Classification of Taxpayers

2-1. Determine. the correct classification· of the following ·individual

taxpayers: · _
· 1. Manny, a Filipino businessman, went on a business trip abroad and
stayed there most of the time during the year. ·

2. Kyla, a· F,ilip_
ino professional singer, ·held a series of ~oncerts in various
countrie~ around the world during the cu_rrent taxable year. She stayed
abroad most of.:.:the time during the year.
I'

3. Efren, a Filipino "cue" artist went to Canada during the taxable year to
train and participate in the world c;up of pool. He stayed .there most of
the time during the
I
year.•

· 4. Mr. Almansor Sebastian, an' Iranian and a resident of Tehran, Iran

I I
stayed in the Philippines from July 1-15, 2018 to watch the 2018 FIBA
Asia World Cup Qualifier held in MOA. During his stay, he bought
equity • investments from Alpha and Delta Corporations (domestic
corporatic;ms). , He likewise invested in a mutual fund of Banko de Isla
de pilipinas, a ·I0.cal bank.

5. Due to his •expertise, Engr. Pedro D. Magiba (a freelancer) was hired

by ·a foreign petro_leum · contractor in Thailand to prc:ivide technic~I_
assistance for two r:nonths from February to March. -, He was hired
again for the months of June-July and October-December of the same
taxable year.
''
6. In October" 2018, Mr. Bald·· Nha, an American basketball coach was ,
hired as a team consultant by one of the teams in 'the Philippine .
Basketball Association (PBA) for one conference which will last for a
period of not more than three (3) months from October to December
2018. His coming to the Philippines was for a 'definite purpose.
However he w~s subsequently chosen to coach Gilas, the
, Philippin~··s national basketball team ar-Jd lea<;I the country's campaign
for the upcoming ,FIBA World Cup Qualifying Tourn1:3ment to be held in
Manila in July 2019. The American mentor intends to ·leave the
_Phjlipplnes as sqon ~s his job is finished.

123
r D~termination of Applicable Tax
-(Fmal Withholding Tax on Passive Income, Basic lncom~ Tax, Exempt)

2-2. . Determine whether the income des~ri~ed below is sµbject to fin

withholding tax on passive income, basic income tax or exempt f a1
, income tax. ran,

Write the following in the TAX TYPE column:

FWTx = if the income describe~. is s~bject t~ final withholdin
tax on passive income. In add1t1on, if such income is sub· 9
to FWT, provide the correct FWT rate in the TAX Ri.~~
column. .
• BTx = if the income described is subject to basic income tax
• Exempt = if the income described is exempt from income tax

Unless provided ot~erwise, assume the taxpayer is a resident citizen.

TAX TYPE .-

1) Interest from peso bank deposit, BOO, Makati

2) Interest from US dollar ban~ deposit, BPI-Manila
3) Interest from a foreign currency deposit in Japan
4) Interest from money market place_
ment, Philippines
5) Interest from a foreign currency deposit in Australia by a
nonresident citizen
6) Interest from overdue accounts receivable, Philippines
7) Compensation income, Philippines
8) Business income, Philippines

-
_9) Gain from ~ale of car for personal use ·
10) Gain from sale of delivery truck
11) Royalties, in general, .Davao City
,
12) Royalties, books published in Manila
13)_ Prizes amounting to P30,000,-Philippines
1,, · 14) Prizes amounting to P10,000, Philippines
'II 15) Prizes amounting to P40,000, USA
16) P30,000 Other Winnings, Philippines
17) P10,000 Other Winnings, Philippines

124
18) P15,000 Other Winnings, Canada
19) 1210,000 PhiL Lotto/PCSO winnings
20) 12100,000 PCSO winnings by a resident alien
21) Philippine Lotto/PCSO winnings by a nonresident alien
not engage in trade or business
22) Lotto winnings in London
23) Interest income from long-term bank deposit by a.
resident alien
24) Interest income from long-term bank deposit by a non-
resident alien not engaged in trade or business •
25) Interest income from a government issued bonds with
maturity of ten (10) years
26) Interest income fro~ bonds issued by PLDT with maturity
of ten (10) years
27) Dividend income from a domestic corporation
28) Dividend income from a resident foreign corporation
29) · Dividend income from a nonresident foreign corporation
30) Dividend income from a domestic corporation by a
nonresident alien engaged in trade or business
31) Dividend income from a domestic corporation by a
nonresident alien not engage in trade or business
32) Gain on sale of shares of stock of a domestic corporation
sold directly to a buyer
33) Gain on sale of shares of stock of a domestic corporation
traded in the local stock exchange
34) Gain on sale of real properties used in business
35) Gain on sale of real properties classified as capital asset
located in Singapore

125
 Determination of Income Tax Due/Payable
2-3.
1. Pedro is a resident ·c·itizen, earning purely compensation income as
follows for the taxable year: ·
a. P200,000
b. P250,000
C . P800,QQQ
d. P2,800,000

2. Juan is a resident citizen, earning purely business · income for the

taxable year: ·
Gross·sales P2,800,000
Cost of sales . 1,200,000
Operating expenses 650,000
Creditable withholding taxes 80,000 .

