Studio Shodwe Project.
2024
GROSS INCOME
INCLUSIONS
01 COMPENSATION
2024
INCOME
INCOME FROM EMPLOYER-
Project.
EMPLOYEE RELATIONSHIP
Compensation income is income arising out of employer-
employee relationship. It encompassed all remuneration for
services performed by an employee for his employer whether
paid in cash or in kind
Studio Shodwe
RR 2-98 defined "employee" as an individual performing services
under an employer-employee relationship. An employer-
employee relationship exists when the person for whom the
services were performed has the right to control and direct the
individual who performs the services, not only as to the result to
be accomplished, but also as to the details and means by which
such results are accomplished. No distinction is made between
classes or grades of employees. Thus, superintendents,
managers and officers are considered as employees.
FORMS/MEASUREMENT
OF COMPENSATION
Compensation may be paid in money or in some medium other than money
such as stocks, bonds or other forms of property.
1. If compensation is paid in cash, the full amount received is the measure of
compensation income.
2. If the services are paid in a medium other than money, the fair market
value of the thing taken in payment is the amount of compensation.
3. If compensation is paid in kind, such as stocks of the employer, the fair
market value of the stock at the time the services were rendered is the
measure of compensation.
CLASSIFICATION OF
COMPENSATION INCOME
1. Regular compensation - includes basic salary, fixed allowances for
representation, transportation and others paid to an employee per payroll
period (RR 10-2008).
2. Supplemental compensation - includes payments to an employee in
addition to the regular compensation
• The rules on compensation income are applicable only to individual taxpayers,
except nonresident alien not engage in trade or business.
• Corporations, estate, and trusts are not also covered by the rules on
compensation due to lack of employer-employee relationship.
COMPENSATION INCOME RECEIVED
AFTER TERMINATION OF EMPLOYEE-
EMPLOYER RELATIONSHIP
Remuneration for services constitutes compensation income even if the
relationship of employer and employee does not exist any longer at the time
when payment is made between the person in whose employ the services had
been performed and the individual who performed them. Obviously, the related
compensation income was earned at the time the employer-employee
relationship was not yet terminated. Hence, the income was derived out of an
employer-employee relationship.
EQUITY BASED COMPENSATION
INCOME
Equity-based compensation covers all types of employee equity schemes that
come in different forms such as stock options, restricted stock units, stock
appreciation rights, and restricted share awards, which may or may not pertain
to shares of stock of the grantor itself, but which have the common feature of
being granted to existing employees of the grantor as a performance incentive
for services rendered by the employees and are typically dependent on the
performance, outstanding business achievements and, exemplary
organizational, technical or business accomplishments.
EQUITY BASED COMPENSATION
INCOME
TAX TREATMENT OF EQUITY BASED COMPENSATION
1. Grant of Equity Based Compensation - Not subject to tax
1. CGT. Not subject to CGT, whether with or without an option price since
there is no realized capital gain on the part of the employer-grantor.
2. DST. Not subject to DST.
EQUITY BASED COMPENSATION
INCOME
REPORTORIAL REQUIREMENT on the Grant of Equity-Based
Compensation
Within 30 days from the grant of the equity-based compensation, the issuing corporation
which is, for the avoidance of doubt, the employer-grantor, shall submit to the Revenue
District Office (RDO). where it is registered a statement under oath indicating the following:
1. Terms and Conditions of the stock option;
2. Names, TINs, positions of the grantees;
3. Book value, fair market value, par value of the shares subject of the option at the grant
date;
4. Exercise price, exercise date and/or period;
5. Taxes paid on the grant, if any; and
6. Amount paid for the grant, if any.
EQUITY BASED COMPENSATION
INCOME
2. Sale or Transfer of Equity Based Compensation
Sale, barter, or exchange by employee-grantee of the granted equity- based compensation
is treated as a sale, barter, or exchange of stocks not listed on the stock exchange.
a. Sale or transfer is with consideration. Sale or transfer of the granted equity-based
compensation is subject to CGT imposed under Section 24(C) of the National Internal
Revenue Code of 1997, as amended (Tax Code). If the equity-based compensation was
granted for a price, the difference between the sales price and the option price shall be subject
to CGT. If the same was granted without a price, the cost base of the option for purposes of
computing the capital gains shall be zero.
b. Transfer is without consideration. The transfer shall be treated as a donation of shares of
stock subject to donor's tax. The basis shall be the fair market value (FMV) of the option at
the time of the donation.
