustration:
There is no retirement fund. X does not contribute. Y retires. X pays Y 1.5M as retirement
benefits under the law. If there is no private retirement plan, the law provides for the
retirement benefits of an employee. Can X claim 1.5 as a deduction?
Yes.
1.5 retirement pay is deductible on the part of X
Income on the part of Y.
It is not subject to income tax if requisites are present.
SSS, PHILHEALTH, PAG-IBIG CONTRIBUTION
X contributes- employer’s share
Y contributes- employee’s share
Pareho silang may expense
SSS, PHILHEALTH, PAG-IBIG X Y
CONTRIBUTION
DEDUCTIBLE Yes No
As far as X is concerned, these As far as Y is concerned, they

are deductions as these are are EXCLUSIONS.
expenses for others. “excluded” mathematically
and technically, dinededuct mo
yan, but these are not
deductions.
RESEARCH AND DEVELOPMENT
Illustration: Illustration:
Q: X conducts feasibility study kung pwede Q: Si Y nag masters of law. Nagbayad ng
magtayo ng tapsilugan sa butuan. X pays Mr. K consultancy fee sa law faculty. Can Y claim
50k. deduction?
A: X can claim the 50k as deduction as research A: Never. He is never allowed to claim a deduction.
and development.
Q: Si X nag masters of law. Nagbayad ng

consultancy fee sa law faculty. Can X claim
deduction?
A: Never. It is not related to the tapsilugan
business.
Section 36 (A)
What are not deductible?
1. Personal and family living expenses

2. Amount paid out for new buildings or for permanent improvements, or betterments made to
increase the value of any property or estate
3. Any amount expended in restoring property or in making good the exhaustion thereof for which
an allowance is or has been made
Note: 2 and 3 are CAPITAL EXPENDITURES

X Y
X cannot claim CAPEX (major repair, purchase of 2 and 3 will never be applicable to Y because
ordinary asset used in t/b) cannot be claimed as a Y is not a business income earner.
deduction. Not only because it is a capital
expenditure, but also because it is provided by Sec
36 (a) 2 and 3. In lieu thereof, X can claim
DEPRECIATION.
4. Premiums paid on any life insurance policy