3. Use the same data in #2 but assume that Juan opted to be taxed
using 8% income tax rate.

4. Juan is a resident citizen; · earning purely business income for 2020

taxable year:
Gross sales P2,800,000
Cost of sales 1,200,000
Operating expenses 650,000
Rental income (net of CWT) 380,000
Other creditable withholding taxes 80,000

5 . . Can Juan choose to be taxed at 8% instead of the graduated income

tax rate in #4? If yes, how much is his income tax payable for the
year?
'
6. Ana is a practicing professional with the following data for 2020
II taxable year:·
Gross receipts P4,000,000
Cost of direct services · 1,800,000
Other operating expenses 825,000
:
7. Can Ana ·choose to be taxed at 8%. instead of the graduated income
tax rate in #6? If yes, how much is her income tax payable for the
year?

126
8 _ Lorna is a resident citizen, earning compensation · and business
inconie for 2020 as follows:
Compensation income P1 ,400,000 ·
Gross sales 2,800,000
Cost of sales 1,200,000
Operating expenses 650,000
Withholding tax on compensation income 310,000
Other Creditable withholding taxes 80,000

9. Can Lorna choose to be taxed at 8% instead of the graduated income

tax rate in #8? If yes, how much is her total income tax payable for
the year?

Computation of Basic Income Tax, Final Tax on Passive Income and

Capital Gains Tax
2-4. CJ, single, had the following data for 2020 taxable year:
Gross business income, Philippines P1,000,000
Gross business income, USA 500,000
Business expenses, Philippines 700,000
Business expenses, USA 430,000
Compensation income, Philippines 600,000
Dividend income from a domestic corporation 50,000
Dividend income from a foreign corporation 40,000
Interest income from peso bank deposit- 20,000
Philippines
Interest income from bank deposits abroad ·30,000
Interest income from FCDS deposits 40,000
Royalty income from composition 25,000
Raffle draw prizes 10,000
PCSO winnings 200,000
Creditable withholding taxes on business 125,000
income

REQUIRED:
10. Determine the following assuming the taxpayer' is a resident citizen:
a. Taxable net income
b. Income tax payable
c. Total final taxes on passive income
d. T~tal income tax expense

127
 cfw- Ee,rca,,, - 1,,£,,~
11. Determine the following assuming the taxpayer is a nonres;d
8
citizen: nt
a. Taxable net income
b. Income tax payable
c. Total final taxes on passive income
d. Total income tax expense

12. Determine the following assuming the taxpayer is _a resident alien:

a. Taxable net income
b. Income tax payable
c. Totalfinal taxes on passive income
d. Total income tax expense

13. Determine the following assuming the taxpayer is a nonresident atie

engaged in trade or business: n
a. Taxable net income
b. Income tax payable
c. Total final taxes on passive income
d . Total income tax expense

14. Determine the total income taxes of the taxpayer assuming the
taxpayer is a nonresident alien not engaged in trade or business
(ignore business income, business expenses and creditable
withholding taxes on business income in the Philippines).

2-5. A practicing professional, single, with his parents living and

dependent upon him, revealed the following data for 2020 taxable
year:
Income From
Philippines Abroad
Income from employment P 180,000 P280,000
Business income · 850,000 960,000
Deductible business expenses 610,000 730,000
Interest income on personal loans 6,000 3,000
Interest income on _bank deposits 10,800 . 4,200
1,600
Interest income on money market placements ·
Dividend income from domestic corp.
7,500
5,700
.
Dividend income from foreign corp. 6,800 2,000
Royalty income 90,000 50,000
Winnings/ prizes from lotteries, raffle draws 45,000 16,900
Prizes from singing contest 5,600
150,000 50,000
Lotto winnings
Royalty income from sale of books 68,000

128
 ADDITIONAL DATA:

• In February, the taxpayer bought a lot deemed as capital asset.

The acquisition cost was P840,000. He later sold the lot in
December for P1 ,060,000.

