CINDY N.

BITONG BSA-2A

Aldersgate College, Inc.

Income Taxation
CY 2022-2023, First Semester

Topic: INTRODUCTION TO INCOME TAX

Assignment

1. Enumerate the characteristics of gross income

a. It is a return on capital that increases net worth-
b. It is a realized benefit
c. It is not exempted by law, contract, or treaty.
2. What are the capital items considered with the infinite value? Enumerate.
a. Life – the value of life is immeasurable by money.
b. Health- any compensation received in consideration for the loss of health
such as compensation for personal injuries is deemed a return of capital.
c. Human reputation- the value of one’s reputation cannot be measured
financially.
3. When is income considered realized?
 Income is considered realized if it is earned or received. Wages and
salary income that you earn is included in realized income, as are
interest and dividend payments from your investment portfolio.
 There must be an exchange transaction. The transaction must involve
another entity and the recipient’s net worth must increase.
4. Distinguish exchange from transfer.
 Transfers are also known as unilateral transfers, also referred as gratuitous
transaction. It is the passing of title to property from one person (or entity
to another). Example of transfers are succession and donation.
 Exchanges are also known as bilateral transfer, also referred as onerous
transactions. It is the transfer of learning or performance from one side of
the body after training to the other. Examples are sales and barter.
5. What is a complex transaction? How is it taxed?
 Complex transactions are partly gratuitous and partly onerous. These are
commonly referred to as “transfers for less than full and adequate
consideration”.
 The gratuitous portion of the transaction is subject to transfer tax while the
benefit from the onerous portion is subject to income tax.
6. What is a holding gain? Why is it exempt from taxation?
 A holding gain is a gain value that is generated by retaining ownership of an
asset over a period of time. A holding gain does not refer to an upgrade of
the asset itself- just a gain that accrues over time.
 It is exempted from taxation because it is not yet materialized in an
exchange transaction.
7. Compare actual receipt with constructive receipt.
 Actual receipt involves actual physical taking of the income in the form of
cash or property while constructive receipt involves no actual physical
taking of the income but the taxpayer is effectively benefited.
8. Enumerate and explain the classifications of individual taxpayers.
CINDY N. BITONG BSA-2A

 CITIZENS
Under the Constitution, citizens are:
a. Those who are citizens of the Philippines at the time of adoption of
the Constitution on February 2,1987.
b. Those whose fathers or mothers are citizens of the Philippines.
c. Those born before January 17,1973 of Filipino mothers who
elected Filipino citizenship upon reaching the age of majority.
d. Those who are naturalized in accordance with the law.
CLASSIFICATION OF CITIZENS:
A. Resident Citizen- A Filipino citizen residing in the Philippines
B. Non-resident citizen includes:
a. A citizen of the Philippines who establishes to the satisfaction
of the Commissioner the fact of his physical presence abroad
with a definite intention to reside therein;
b. A citizen of the Philippines who leaves the Philippines during
the taxable year to reside abroad, either as an immigrant or
for an employment on a permanent basis;
c. A citizen of the Philippines who works and derives income
from abroad and whose employment thereat requires him to
be physically present abroad most of the time during the
taxable year;
d. A citizen who has been previously considered as non-resident
citizen and who arrives in the Philippines at any time during
the taxable year to reside permanently in the Philippines shall
likewise be treated as a non-resident citizen for the taxable
year in which he arrives in the Philippines with respect to his
income derived from sources abroad until the date of his
arrival in the Philippines. Filipinos working in the Philippine
embassies or Philippine consulate offices are not considered
non-resident citizens.
 ALIEN
A. Resident Alien- an individual who is residing in the Philippines but is
not a citizen thereof, such as:
a. An alien who lives in the Philippines without definite intention as
to his stay; or
b. One who comes to the Philippines for a definite purpose which in
its nature would require an extended stay and to that end makes
his home temporarily in the Philippines, although it may be his
intention at all times to return to his domicile abroad.
B. Non-resident Alien- an individual who is not residing in the Philippines
and who is not a citizen thereof
a. Non-resident aliens engaged in business (NRA-ETB)- aliens
who stayed in the Philippines for an aggregate period of more
than 180 days during the year.
b. Non-resident aliens not engaged in business (NRA-NETB)-
include:
CINDY N. BITONG BSA-2A

a) Aliens who come to the Philippines for a definite

purpose which in its nature may be promptly
accomplished;
b) Aliens who shall come to the Philippines and stay
therein for an aggregate period of not more than 180
days during the year.
9. What constitute a taxable estate and trust?
 Estate refers to the properties, rights, and obligations of a deceased person
not extinguished by his death. A trust, on the other hand, is an
arrangement whereby one person (grantor or trustor) transfers property to
another person (beneficiary), which will be held under the management of
a third party (trustee or fiduciary).
10. Enumerate and explain the classification of corporate taxpayers.
 Domestic Corporation- organized in accordance with Philippine laws.
 Foreign Corporation- organized under a foreign law
Types of foreign corporations:
a. Resident foreign corporation (RFC)- operates and conducts
business in the Philippines through a permanent establishment
b. Non-resident foreign corporation (NRFC)- does not operate or
conduct business in the Philippines
 Special Corporations- domestic or foreign corporations which are subject to
special tax rules or preferential tax rates.
OTHER CORPORATE TAXPAYERS:
 One-person corporation- a corporation with a single stockholder who may
be a natural person, trust or an estate.
 Partnership- owned by two or more persons who contribute their industry
or resources to a common fund for the purpose of dividing the profits from
the venture.
TYPES OF PARTNERSHIP:
a. General professional partnership (GPP)-formed by persons for the
sole purpose of exercising a common profession, no part of the
income of which is derived from engaging in any trade or business.
b. Business Partnership- formed for profit
 Joint Venture- business undertaking for a particular purpose.
TYPES OF JOINT VENTURES:
a. Exempt joint ventures- formed for the purpose of undertaking
construction projects or engaging in petroleum, coal, geothermal,
and other energy operations pursuant to an operating consortium
agreement under a service contract with the Government.
b. Taxable joint ventures- all other joint ventures are taxable as
corporations.
 Co-ownership- joint ownership of a property formed for the purpose of
preserving the same and/or dividing its income.
11. Discuss the taxability of each class of taxpayers.
Taxable on income earned
Within Without
INDIVIDUAL TAXPAYERS
CINDY N. BITONG BSA-2A

Resident citizen  
Non-resident citizen 
Resident Alien 
Non-resident Alien 
CORPORATE TAXPAYERS
Domestic Corporation  
Resident foreign corporation 
Non-resident foreign 
corporation

12. Explain situs. Differentiate situs from source of income.

 Situs of income is the place of taxation of income. It is the jurisdiction that has
the authority to imposed tax upon the income. Situs of income should be
differentiated from source of income because the latter pertains to the activity
or property that produces the income.
13. What is the situs of the following income?
a. Interest Income – Debtor’s residence
b. Service Income – Place where the service is rendered
c. Royalty income- Where the intangible is employed
d. Rental income- Location of the property
e. Gain on sale of movable property- presumed earned within the Philippines
f. Gain on sale of immovable property- earned in the place where the
property is sold
g. Dividend income from domestic corporation – presumed earned within
h. Dividend income from resident foreign corporation- depends on the pre-
dominance test
i. Merchandising income- earned where the property is sold