X Y
Illustration: Illustration:
Q: X insured his own life. Meaning X is a person. X Q: Y insured his own life. Y paid premium 5k.
paid premium 10k. Can X claim the premium he paid Can Y claim as deduction the premium?
as a deductible expense? A: No. He is a compensation income earner.
A: No. it is not necessary in his trade or business. He is not entitled to deduction.
Illustration:
1M proceeds. 10% interest…na premium. Napunta kay W. Natigok si Y.
W X Y
1M proceeds Taxable
income
10% interest Taxable
income
“others”
premium Excluded (?) Excluded (?)
Return of premium Not income Not income
- Excluded under Sec. 32 - Excluded under Sec. 32
(b) 2 (b) 2
- Return of capital - Return of capital
***Ang gulo nung nasa taas ***
Illustration:
Scenario number 1:
Q: 1M received by W, wife of X or Y, received proceeds, interest, and return of premium.
Subject to estate tax?
A: It depends.
If wife is the administatrix, whether revocable or irrevocable, included in the gross estate =
SUBJECT TO ESTATE TAX
If W is not one of the four, the designation being revocable, subject to estate tax.
If W is not one of the four, the designation being irrevocable, excluded.
Note: Same rule kung si X man or si Y.
Scenario number 2:
Q: X insured his life. Y insured his life. Both are insured. The only difference is that the 5k
premium on the part of Y is paid by X. Can Y claim as deduction?
A: Never.
Q: Is there income on the part of Y?
A: Yes. Taxable.
Q: Can X, when he shouldered the premium for Y’s insurance, can Y claim it as deduction?
A: Never! That is not necessary to his trade or business kahit pa anong business.
Note: Di siya deductible kasi insurance is not taken for/in behalf of a key employee to benefit the
employer. This scenario falls under the third scenario. Sa scenario 2, er did not insure the life of the
employee, he merely paid the premium. The beneficiary gets the proceeds)
Ibang usapan din kung yung payment of premium is part of the fringe benefit. If it part of the FB,
you apply the FBT on the part of the income. Definitely, it will be deductible.
Scenario number 3:
Q: X insures the life of Y, his employee. The 5k premium is paid by X. Directly or indirectly, the
beneficiary is the tapsilugan business of X.
A: No. Under Sec. 36 (a) 4, bawal!
Q: If Y dies, 1M proceeds, interest, and return of premium, kay X mapupunta kasi siya yung
beneficiary.
A: 1M proceeds: income but not taxable. Excluded.
Interest: Yes. Taxable.
ROP: Not income. Excluded.
Q: From the estate tax point of view, when Y died, are the 3 subject to estate tax?
A: Whether alive or dead, you do not receive a single benefit. Therefore, everything is excluded
form gross estate. Not subject to estate tax.
----------------------------------------Break----------------------------------------
Sumisweldo, gumagastos. Pag gumagastos, may kumikita.
X spends to earn from his tapsilogan. Also, he spends for his family and living expenses.
What are the revenues that are taxable?
What are the expenditures that are deductible?
X Y
- Both X and Y, whether X is a corporation or an individual, when both sides spends, they create
income for others.
- Whoever creates income, becomes the withholding agent.
GR: When you are engaged in trade or business, GR: You are not allowed to tong.
whenever income is created from your expense, XPN: CGT – 6% FWT of the FMV/GSP whichever is
you become a withholding tax agent for and in higher. Seller earns income. Buyer incur expense.
behalf of the government. Upon receipt of Buyer pays CGT.
income, tong is immediately done. Then you remit
it to the BIR. Yung purchase price na bibigay ko sayo,
babawasan ko ng 6%. Seller is liable to the tax due,
withheld by the buyer.
Such as when X pays Y. X creates income for Y.
That is expense for his end, creating income for
the other side. Hence, X is required to tong.
When X pays Rentals, X spends in the nature of an When Y, who is a compensation income earner,
expense, but he creates income for the lessor. pays rentals to C, Y cannot make a tong. He is not
Therefore, X is required to tong. engaged in trade of business. He is not registered
as a withholding agent.
VALUE ADDED TAX
VAT- tax added to the value

12% is based on the selling price
Every seller-buyer in the chain of transaction, lahat may income side and may vat side.
Transactions:
1. Sale of goods in the course of trade or business
2. Sale of service in the course of trade or business
3. Importation of goods
GOODS:
For purposes of VAT, real properties is considered goods.
So if you are engaged in real estate business (brokering estate), developing subdivision house and lots,
you call the property GOODS for VAT purposes.
SERVICE:
Absence of employer-employee relationship. If there is EER, there is no VAT kasi exempted.
IMPORTATION OF GOODS:
It must be related to trade or business.

Upon arrival of the goods in Ph – 12% VAT
Upon release from BOC and subsequently sold - another VAT per sale
Reason:
VAT of 12% is imposed for every/each, as many sale as you do, 12% is imposed in every sale transaction.
INPUT VAT
Expenses 
Interest on loans X
Taxes X
Losses X
Bad debt X
Charitable contribution X
Output – input = excess output, bayad ka sa BIR

If input is bigger than the output } excess input tax is = 1. Refund; 2. Credit
TAPSILUGAN
Kita- gross income
Gastos- allowable deductions
GI – AD = TAXABLE INCOME X NIT rates = TAX DUE
INPUT VAT is your EXPENDITURES

The basis of your OUTPUT TAX is the sale of your tapsilog.
The basis of your INPUT TAX is your business expenses. (goods/service)
Same basis of your deductions.
The basis of your income tax is the sale of your tapsilog.
In view of the foregoing, there shall be no variance between your VAT declaration and in your income tax
declaration. Because if you do then that means, you are fooling around.
Same transaction: Madaming output v. input  VAT payable
a. Income tax Income side: Madaming output v. input  kumikita ka
b. VAT
Reason: Madami kang kinita sa ginastos
Y, empleyado. Kumikita ng Compensation Income. The tax is NIT. Pero lahat ng gastos ay hindi business-
related expenditures kasi hindi siya engaged in trade or business. When he spends, somebody earns. As a
compensation income earner, may input, pero walang output. Nevertheless, you cannot refund excess
input kasi you are a compensation income earner.
So when the seller sells to the buyer, VAT is imposed. The is OUTPUT VAT on the part of the seller. Pero si
Y, cannot avoid 12% and say “studyante lang ako.” Because every time you buy, somebody sells in the
course of business, plus 12%.
Note: You are only allowed to credit input from output if you are engaged in trade or business.
X, a person engaged in T/B, there must be a document:
a. evidencing that expenses were actually incurred; and