• In September, the taxpayer sold his 560 shares of stock of Ayala

Investment Corporation held by him as capital asset, thru a local
stock exchange. The cost was P36,900 whereas the sales price
was P154,000.
I
• In October, the taxpayer sold for P820,000 his house and lof--- -II

located in Makati, held as capital asset (not his principal ,,

residence). The fair market value on the date of ' sale was
.P950,000 and the acquisition cost was P475,000. I
I

REQUIRED:

1. Determine the following assuming the taxpayer is a resident citizen:

a. Taxable net income

b. Income tax payable
c. Final tax on passive income
d. Capita.I gains tax
.
2. Determine the f9llowing assuming the taxpayer is a non-resident
citizen:

a. Taxable net income

b. Income tax payable
c. Final tax on passive income
d. Capital gains tax

3. Determine th~ following assuming the taxpayer is a NRA-ETB:

a. Taxable net income

b. Income tax payable
c. Final·tax on passive income
d. Capital gains tax

I .

129
 Income Taxes of Spouses . .
2-6. Mr. and Mrs. De Leon, residents of Que_zon City .with three (3
qualified dependent children, provided the following data for 2 020 taxabi~
year:

Husband Wife Husband &

\/Vife ·
· Compensation income ?850,000 P650,000
Personal and family expenses
· •(including premium payment for 30,000 20,000
life and fire insurance of P2,000
each)
Premium paymen~ for 5,000 5,000
health/hospitalization insurance
Income from practice of .aoo,o00
profession
Expenses - practice of 320,00 0
profession
Income from trading business 250,000
Expenses from trading business 100,000

REQUIRED:
a. Determine the taxable income of Mr. De Leon
b. Determine the taxable income of Mrs. De Leon
c. Determine the consolidated income tax payable of Mr. and
Mrs. De Leon

2-7. Daniel, marrie~ to Kat, is a .citizen and resident of the Philippines.

The parents . of the couple are also living with the spouses for chief
support. They had the following data for 2020 taxable year:
DANIEL KAT DANIEL&KAT
Gross in.come from buslness P600,000
· Gross income from profession, net df P40,000 P360,000
CWTx
Rental income, net P190,000
Dividend income:
from domestic corporation 40,000
from resident corporation 20,000
from nonresident corporation . I
10,000
Interest income on notes receivable 6,000 4,000 2,000
Interest on Philippine bank deposit, net 3,200 2,400 8,000
Interest on Phil. bank deposit under FCDU 4,000 4,000 2,000
Interest on bank deposit abroad 5,000 5,000 5,000
Interest income on long-term bank deposit 20,000
Interest on government bonds 10,000
Royalty income-literary works 10,000

130
 Royalty income (other than literary works) . 12,000
Capital gain on sale directly to buyer at P550 000
' of shares of domestic corporation . I
150,009
Capital gain on sale directly to a buyer of land held 500,000
as investment in Quezon City. · SP=P5M .
Capital gain on sale of land held as investment 500,000
abroad ·
·Gain on sale thru New York Stock Exchange at
P100,000 of shares of domestic corp. 30,000
Loss on sale thru Philippine Stock Exchange at 10,000
P100,000 of shares of domestic corporation
SP=100,000 ,.
Expenses- business/profession 350,,000 200,000 75,000

Determine the following:

a. Tc;>tal capital gains taxes paid by the·spa.uses
b. Total final taxes withheld on passive income of.the spouses .
c. Taxc;3ble ·income of Daniel
d. Taxable income of Kat

QUARTERLY INCOME TAX RETURNS

2-8. The following cumulative palarices during the year on income and
expenses were provi9e,d· b_y Juan-Dela Cruz, a resident citizen:

tst Q 2ndQ 3rdQ Year

Gross Profit from Sales · P300,000 P65q,ooo P910,000 P1,200,000
Business expenses 120,000 · 262,000 . 405,890 426,700
Dividends-domestic corp. 20,000 20,000 30,000 30,000
Interest income from
BPI ,4,000 · 8,000 · 12,000 _ 16,000
ucpB ·•. 8,000 12,000 "16,000 . 18,000
Metro Bank 5,000 . 10,000 15,000 30,000
Capital gain ori sale of Land: · 150,000 150,000 . 150,000 150,000
Selling price-P600,000; Cost- P450,000

REQUIRED: Using above information, compute the following

1. Income tax payable,.first quarter ~
2. Income tax payable, second quarter
3. Income tax payable, third quarter
4. Income tax payable, fourth quarter .
5. .Total final taxes (for the year) on passive income
6. Jotal capital gains tax

131
 CAPITAL GAINS TAX
2-9.
1. A residen.t citizen taxpayer sold a v~cant lot (held as investment)
in the Ph·I· · Other data regarding the sale are as follows:
. I ippines. 00 000
Selling price P5,5 ,
Fair market value 6 ,000,000
Zonal value 5,850,000
Expenses on the sale . . ~75,000
Required: Compute the capital gains tax.