EQUITY BASED COMPENSATION
INCOME
3. EXERCISE of Equity Based Compensation
The difference between the book value/FMV of the shares, whichever is higher, at the
time of the exercise of the equity-based compensation and the price fixed on the
grant date, shall be considered as additional compensation subject to income tax (basic
income tax or graduated tax rate) and consequently to withholding tax on compensation.
The above rule applies to the exercise of equity-based compensation granted by
employers involving its own shares of stock or shares of stock it owes to its
employees, whether rank-and-file or occupying a supervisory or managerial position.
Document Stamp Tax shall be imposed only upon the actual issuance of shares of
stock to the employee-grantee in line with Sections 174 and 175 of the Tax Code, as
amended.
EQUITY BASED COMPENSATION
INCOME
In the event that the granted equity-based compensation is transferable to employee-
grantee's successor/heirs in case of death of employee-grantee, and such
successor/heirs exercised the same within the prescribed exercise period, the
difference between the book value/FMV of the shares, whichever is higher, at the time
of the exercise of the granted equity-based compensation and the price fixed on the
grant date, shall be considered as donation, and shall be subject to
donor's tax.
EQUITY BASED COMPENSATION
INCOME
REPORTORIAL REQUIREMENT on the Exercise of Equity-
Based Compensation
During the exercise period, the employer-grantor shall file a report on or before the
10th day of the month following the month of exercise stating therein the following:
a. Exercise Date;
b. Names, TINS, positions of those who exercised the option;
c. Book value, fair market value, par value of the shares subject of the option at the
exercise date/s;
d. Mode of settlement (i.e., cash, equity); and e. Taxes. withheld on the exercise, if any.
FRINGE BENEFITS AND 13TH MONTH
PAY
Fringe benefit is any goods, service or other benefit furnished or
granted by an employer in cash or in kind, in addition to basic
salaries, to individual employees. Fringe benefits subject to
fringe benefit tax cover only those fringe benefits given or
furnished to a managerial or supervisory employee. On the other
hand, fringe benefits furnished to rank and file employees are
subject to basic tax and consequently to withholding tax on
compensation in accordance with RR 2- 98, as amended.
FRINGE BENEFITS AND 13TH MONTH
PAY
FIXED OR VARIABLE ALLOWANCES
In general, fixed or variable allowances which are received by an
officer or employee of a public or private entity, in addition to the
regular compensation, fixed for his position or office, is compensation
subject to income tax and consequently, creditable withholding tax on
compensation income [Section 2.78.1 (A) of RR 2-98 as amended by RR
10- 2008].
Examples of fixed or variable allowances are transportation allowance,
representation allowance, communication allowance, living away
from home allowance (LAFHA), and the like.
ADVANCES AND REIMBURSEMENTS
FOR TRAVELING AND
ENTERTAINMENT EXPENSES
Reasonable amounts of reimbursements/advances for
travelling and entertainment expenses which are
pre-computed on a daily basis and are paid to an employee
while he is on an assignment or duty need not be subject to
the requirement of substantiation and to withholding.
ADVANCES AND REIMBURSEMENTS
FOR TRAVELING AND
ENTERTAINMENT EXPENSES
On the other hand, any amount paid specifically, either as advances or
reimbursements for travelling, representation and other bona fide ordinary and
necessary expenses incurred or reasonably expected to be incurred by the
employee in the performance of his duties are not compensation subject to
withholding, if the following conditions are satisfied:
It is for ordinary and necessary travelling and representation or entertainment
expenses paid or incurred by the employee in the pursuit of the trade, business or
profession; and
The employee is required to account/liquidate for the foregoing expenses in
accordance with the specific requirements of substantiation for each category
of expenses pursuant to Sec. 34 of the Tax Code.
ADVANCES AND REIMBURSEMENTS
FOR TRAVELING AND
ENTERTAINMENT EXPENSES
On the other hand, any amount paid specifically, either as advances or
reimbursements for travelling, representation and other bona fide ordinary and
necessary expenses incurred or reasonably expected to be incurred by the
employee in the performance of his duties are not compensation subject to
withholding, if the following conditions are satisfied:
It is for ordinary and necessary travelling and representation or entertainment
expenses paid or incurred by the employee in the pursuit of the trade, business or
profession; and
The employee is required to account/liquidate for the foregoing expenses in
accordance with the specific requirements of substantiation for each category
of expenses pursuant to Sec. 34 of the Tax Code.
PREMIUMS ON LIFE INSURANCE
Premiums on life insurance covering the
life of an employee paid by the employer is
taxable income to the employee, where the
insured employee, directly or indirectly is
the beneficiary under the policy.