b. the expense is related to the kind of business.
So kay X, resibo is important.
VAT transactions:
1. 12% VAT- vatable, subject to 12%

2. Zero rated – transaction which is vatable but the rate is zero
3. Exempt – not vatable
Example amount 100 php
If you declare for income tax purposes, you declare the GI 100php which does not include the 12%
If you declare for VAT purposes, you declare gross sales which shall include the 12%.
Sa VAT SIDE, kelangan specified yung gross revenue mo, which is 112php. Ang output VAT which is 12.
VAT and Income tax magkabuntot. If you have income tax deficiency, you have VAT deficiency.
Transaction deemed sale (Sec. 106)

Applies to sale of goods. There is no actual sale, but the goods are considered sold.
1. Sale/ consumption/use of goods originally intended for sale to customers.
Example: Si X may tapsilugan. Sa umaga, kinakain ni X and family yung tapsilog. Hindi nagbayad.
Sold.
2. Transfer of goods in payment of indebtedness
3. Return of investment
Example: for 2 and 3: May utang si X kay C ng 200,OO0 with 20% interest = 220,000. Eh di
nagbayad si X. Sabi niya na lang “kumain ka na lang ng tapsilog worth 200k.” lahat ng tapsilog
pangbayad sa utang ay DEEMED SOLD. For purposes of VAT and income tax, these are included
in gross income and the output VAT even if kinain, walang perang lumabas.
4. Consignment of goods.
Example: Business ni C ay achara. Kinonsign niya sa tapsilugan ni X. Sa tapsilugan ni X, nagseserve
ng koting achara. Eh ayaw niya bumili ng achara kasi expense. So kukuha siya sa bote ng achara ni
C. Pag naubos yung bote, dun niya babayaran.
60 days na, di pa nabebenta ni X yung mga bote ng atchara ni C. Deemed Sold. May 12% VAT.
62nd day, kumuha ng bote. Actually sold. May VAT pa rin kahit naVATan na. “Bawat benta. Per
sale”
Pag madami kang output  ayad ka sa BIR

Pag madami kang input singilin mo gobyerno
NET OPERATING LOSS CARRY OVER
NOLCO
Loss sustained in the operations when your itemized deductions or expenses are more than your
income. In other words, lugi. Dahil lugi-negative, imultiply mo yan sa NIT rates = ZERO INCOME
NOLCO is only applicable if the taxpayer is a corporation. For an individual, the carry over does not apply.
The only effect of loss is you do not pay any tax.
CORPORATION operating at loss MCIT Carry over

Individual operating at loss of his t/b No tax x
Illustration:
X an individual. X a corporation. Y an individual.
X individual- tapsi earning 4M - Cost of sales 1.2 = 3,800,000 – deduction of 1,700,000 =
1,100,000
Since he availexd of the EITDBCPR: Taxable income x tax rates: Income tax due
X corporation – same but the tax rate is NIT 30%
Sa 4M ni X individual and X corporation, may 12% VAT.