2. A resident citizen taxpayer sold a vacant lot (held as investment)

in the Philippines. Other data regarding the sale are as follows:
Gain on sale P500,000
Zonal value 2,200,000
Cost 2,000,000.
Expenses on the sale 150,000
Required: Compute the capital gains tax.

3. A resident citizen taxpayer sold a residential house and lot

(principal residence) in the Philippines. Other data regarding the
sale are as follows: .· ·
Selling price P5,000,000
Fair market value 6,000,-0Q0
Zonal value 5,500,000
Expenses on the sale 275,000

Required: Determine the capital gains tax assuming the taxpayer

purchased a new principal residence worth P5,800,000 within eighteen
months (18) from disposal of the principal residence. The BIR was

I
properly informed about the sale.

4. Using the same data in the preceding number, determi.ne the

capital gains tax assuming the taxpayer utilized only 80% of the
proceeds in acquiring his new principal residence.

2-10. Assume the following data:

Selling price of Building No.1 · P15,000,000
I I Selling price of Building No.2 20,000,000
Cost of Building No.1 10,000,000
Cost of Building No. 2 · 30,000,000
Expenses on sale of Building No. 1 200,000
Expenses on Building No. 2 300,000
Fair market value of Building No., 1 12,000,000
Fair market value of Building No. 2 8,000,000

132
 l
Required:
a) Com~ute the capital gains tax on Building No. 1
b) Compute the capital gai11s tax on Building No. 2
c) Compute the capital gains tax.on Building No. 2 assuming the
Building is situated abroad. ·

2-11. · The taxpayer is a resident citizen

Selling price at prevailing market value on a P600,000
direct sale to buyer of shares of stock of a
domestic corporation
Cost of the shares sold 650,000
Required: Compute the capital gains tax.

2-12. The taxpayer is a resident alien:

Selling price on a dire.ct sale to buyer of shares P300,000
of stock of a domestic corporation
Cost of the shares sold , 220,000 •
Required: Compute the capital gains tax.

2-13. The taxpayer is a resident alien:

Selling price on a direct sale to buyer of shares P310,000
of stock of a domestic corporation
Cost of the shares sold 150,000
. Required: Compute the capital g~ins tax.

2-14. The taxpayer is a nonresident alien engaged in trade.or business:

Selling price on sale of shares of stock of a P550,0Q0
domestic corporation through the .local stock
exchange p
· Cost of the shares sold . 300,000
· Required: Compute the capital ,gains tax.

133
TRUE OR FALSE
. with income derived Within
tural persons
1. Individual taxpayers are na . authority.
the territorial jurisdiction of a taxm~. . es by OFWs are tax exernpt
2.. lnGomes earned outsi?e th e Phi~~f~~nt citizen. _ ·
because they are considered nonr . th ·and nature of stay of an alien
3. The intention with rega~d to th ~ le~~r nonresident.
.determines whether he Is a residen
· . . . .• nc in the Philippines-shall only
4. A foreigner .who has_acquired reside y departs with the intention of
become a nonre---Sicient when he actua II Y .
· abandoning his residency in the Phi~ippi~es. ·not of the Philippines i
5. An alien individual, whether a resid~n or within the Philippines ' s
taxable only on income derived from -~ou~ces ith no defi.nite intenti
6. · A foreigner who shall live in the Philippine~ -w on
as to his stay i.s a nonresident alien.

7. Nonresident alien who shall come to the Philippines_and stay herein

for an aggregate period of more than 180 days during any calendar
year is subject to the rule ·on_reciprocity 'under the Tax Code with
respect to their allowed·p~rsonal exemption. - -
8. An alien individual is deemed doing business in the Philippines if he
shall come ·to the Philippines and stay herein for an aggregate period
of more than 180 days during the calendar year.
9. Generally, a nonresident alien not engaged in trade or business is
subject to 25% Greditable withholding tax on his gross income in the
Philippines. ·

1O. Sal~ of r~~I pr~p.erty _classified as capital asset located abroad by a

resident c1t1zen 1s subject to 6% capital gains tax based on the higher
amount between selling pri9e or.zonal value. - ·
11. Sal~ of rea~ prop~rty cl~ssifi~d as capital asset to the government is
subject to 61/o capital gains tax or basic income tax at th t· f the
taxpayer. . , e op I0n o
12. Sale of r~al property classified a·s ordin•ary as t. t th t.
b. t t 60' · 1 • - se o e governmen Is
su Jee o -10 capita gains tax or basic incom t . f th
taxpayer. . e ax, at the option o

· 134
 cfer q,erwu.-Jab~
"

MULTIPLE CHOICE
· Choose the letter of the correct answer.