PREMIUMS ON LIFE INSURANCE
Premiums on life insurance covering the
life of an employee paid by the employer is
taxable income to the employee, where the
insured employee, directly or indirectly is
the beneficiary under the policy.
DEDUCTIBLE EXPENSE OF THE
EMPLOYER
Any amount given by the employer as
benefits to its employees, whether
classified as de minimis benefits or fringe
benefits shall constitute as deductible
expense upon such employer
TIPS AND GRATUITIES
Tips or gratuities paid directly to an employee by a
customer of the employer that are not accounted
for by the employee to the employer are considered
as taxable income subject to basic tax.
However, the same shall not be subject to
withholding tax for the reason that tips are not
accounted for by the employee to the employer
(RR 2-98).
VACATION AND SICK LEAVE
ALLOWANCES
Vacation and sick leave allowances are amounts of "vacation
allowances or sick leave credits". Which are paid to an employee
treated as compensation income. Thus, the salary of an employee
on vacation or on sick leave, which are paid notwithstanding his
absence from work, constitutes compensation.
However, the monetized value of unutilized vacation leave
credits of ten (10) days or less which were paid to the employee
during the year, being de minimis benefits as discussed in
REPRESENTATION AND
TRANSPORTATION ALLOWANCES
(RATA)
Representation and Transportation Allowances (RATA) granted
under Section 34 of the General Appropriations Act to certain
officials and employees of the government are considered
reimbursements for the expenses incurred in the performance one's
duties rather than as additional compensation.
However, the excess of RATA, if not returned to the employer,
constitutes taxable compensation income of the employee.
STIPENDS OF RESIDENT PHYSICIANS
The stipends received by resident physicians during their
intensive training in the residency program of a hospital
are subject to creditable withholding tax (CWT).
The amount subject to CWT shall include not only fees, but
also per diems, allowances, and any other form of income
payments not subject to withholding tax on compensation
[BIR Ruling No. DA (C- 004)024-2010, February 4, 2010].
COST OF LIVING ALLOWANCE (COLA)
COLA of minimum wage earners is exempt from income
tax. The COLA forms part of the new wage rates or
statutory minimum wage. Hence, it is covered by the
income tax exemption of Minimum Wage Earners under
RA 9504, as implemented by Revenue Regulations No.
10-08, which covers the statutory minimum wage
(inclusive of COLA under NCR Wage Order No. NCR-16),
including holiday pay, overtime pay, night shift differential
pay and hazard pay.
COST OF LIVING ALLOWANCE (COLA)
COLA of minimum wage earners is exempt from income
tax. The COLA forms part of the new wage rates or
statutory minimum wage. Hence, it is covered by the
income tax exemption of Minimum Wage Earners under
RA 9504, as implemented by Revenue Regulations No.
10-08, which covers the statutory minimum wage
(inclusive of COLA under NCR Wage Order No. NCR-16),
including holiday pay, overtime pay, night shift differential
pay and hazard pay.
INCOME OR GAIN FROM THE EXERCISE
OF STOCK OPTION PLANS
The BIR ruled under BIR Ruling 119-2012 dated
February 22, 2012 that any income or gain
derived by an employee from the exercise of stock
option is considered as additional compensation
subject to income tax and consequently, to
withholding tax on compensation (WTC).
02 BUSINESS
2024
INCOME
INCOME FROM BUSINESS
Project.
Gross income derived from the conduct of trade or business or
the exercise of profession is known as business income. They
Studio Shodwe may arise from the sale of products or services.
In the case of manufacturing, merchandising, or mining business,
"gross income" means total sales, less the cost of goods sold plus
any income from investments and from incidental or outside
operations or sources
BAD DEBT
RECOVERY
-Subsequent recovery of a bad debt previously written off in the books is a
taxable income provided that the write-off of the account resulted to a
lower taxable income at the time of write-off. This rule is known as "Tax
Benefit Rule".
TAX REFUNDS
"Tax Benefit Rule" also applies with respect to refund or credit for taxes.
Thus, tax refunds are taxable if the tax, when paid, was deducted from gross
income (i.e., local taxes and fringe benefit tax) Taxes which were not
previously allowed as deductions from the gross income should not form
part of taxable income when refunded. The following tax refunds are not
taxable:
1) Income tax (except fringe benefit tax)
2) Estate Tax
3) Donor's tax
4) Special assessment
5) Stock transaction tax
6) Income tax paid to a foreign country if the taxpayer claimed a credit for
such tax in the year it was paid.