Kumita ka sa income, VAT payable ka.
Tubo = income tax kaya may VAT payable
*This applies to individual et/b and corporation
Y-individual.
- No kita from t/b kaya zero output
- No bawas
- Madaming input bawal icredit
- May tax due based on compensation income
- The 12% input VAT, no effect
Lugi.
Benta: 4M
Cost of sales: 1,200,000
3,800,000
3,500,000 (itemized deductions)
-700,000 net operating loss
**mali ata figures ko**

Note:
When you result in operating loss, you have more input than output. Your expenditures are more than
your income. The effect in VAT is excess input vat. In which case magpacredit ka. Credit means you
overpaid VAT.
If you have excess input VAT in one year, once mo lang siya pwedeng dalhin sa susunod. Failure to
credit, under the train law, you only credit ONCE. Failure to credit excess input VAT, you cannot claim it
anymore for any purpose.
2019- operating at a loss of corporation 700,000

Anong tawag? Net operating loss
NIT rate? 30%
Imultiply mo man = ZERO income tax
Remedy: NOLCO
Q: How do you carry-over?
A: You carry over in the next succeeding years for 3 years.
So in 2020, pwede ka magcarry-over ng 700,000
If in 2020, ang dulo ay positive (kumita ng 375,000) = itatax na to ng 30%. Dahil may carry over,
yung 375k na dapat itatax, ay walang tax. Since may natitira pang 320,000, pag dating ng 2021,
carry over mo. Eh nung 2021, kumita ng 200k. Dahil nagcarry over, di mon a naman matatax yung
200k. May natitra ka pang 120k. Pwede mo pang icarry over sa 2022, the 3rd year. Sa 2022, may
kitang 100 sa dulo., so may 25 pa. Di mon a pwedeng icarry over yung 25.
In 2022, may babayaran kang MCIT. “Beginning the 4th year following the commencement of its
operation” di ka magbabayad ng 30%.
Note: The NOLCO, the carry-over is allowed for the next 3 years for the corporation, but without
prejudice to the MCIT of 2%.
Note:
In case of a corporate taxpayers, in the event of net operating loss at the end of the year, the corporate
tax payer has the right to carry over the net operating loss for the next three years after the loss, but
without prejudice to the application of the MCIT of 2% if the year when the carry-over is effected is already
on the 4th year. It is always subject to imposition of 2%.
Zero-rate
The transaction is VATable but it is at 0%

ZERO RATE EXEMPT
The input VAT is allowed to be credited against Not allowed
the output VAT.
Common among the enumeration: export The exemption is at a particular stage. Nakasulat
Pagpapasok ng PH, may 12%. Pag palabas, zero. sa batas kung kelan exempted. (109 ata ito)
This is because of the benefit that the country
receives from exportation.
NIRC TRAIN
Lease of residential units 12,800 15,000
Low cost housing units Exempt; no threshold
Socialized housing units Exempt; no threshold
Residential lot
“If the income exceeds 250,000”

Meaning: If your income is 1M, yung tinatax lang talaga dun is 750,000 technically. Theirs is no tax for
the first 250,000. Pero never nangyari yung 1M – 250,000.
Note: You do not deduct 250,000, but you only benefit from 250,000 because the applicable the NIT tax
rate is 20-35%.
Compensation income earner has no deductible income.
REMEMBER: Pag ang income ay less than 3M, tapos yung option ay to be taxed at 8%. There is no
deduction. Forget all of these!
X (employer) Y (employee)
BUSINESS EXPENSE:
Basic Pay Basic Pay
Pag tinanggap ni Y,
De minimis benefit De minimis benefit COMPENSATION
Overtime pay Deduction in the Overtime pay
Holiday pay nature of business Holiday pay If Y is MWE: NO TAX
Hazard pay expense Hazard pay If Y is managerial/
Nightshift differential Nightshift differential supervisory/r&f: may tax
yung basic pay at ……..
RENTALS
If the lessee does not acquire any interest other No consequence. Y can never claim it as
than as a mere possessor, may be claimed as deduction.
deduction. Otherwise, (ie. Rent to own
agreement, if you purchase the property) X cannot
claim it as deduction. In lieu thereof, X may claim
DEPRECIATION of the assets.
CAPITAL EXPENSE
You have capital expense when you buy ordinary When you buy an asset, walang tawag yung
assets. You cannot claim it as a business expense. expense. As Y is concerned all the assets he buys
In lieu thereof, the asset can be depreciated. are considered CAPITAL ASSETS because he is not
engaged in trade or business.
Since capital in character, Y can never claim

business expense as a deduction. Neither can Y
claim depreciation of the asset because he is not
entitled to that.
Everything that you wear is a capital asset. Never