1. ~ nd er Sect~on I, Art. ill of the Philippine Constitution a Filipino citizen

:orn
Is one who is/has: ' .
:· (by birth) with F,ather and/or mother as Filipi'no citizens
1· ·P b~fore_ ~anuary .17, 1973 of Filipino mother who elects
hih~pme cI~I~ensh1p upon reaching the ag~ of majority; or \ I

Ill. · Acquired Philippine citizenship after birth (naturalized) in· .

acco rd ance with Philippine laws
a. I and II only . . c. II and Ill only
b. I and UI
only d. I, II and Ill
Ij,
Use the followin~ data_ for the next five (5) questions: .
A taxpayer, married without qualified. dependent child, had the following
. data for .taxable year 2020: · '
Gross i11come, Philippines PB00,000 .
Gross income, USA . 600,000
Expenses, Philippines' '400,000
Expen~es, USA • 300,000
l . I

2. If the taxpayer. is a resident citizen ' .married

. , his taxabl~ income is !:i
a. P400,0QO "- c. P700,000
b. P350,000 ' 1
d. P6.50,000
. . . . I
3. If the taxpayer is a non-'resident citizen, married,, his taxable-income,is
a. P400,000 . . c. P700,000
b. P350,000 d ..P650,000

4. If the taxpayer is· resident alien, married, his ·1axable'income is

a. P400,000 . ' c. P700,000 .
b. P350,000 . d . .P650,000

5. .If the taxpayer is a non-resident alien engage ·in trade or busine1ss· in

. the Philippines, married and his country grants P40,000 as a personal
· exemption for married indivi~uals, his taxable 1ncome is
· a. P400,000 ·· · c. P700,000 ,
b. P360,000 ' . d .. P660,000

6. If the taxpayer is a non-resident alien not engage in .business in the

Philippines, married and his cou.ntry grants P40,000 as a personal
exemption for married individuals, his taxable income is ·
a. PB00,000 c. 'P360,000
b. P400,000 d. P350,000

135
-
7. Mr. George Hames is a Syrian and a resident of Damascus, Syria . . Ii
requested you to file his Philippine income tax return for 2020. The e
following information were forwarded to you:
Gross income from Philippines: .
Interest income from BPI bank deposits . P3,ooo,ooo
Dividend income from domestic corporations soo,ooo
Less:Expenses
Net .income in the Philippines . 3,200, 000
Add: Net income in Syria (Peso equivalent) s.ooo, 000
Total net income ·
Taxable income you will report is:
a. P3,000,000 C. P3,500,000
b. ~P3,200,000 d. PO

8. Which of the following received by an individual taxpayer is not subject

to final tax but subject to tax under Section 24 A of the Tax Code?
a. Cash dividend from domestic corporation
b. Property dividend from regional operating headquarters of
multinationals
c. Share in the distributive net income after tax of taxable
partnership in the Philippines
d . . Cash dividend from a foreign corporation with Philippine
branch

9. Which of the following is an income subject to the basic tax?

· a. Dividends received from domestic corporation
. b. Prizes from USA lotto
c. Interest income from .BOO
d. Share in the net income of ordinary partnership

10. Individual taxpayers not subject to tax under Section 24(A) ·

a. Resident citizens on their net income within and without the
Philippines. ·
b. Resident citizens and resident aliens on their net income
within the Philippines.
c . Nonresident aliens engaged in trade or business on their net
income within the Philippines. ·
d. Nonresident aliens not engaged in trade or business on their
gross income within the Philippines.

r
I
I

136
f

cfm £er@e.s - ;a£,~

11. Statement 1: Passive incomes are subJect
. to separate and final t?x
·
rates.
Statement 2· Pa · ·
taxable inco~e frss,ve incomes ~re included in the computation of
a Stateme otsm co&mpensat1on or business/professional income.
· n 1 2 are false
b. Slatement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. S_tatements 1 and 2 are true

12. Final tax is generally withheld

On passive income From Philippine
· sources
a. Yes Yes
b. No No
C. Yes No
d. No Yes 11
I

13. Binay, a Filipino overseas contract worker -~nd his spouse, a resident
of the P_
hilippines, have a joint US dollar account at PS Bank, Makati.
Their gross interest earnings in 2020 from the bank deposit amounted
to US $4,000. Which of the following statement is correct?
a. The interest income .shall be treated as tax exempt because
Binay is non-resident citizen.
b. The interest income shall be_taxable in full because Binay and , I

his spouse are both Filipino citizens. ·

c. Fifty percent (50%) of the interest income shall be treated as
exenipt while the other fifty percent (50%) shall be subject to
I
the graduated rates. I'

·d. Fifty percent (50%) of the interest income shall be ·treated as

exempt while the other fifty percent (50%) shall be subject to a
final withholding tax of 15%.