CANCELLATION &
CONDONATION OF DEBT
3. GAINS DERIVED
FROM DEALINGS
IN PROPERTY
Gross income derived from dealings in
property includes all income derived
from the disposition of property which
results in gain or loss
The gain from the transaction shall be
taxable gain and the loss shall be
deductible if incurred in trade,
profession, or business.
GAINS SUBJECTED TO CAPITAL GAINS TAX AND
BASIC TAX
4. INTEREST
INCOME
Generally, interest are taxable
income, unless exempted by law,
wether or not usurious.
Gross income derived from
interest should only refer to such
interest as arising from
indebtedness
INTEREST INCOME SUBJECTED TO FWT
AND BASIC TAX
RENTAL MAY BE IN THE FORM OF:
INCOME 1. Cash, at stipulated price.
2. Obligations of the lessor to third persons
Section 32(A)(5) of the Tax Code paid or assumed by the lessee in
consideration of the contract of lease such
provides that "rent" paid by the as real property taxes assumed by the lessee
on the property being leased, insurance or
lessee for the use or lease of other fixed charges. Such payments shall be
property is taxable income to the considered rental payments to be reported
by the lessor as part of its taxable income.
lessor. Rent is the amount paid 3. dvance payment, which may be:
for the use or enjoyment of a a. Prepaid Rent
b. A security deposit that is applied to rental
thing (real or personal) or right. is a taxable income of a lessor
Advance rentals representing option money for
the property as well as security deposits to
insure faithful performance of certain
obligations of the lessee are not considered as
income on the part of the lessor.
RENTAL INCOME: LEASEHOLD IMPROVEMENTS
Leasehold improvements
are enhancements made by the lessee to
leased property.
taxable to the lessor only if made under
an agreement and not removable by the
lessee.
No taxable gain arises for the lessor if the
improvements are fully depreciated or
already require major repairs when
turned over.
The lessee may deduct depreciation on
the improvements over the shorter of the
lease term or the asset’s useful life.
RENTAL INCOME: ILLUSTRATION
RENTAL INCOME: ILLUSTRATION
RENTAL INCOME: ILLUSTRATION
ROYALTY INCOME
Royalty Income Royalty vs. Service Fee
payments for the right to use If the payee has no
an invention, book, work, or proprietary interest in the
similar property. property, the payment is
They are generally passive compensation for services.
income subject to final tax, If the payee has proprietary
unless earned in the active interest, the payment is
pursuit of the corporation’s royalty income.
primary business, in which
case they become ordinary
business income.
ROYALTY INCOME
DIVIDEND
INCOME
-Dividends are payments made by a
corporation to its shareholder members.
DIRECT
- Is one where the paying corporation
acknowledges the distribution of divident
through a resolution of the board of directors.
INDIRECT
- A distribution of profits disguised as
payment of services, properties, etc.
DIVIDENDS MAY BE SUBJECT TO BASIC
TAX, FINAL TAX, OR EXEMPT FROM TAX.
DIVIDENDS MAY BE SUBJECT TO BASIC
TAX, FINAL TAX, OR EXEMPT FROM TAX.
TYPES OF
DIVIDENDS
A. CASH DIVIDENDS
- Dividends paid out in currency,
and are usually taxable to the
recepient in the year they are paid.
B. PROPERTY DIVIDENDS
- Dividends paid out in the form of
noncash asset from the issuing
corporation or another corporation,
such as a subsidiary corporation.
TYPES OF
DIVIDENDS
C. LIQUIDATING DIVIDENDS
- A liquidating dividen, generally, is not a
dividend income. The transaction is considered
a sale or exchange of property between the
corporation and the shareholder.
D. STOCK DIVIDENDS
- a stock dividends reflects the corporation
transferring an amount from ''surplus'' (retained
earnings) to ''capital stock'' or paid up capital.
- Stock dividends are paid out in the form of
additional shares of the issuing corporation.
8. ANNUITY
INCOME
Refers to specified income payable at stated
intervals for fixed or a contingent period,
often for the recipient's life, in consideration
of a stipulated premium paid either in prior
installments payments or in a single payment
Amounts received representing return on
capital is excluded in determination of
taxable income.