ka magdededuct, never magdededuct yung
magulang mo. Yung gastos ng magulang niyo,
considered as PERSONAL and LIVING EXPENSE.
INTEREST ON LOANS
Debtor side. Take note on the rule on Tax arbitrage
Tax Benefit rule:
1. Taxes
2. Bad debt
3. Casualty loss
BAD DEBT
If X is a creditor di siya nabayaran.
For the bad debt to be claimed as a deduction, it
should be classified as worthless or completely
charged of.
Meaning, there must be efforts exerted by

creditor X in collecting and despite these efforts
during the taxable period, it is futile, and the loan
obligation remains unpaid.
Di pwedeng nangutang sinabing “di ako

magbabayad” ay icclaim mon na. There must be
documents evidencing the efforts.
Declaration of insolvency is not required. These

are completely separate concepts. But of course,
if there is already a declaration of insolvency,
there is already a proof that the loan obligation,
cannot be satisfied anymore.
TAX BENEFIT RULE

If the bad debt is allowed to be claimed as a
deduction, and subsequently, in the succeeding
years or taxable periods, that loan is recovered,
then we apply the tax benefit rule.
Meaning: the amount of bad debt claimed as a
deduction and subsequently recovered after being
claimed as a deduction, will have to be included in
the gross income of the taxpayer in the year of
recovery.
TAXES
If X rents building from A for 30k. Part of the If Y rents house from A for 15k. Part of the
agreement is that the lessee shoulders the realty agreement is that the lessee shoulders the realty
tax. tax.
Q: Does A realizes income if X pays RPT of the Q: Does A realizes income if X pays RPT of the
property rented out? property rented out?
A: Yes. That is income on the part of A. A: Yes. That is income on the part of A.
Q: Can X claim the RPT paid on the rented building Q: Can Y claim the RPT paid on the rented house
as a deductible expense? as a deductible expense?
A: Yes. It is related to the trade of business that he A: No. Y is never entitled to any deduction.
is engaged in.
If Y buys the rented building, Y pays the RPT as he
If X buys the rented building, X pays the RPT as he is now the owner.
is now the owner. Q: Can Y claim the RPT paid as a deduction?
Q: Can X claim the RPT paid as a deduction? A: No. Never as he is a compensation income
A: Yes. It is an expense necessary in his trade of earner.
business.
As X is now the owner paying the RPT for 4k 2018. As Y is now the owner paying the RPT for 4k 2018.
Within the 2-year period for claiming tax refund, X Within the 2-year period for claiming tax refund, Y
realized that he paid more than what is due. X realized that he paid more than what is due. Y
claimed refund in 2018. 2k Refund was given in claimed refund in 2018. 1k Refund was given in
2020. What is the effect of the refund over the tax 2020. What is the effect of the refund over the tax
previously paid? previously paid?
A: Use the Tax Benefit Rule. It shall be treated as A: It is never an income on Y’s part. That is just a
income in the year of recovery. In 2020, X will have return of his capital.
to declare 2k as income.
Note: It is declared as income because it was

previously claimed as a deduction. Nag-zero out si
expense. Kaya nung sinoli, meron siyang income.
Nagbayad ng 4k. Nagdeduct ng 4. EXPENSE= 0

Sinoli si 2k= INCOME
X may biniling kawali worth 30k in 2018. Y may biniling kawali worth 15k.
X cannot claim it as a deduction because it is a
capital expenditure. Deduction X
Depreciation X
Kawali is an ordinary asset, particularly, it is Casualty loss X
property used in trade or business which subject Reason: He is a purely compensation income
to allowance for depreciation. earner.
Q: If ordinary asset, is it VATABLE? In 2021, ninakaw ni M yung kawali. Since di siya
naglilista sa book, we will use the FMV in 2021. In
2021, the FMV is 7k.
Deduction X Q: Income on the part of M?
Depreciation  A: Yes.
Casualty loss  Q: Can Y claim casualty loss?
A: Never.
2018 2019 2020 2021 2022 2023
24K 18K 12K 6K 0 Q: In 2023, M returned the kawali. The value of
which is now 1k pesos. What is the effect of the
Every year, X claims depreciation expense of 6k. subsequent recovery?
Pag dating ng 2024, wala na/ it is fully A: It is not income. It is a mere return of capital.
depreciated. Ubos na yung presyo ng No deduction.
pagkakabili mo ng kawali. But it does not mean
na pag 2024 wala nang value yung kawali. Pag
ginagamit mo pa, may economic value/ salvage
value.
Q: In 2021, ninakaw ni M yung kawali. Income