14. Cash and/or property dividends shall be subject to 10% final

withholding tax if actually or construc~iv~ly received fro~
1. Domestic companies or from Joint stock companies.
II. Insurance or mutual fund companies.. . .
111. Regional operating headquarters of m~ltmat1onals
IV. Philippine branch of a foreign corporation.
I only · c. IV only
~: I and II only d. I, II and Ill only

137
 cft« q«CMu - /,, /4,;:;
·1 s. A resident citizen received a prize of PSO,OOO. w~;~h offtP.e following
statements is correct in connection wi th th e impos, ,on° mal tax on
the prize? . .
a. The first P1O,OOO is subject to Section 24 (A), th e remaining
P3O,OOO is subject to 20% final tax. . .
b. The first P1O,OOO is exempt from tax, th e re~ammg P3o,oo 0
is subject to 20% final tax. 0
c. The whole amount shall be subject to 20 1/o final tax.
d. The whole amount shall be subject to 25% final tax.

16. Which of the following passive income i~ exem~t from tax wh~n
received by resident citizen and non-resident ahens engaged 1n trad
or business in the Philippines, but subject to _25% final tax ~hen e
received by nonresident aliens not engaged in trade or business?
a. Prizes of more than P1O,OOO. .
· b. Interest income from long-term deposit or instrument
evidenced by certificates. prescribed by the Bangko Sentral ng
Pilipinas. ·
c. Yield or any other monetary benefit from trust funds and
similar arrangements ..
d. Other winnings.

17. A resident citizen rece.i ved a raffle prize of P40,OOO rrom NBA while
· watching a basketball game qetween LA Lakers and Boston Celtics in
LA California, USA. Which of the following statements is correct?
a.. The whole amount of P4O ,OOO is part of his taxable income
b. The first P1O,OOO is part bf his taxable income whi_le the remaining
P3O ,OOO is subject to 20% final tax
c. The wtiole amount of P4O,OOO shall be subject to 20% final tax
d. The first P1O,OOO shall ,be exempt from tax while the remaining
P3O,OOO is subject to 2;0% final tax

18. Which of the following income is taxable in the Philippines?

a. Interest income in the Philippines earned by a nonresident alien
b. Cash dividend received by a nonresident citizen from a foreign
corporation
c. Salary received for working abroad by a n'o nresident citizen
d. Business income earned in USA by an American citizen residing
in Palawan
·:1

138
 cfer qcrcueo - Jllf/j,,~
_Use the f~llo_wing d_a_ta for the next two (2) questions · ·
Pedro, a resident cItIzen, received the following during 2020:
Proceeds from copyright royalty, net of tax . P11,250
Proceeds from m_ineral claim royalty, net of tax 12,000
Sh~re ·from trading. partnership, net of withholding tax 270,000
19. How much is the total final tax on Pedro's income?
a. PS0,000 c. P31,250
b. P34,250 - . d. P4,250

20. How much is .the income tax still due and payable of Pedro in 2020? '
a. PS0,000 c. P31,250 · . '
b. P34,250 d. PO

Use the following data for the next two (2) questions · ·
A taxpayer received in 2018 the following passive income within
Philippines, net of applicable tax, if any:
Interest on bank deposit under FCDU P212,500
· Royalty on books 94,500
Dividend income from a domestic corporation 144,000
• • " \ I '

21. If taxpayer is a resident alien, the finai tax on the above passive
income would ~mount to : ·
a. P41,194 . · c; P64,000
b. P46,500 ·.
\
d . .P84,000

22. If taxpayer is a non-resident alien engaged in business, 'the final tax

on the above passive income would amount to
a., P41, 194 c: P64,000
b. P46,500 d. P84,000

CAPITAL GAINS TAX - SHARES AND REAL PROPERTIES

23. Statement 1: There is capital gain tax-on shares of stock only if the ·
shares are those of a domestic corporation held as capital asset an·d
not listed and traded in a local stock exchange.
, Statement 2: The capital g,iiin tax on shares of stock is paid within
thirty days from the date·of sale. ·
a. Statements 1 & 2 are false
b. -Statement 1 is true but statement 2 is false
c. · Statement 1· is false but statement -~ is true
d. Statements 1 and 2 are true .

139 ,
 · f10ns is exempt from capital gains
24. Which of the following tran~ac_ sidence of the taxpayer Wh tax?
1
, Case 1 - Sale o~ the pnntc1pa r~ase a vacation lot in Tag· ere the
· entire proceeds 1s used o pure · aytay_
beach lot of the taxpayer where the e""t·
C ase 2 - S a Ie Of a h"s rincipal residence. • • 1re
proceeds is used to construct I P .