Annuity received representing interest
should form part of the recipient's taxable
income
BRINGING
IDEAS TO LIFE
THE MAKING PROCESS
Studio Shodwe Project.
culpa ullamco qui in occaecat qui magna elit proident duis ut
dolore aute enim proident fugiat elit amet consequat
excepteur Lorem quis dolore in nulla amet sunt veniam sit ex
sunt aliqua consequat ea laborum veniam adipisicing
incididunt veniam veniam occaecat
05
culpa ullamco qui in occaecat qui magna elit proident duis ut
dolore aute enim proident fugiat elit amet consequat
excepteur Lorem quis dolore in nulla amet sunt veniam sit ex
sunt aliqua consequat ea laborum veniam adipisicing
incididunt veniam veniam occaecat
A
id eiusmod ex adipisicing
reprehenderit eiusmod veniam
velit deserunt nisi eu anim non qui
esse mollit et nisi deserunt anim
consequat
D 06
id eiusmod ex adipisicing
reprehenderit eiusmod veniam
velit deserunt nisi eu anim non qui
esse mollit et nisi deserunt anim
consequat
id eiusmod ex adipisicing
A VISUAL id eiusmod ex adipisicing
B reprehenderit eiusmod veniam
velit deserunt nisi eu anim non qui
esse mollit et nisi deserunt anim
consequat
ODYSSEY E reprehenderit eiusmod veniam
velit deserunt nisi eu anim non qui
esse mollit et nisi deserunt anim
consequat
MAPPING OUR THOUGHTS
id eiusmod ex adipisicing id eiusmod ex adipisicing
C reprehenderit eiusmod veniam
velit deserunt nisi eu anim non qui
esse mollit et nisi deserunt anim
consequat
F reprehenderit eiusmod veniam
velit deserunt nisi eu anim non qui
esse mollit et nisi deserunt anim
consequat
Studio Shodwe Project. 2024
9. PRIZES AND OTHER WINNINGS
Exempt Prizes and winning
1. Prizes and award made primarily in recognition of religious,
charitable, scientific, educational, artistic, literary, or civic achievement
Provided the recipeint was:
a. selected without any action on his or her part to enter the
contest or proceeding
b. not required to render substantial future service as a condition
to receive the prize/ award
2. Prizes in athletic competition sanctioned by their respective national
sports associations
3. Winnings from PCSO or lotto not exceeding P10,000, except NRA-
NETB (as amended by CREATE Act)
10. PENSIONS
- in general are subject to income
tax, except pensions and retirement
benefits exempt under the law
11. PARTNER’S SHARE IN THE NET INCOME
OF A GENERAL PROFESSIONAL
PARTNERSHIP (GPP)
Partner’s share in the income of:
- treated as dividend income of the
partners, subject to final withholding tax
on passive income
General Partnership (GP)
- not included in the computation of basic
tax, and not included in the partner’s
Income Tax Return (ITR)
- not treated as dividend income of the
partners. Hence, subject to basic tax
General Professional Partnership
- Included in the ITR of the taxpayer or in
(GPP)
the determination of the partner’s taxable
income.
08
PERSPECTIVE
Studio Shodwe Project. 2024
A BALANCED
A SWOT ANALYSIS
STRENGTH WEAKNESS
id eiusmod ex adipisicing reprehenderit id eiusmod ex adipisicing reprehenderit
eiusmod veniam velit deserunt nisi eu eiusmod veniam velit deserunt nisi eu
anim non qui esse mollit et nisi anim non qui esse mollit et nisi
deserunt anim consequat deserunt anim consequat
OPPORTUNITY THREAT
id eiusmod ex adipisicing reprehenderit id eiusmod ex adipisicing reprehenderit
eiusmod veniam velit deserunt nisi eu eiusmod veniam velit deserunt nisi eu
anim non qui esse mollit et nisi anim non qui esse mollit et nisi
deserunt anim consequat deserunt anim consequat
Studio Shodwe Project. 2024
09
culpa ullamco qui in occaecat qui magna elit proident duis ut
dolore aute enim proident fugiat elit amet consequat
excepteur Lorem quis dolore in nulla amet sunt veniam sit ex
sunt aliqua consequat ea laborum veniam adipisicing
incididunt veniam veniam occaecat
culpa ullamco qui in occaecat qui magna elit proident duis ut
dolore aute enim proident fugiat elit amet consequat
excepteur Lorem quis dolore in nulla amet sunt veniam sit ex
sunt aliqua consequat ea laborum veniam adipisicing
incididunt veniam veniam occaecat
THE JOURNEY
CONTINUES
FUTURE PLANS AND ASPIRATIONS
THANK YOU
WRAPPING UP AND
PARTING THOUGHTS
hello@[Link]