on the part of M?
A: Yes. Income of 12k.
CASUALTY LOSS DEPRECIATION

EXPENSE
Loss arising from Q: So kung ninakaw in
theft, robbery, 2021. Can X still claim
embezzlement, fire, depreciation expense
storm, shipwreck, or in 2022 and 2023?
any other natural A: No more. Wala
calamity, the loss is nang kawali. There is
sustained in nothing to depreciate
connection with trade as there is no asset
or business and not anymore.
compensated by
insurance.
Note: Nung ninakaw

ni M in 2021, X can
claim 12k as casualty
loss.
Natransform si deduction to depreciation

expense of 12k to casualty loss of 12. So
basically, napalitan lang ang nature ng
expenditure.
Note:
Pag bumili kang asset = the business expense is
converted to capital expenditure. Because it is a
capital expenditure, you purchased an ordinary
asset. In lieu thereof, instead of business expense,
the deduction is converted to depreciation. Once
you lose the asset by casualty loss, you stop
depreciation. The expense is transformed to
another form in the nature of casualty loss.
Purcase of Capital asset = business expense 

capital expenditure subject to depreciation
Claim of casualty loss = stop depreciation
Bumili -> Ninakaw -> nagcasualty loss -> sinoli ->

ginagamit ulit -> dineclare mong income at 3k
Q: In 2023, M returned the kawali. The value of

which is now 3k pesos. Kawali is still serviceable.
So remember, fully claimed na si depreciation at si
Casualty loss. What is the effect of the subsequent
recovery?
A: We apply tax benefit rule. X will now declare it
in his 2023 gross income.
Q: So nadeclare in his GI. Ginagamit as ordinary

asset. Can X claim the depreciation of the kawali?
A: No more. When you were allowed to claim bad
debt of 12k (?) (feeling ko casualty loss dapat
sinabi ni maam), nawala na siya. Nung narecover,
dineclare mo siya as income. Therefore,
depreciation can no longer be claimed because
upon recovery, it was declared as income.
Note: You cannot claim depreciation for income.

We do not depreciate income. Remember we are
talking about deductions in expenditures not in
income.
Income Taxable Deductible Donor’s tax and Estate tax

CI/RI 100K  w/in no X Y X Y
NSNPEI 100k  w/in no Yes. Subject to No. No. Provided No. At all
5% and 10% rule. not more than times. No
Gov 100k  w/in no Full: Priority No. 30% is used condition.
development for
projects administration
purposes.
If not: Apply the
5% and 10% rule
CHARITABLE CONTRIBUTIONS CHARITABLE CONTRIBUTIONS

X gave 100k to CI, RI, NSNPEI, and government Y gave 100k to CI, RI, NSNPEI, and government
Income Taxable Charitable/Religious 100K
CI/RI 100K  w/in no institution
NSNPEI 100k  w/in no NSNPEI 100k
Gov 100k  w/in no Government 100k
Income tax:
Not subject to income tax because gifts, Same rules except donor’s/Estate tax Refer to
bequest, and devices are items of EXCLUSIONS table above.
Donor’s tax:
Estate tax:
Deduction?
Yes. But subject to 10% and 5% restriction.