Case 3 - The sale of the principal re~ide~ce of the taxpay

availing tax exemption for th~ seco nd time in ten ( 1 0) Years ~r
0
purchase another principal residence.
A. B. C. D.
Case 1 Yes Yes No No
. Case 2 Yes Yes No No
Case 2 Yes No Yes No

Use ·the following data for the next two (2) questions:
Pedro inherited from his parents a large parcel of undeveloped land
acquired by them years ago with total cost of P2,500,000. Pedro now
sells all of these parcels for P25,000,000. . . .
25. How much of the gains should Pedro report in his income tax return
for ·the year? . .
a. None, because the properties are capital assets and the
transaction is subject to capital gain tax and not basic tax.
b. P22,500,000 because although the properties are capital
assets and the transaction is subject to capital gain tax, such
· tax is still considered income tax. Thus, the gain shall also be
reported in Pedro's income tax return.
c. Pedro has · the option to report an income of P22,500,000
subject to basic tax or exclude the income from his income tax
return and pay 6% capital gains tax.
d. Any of the choices above

26. Suppose that when Pedro inherited these parcel of land, they were
already developed real estate subdivisions with small lots being sold
on installment basis . . He sold the property for P25,000,000. How
much of the gains should Pedro report in his income tax return for the
year?
a. None, because the properties are capital assets and the
transaction is subject to capital gain tax and not basic tax.
b. P22,500,000 because the properties are classified as ordinary
:1
~ssets. Thus, the gain shall also be reported in Pedro's
I·
I
income tax return. ·

I-
\
I
I 140

l
 c!fter £era5es - 1divuU
c Pedro has the optio t
· subject to basic tax n °report an income of P22,500,0
oo
return and pay o/c or ~xclu~e the income from his income tax
6 0 capital gains tax ·
d. Any of the choices above
,(
·

lf. OF PRINCIPAL RESIDENCE - . ,

SA
21. If the proceeds
. are
.. from the d' • . . · 11
isposItIon of principal residence and fu Y
utilized in_ ~cqumng ?r constructing a new principal residence, the
capital gain 1~ ~?t subJect to tax if the
a. A~q~isition or construction of the new principal residence is
w1th in .18 ~ale nd8 r months from the date of disposition. .
b. The ~Ist<;mcal cost or adjusted basis of the real property sold
or .disposed . shall be carried over to the new principal
residence built or acquired. .
c. The Comn:iis_sions shall have been duly notified by the
taxpayer within 30 days from the date of sale or disposition
through a prescribed return of his intention to avail of the tax
exemption.
d. All of the above

28. Juan is a resident of QC. ·He sold his family home for P4,000,000
which was previously acquired for P2,000,000. Juan complied all BIR
requirements to avail of tax exemption and spent P2,500,000 in
acquiring new family home. How much is the capital gains tax to be
paid by Juan? ·
a. PO c. P150,000
b. P90,000 d. P240,000

Use the following data for the next two (2) questions I I I

Cliff is a self-employed and/or professional. He provided the following

information for 2020 taxable year:
• P1 ,650,000
Gross sales 500,000 .
Cost of sales 425,000
Business expenses 308,750
Rental income (net) 500,000 I
Philippine charity sweepstakes winnings
120,000 I I
Royalty income - books
Other royalty income - Philippines
60,000
40,000
,I
Dividend income - domestic corporations 100,000 I
Interest income, BDO QC 50,000
Interest income received from a depository bank
under FCDS, Philippines 65,000
Creditable withholding tax from business income 82,500
Quarterly tax payments

141
''
 .c'fer qucu&S -J,u0~
29. How much is the income tax payable of ~liff?
a. P9,500 - c. P57,,50
b. P1o,s·oo d. P205,000

30. How much is•the i·ncome tax payable.of Cliff assuming he opted to be
taxed at 8% income tax rate?
a. (P9,500) c. PS?,S 00
b. P10,500 d. P20S,00O

31. Cliff is deriving compensation and busines~ income. He provided the

following information for 2020 taxable year.
· . .income
Gross compensatt?n P600 •000
Gross sales 1,650 ,000
Cost of sales 500,000
Business expenses 425,000
Rental income (net) . ~0,?;750
Philippine charity sweepstakes winning~ 50~,ooo
Royalty income - books 120,000
Other·royalty income - Philippines · 60,000
Dividend income - domestic corporations 40,000
Interest income, BOO QC 100,.000
Interest income received from a depository 50,000
bank under FCDS, Philippines
Creditable withholding tax from business 65,000
,
income
Quarterly tax payments 82,500

How much is the irn;;ome tax payable of Cliff assuming he opted .to be
taxed at 8% income tax rate? .
a. P89,500- c.. P57,500
b. P90,500 . d. P205,000
•