If X is an individual If x is a corporation, X
engaged in can only claim up to
tapsilugan business, 5% of the taxable
X can only claim up to income from
10% of the taxable tapsilugan prior to
income prior to this this deduction.
deduction.
“10% / 5% of the taxable income prior to this

deduction”
Meaning: Di siya 5/10% ng 100. It is 5% or 10%
v. actual amount of gift whichever is lower.
Example: Si x may tapsilugan na may income na

4M, so NIT. Entitled to deduction of 1.2M,
optional or itemized. Less operating expenses
or cost of sales of 500k (puhunan)
***I’m lost….numbers. hahaha***

3,500,000 3,500,000
-2,800,000 } expense (ata ito) -2,800,000 } expense (ata ito)
700, 000 } taxable income 700, 000 } taxable income
X 10% X 5%
70, 000 } deduction out of 35, 000 } deduction out of
the 100k domation the 100k domation
DONATION TO BF/GF 100K

Q: Income on the part of BF/GF?
A: Yes.
Q: Subject to income tax?
A: No.
Q: Subject to Donor’s tax?
A: No. 6% of the net gift in excess of 250k in one year. Exempted.
Q: Subject to Estate tax?
A: Yes. 6% of the net estate. Sa train law, kahit ang net estate mo ay 100, bayad kang buwis na 6php.
X cannot claim it as a deduction as it is not business-related expense.

Y can never claim as deduction.

Asaaa

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DELA CRUZ | PASTRANA

TAXATION LAW REVIEW | ATTY. LUMBERA | FINALS

“If the income exceeds 250,000”

Compensation income earner has no deductible income.

Since capital in character, Y can never claim

Everything that you wear is a capital asset. Never

Meaning, there must be efforts exerted by

Di pwedeng nangutang sinabing “di ako

Declaration of insolvency is not required. These

TAX BENEFIT RULE

Meaning: the amount of bad debt claimed as a

Note: It is declared as income because it was

Nagbayad ng 4k. Nagdeduct ng 4. EXPENSE= 0

Q: If ordinary asset, is it VATABLE? In 2021, ninakaw ni M yung kawali. Since di siya

Q: In 2021, ninakaw ni M yung kawali. Income

CASUALTY LOSS DEPRECIATION

Note: Nung ninakaw

Natransform si deduction to depreciation

Purcase of Capital asset = business expense 

Bumili -> Ninakaw -> nagcasualty loss -> sinoli ->

Q: So nadeclare in his GI. Ginagamit as ordinary

Note: You cannot claim depreciation for income.

Income Taxable Deductible Donor’s tax and Estate tax

CHARITABLE CONTRIBUTIONS CHARITABLE CONTRIBUTIONS

Yes. But subject to 10% and 5% restriction.

“10% / 5% of the taxable income prior to this

Example: Si x may tapsilugan na may income na

***I’m lost….numbers. hahaha***

INDIVIDUAL ET/B CORPORATION

DONATION TO BF/GF 100K

CAMPAIGN CONTRIBUTION in the amount of 3M

If X is a corporation, under the Corporation Code, X corporation is not allowed to

Section 34. Giver’s side. Receiver’s side. Deductibility.

With retirement plan

Without retirement plan

As far as X is concerned, these As far as Y is concerned, they

Q: Si X nag masters of law. Nagbayad ng

What are not deductible?

1. Personal and family living expenses

Note: 2 and 3 are CAPITAL EXPENDITURES

4. Premiums paid on any life insurance policy

Note: Same rule kung si X man or si Y.

Sumisweldo, gumagastos. Pag gumagastos, may kumikita.

VALUE ADDED TAX

VAT- tax added to the value

It must be related to trade or business.

Output – input = excess output, bayad ka sa BIR

GI – AD = TAXABLE INCOME X NIT rates = TAX DUE

INPUT VAT is your EXPENDITURES

X, a person engaged in T/B, there must be a document:

a. evidencing that expenses were actually incurred; and

1. 12% VAT- vatable, subject to 12%

Example amount 100 php

Transaction deemed sale (Sec. 106)

Pag madami kang output  ayad ka sa BIR

NET OPERATING LOSS CARRY OVER

CORPORATION operating at loss MCIT Carry over

X corporation – same but the tax rate is NIT 30%

Sa 4M ni X individual and X corporation, may 12% VAT.

Tubo = income tax kaya may VAT payable

*This applies to individual et/b and corporation

**mali ata figures ko**

2019- operating at a loss of corporation 700,000

I’m lost….numbers. hahaha

mali ata figures ko

I’m lost….numbers. hahaha