32. Michael Cabarles, single, has the following income and expenses for
. the year.2020. He supports an eight-year-old .illegitimate child.
Professional Income, net .of P60,'000 P540;000
withholding tax, · ,
II
Rental income (ne,t) , 47,500
Rewards as BIR informer 30,000
Wagering gains
50,000
I Kickbacks received from suppliers ot' clients 40,000
I \, Interest income on time deposit (net) 32,000
I·
I
Dividend incqme from domestic corporations 75,000
\ professional expenses
325,000
l
'\
1\
142
 Household expenses, 24,000
· Premium payment on health insurance 4,000
Facilitation fees paid to government agencies 15,000

Compute the amount of his taxable income subject to basic tax for
2018? - ·
· a. P325,000 c. P415,000
b. P340,000 d. P445,000

Use t~e fo/1~":'ing data for the next three (3) questions:
A resident c1t1zen, married, with two (2) qualified dependent children has
the following data for the year 2020:
Gross sales, Philippines PS,000,000
Sales returns and allowances, Philippines 500,000
Cost of sales, Philippines 1,500,000
Gross sales, Ukraine 3,000,000
Sales returns ~nd allowances, Ukraine 200,000
Cost of sales, Ukraine 800,000
Business expenses, Philippines 500,000
Business expenses, Ukraine 300,000
Interest incom~, peso bank deposit BDO-rv,arikina 20,000
Interest income, US dollar deposit, BDO-Mandaluyong 50,000
Gain from sale of residential house and lot (selling price, 500,000
P3,000,000; FMV, time of sale, ·PS,000,000)
Gain from sale of shares of stock listed and traded in the 30,000
local stock exchange (selling price, P1Q0,000)
Gain from sale of shares of stock not traded in the local 150,000
stock exchange

33. How much is the total final tax_on·passive income?

a. P14,000 c. P4,000
· b. P?,750 . · d.· -P11,500

34. How m4ch is the capital gains tax due?

a. P310,000 ·c. P180,000
b. P300,000 d. P322,500

35. How much is the taxable net income?

a. P4, 700,000 , c. P2,900,000
b. P4,280,000 d. P4,200,000

FILING OF INCOME TAX RETURNS.

36. Which of the following income is required to be filed in a quarterly
income tax return? ·
a. Compensation income

143
 c'fe; qerwe,s -in£,,~
b. Passive income
c. Business income
d. Capital gains

37. The following are the requirement for substituted fi_ling of income tax
return, except
a. He had one employer only. . .
b. His income was purely -compensation_mGome.
c. Income tax withheld by the employer is correct.
.d. He had consecutively filed his income tax return for the Past
five years.

38. Statement 1: If an employee had multiple employers within the Year

an income tax return must be filed at the end of the year. '
Statement 2: If an employee had three e~ployers, on suc~ession, for
ea~h of the past three years, substituted filing of tax return 1s not
allowed.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d.· Statements 1 and 2 are true

39. Who of the following individual taxpayers may avail of substituted filing
of Income Tax Return (ITR)?

Riann~:
Deriving compensation income from ABC Company, his
only employer for the taxable year. _
The correct amount of tax was withheld by ABC Company
He also derived interest income from his peso bank
deposit in BPI and the sale of his shares in DEF
Corporation (a closely-held domestic corporation) to Brian
resulted to a gain of P100,000. ·

Leomar:
Deriving purely compensation income from XYZ
Corporation, his only employer for the taxable year.
The correct amount of tax was withheld by XYZ
Leomar's spouse is engaged in business

A. B. C. D.
Rianne Yes Yes No No
Leomar . Yes No Yes No

144 .
 st
40. 1 statement Taxable income from self-employment (business and
.Pr~fession) is reported on a quarterly and annual basis. -
t' statement: The quarterly income tax return shall be filed and the
st
tax paid as follows: 1 Q - not later than April 15 2nd Q - not later
1
rd
than August 15, 3 Q - not later than September 15.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

41. Pedro~s income tax due for the year amounted to PB0,000. He may
elect to pay the tax due on installment as .follows:
a. In two equal installments ·
st
b. 1 installment is payable upon filing the annual income tax
return.
nd
c. 2 installment is pc:Jyable on or.before October 15 following
the close of the calendar year.
d. All of the above

42. t51 statement: If any fnstallment payment of income tax is not paid on
or before the date fixed fc;>r its payment, the whole amount of the
unpaid tax .becomes due and payable, together with the delinquency
penalties to be reckoned from on the original date when the tax is
re~uired to be paid. ·
t' statement: Installment payment of income is not allowed to ~elf-
employed and/or professional who are availing the 8% income tax_rate
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1.is false but statement'2 is true
d. Statements 1 ahd 2 are true

145