chapt 12+income+tax+ +corporations2013f

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS

Chapter 12: Income Tax of Corporations

CHAPTER 12

INCOME TAX OF CORPORATIONSProblem 12 – 1 TRUE OR FALSE

1. False – for tax purposes, a corporation does not include both general professional partnership and joint venture with a consortium service contract with the government.

2. False – domestic corporations refer only to corporations that are created or organized under Philippine laws. Foreign corporations are also operating in the Philippines but not created under Philippine laws.

3. False – nonresident corporations are taxed based on gross income within.4. False – Only domestic corporations are to be taxed for income within and without.5. True6. True7. True8. False – the MCIT is applicable also to resident foreign corporations for their income

derived within.9. True10. False – Not taxable because the corporation is a foreign corporation.11. False – 30%, but legally, foreign corporations are not allowed to own real property in

the Philippines as provided by anti-dummy law.12. False – interest income of resident foreign corporation is subject to a final tax of 20%,

but interest income of nonresident foreign corporation is subject to normal corporate tax.

13. True

Problem 12 – 2 TRUE OR FALSE1. True2. True 3. False – MCIT is applicable only to corporation that are subject to normal tax rate.4. True 5. False – Other fixed or determinable annual, periodic or casual gains, profits and

income are not treated as branch profit.6. True7. True8. True9. True10. False – exempt from income tax and VAT.11. False – not imposed also to insurance companies12. True

Problem 12 – 3 TRUE OR FALSE1. False – the net additions to reserve funds are not part of income but instead deducted

from gross income.2. True3. False – In general, GOCCs are subject to corporate income tax.4. True5. False – royalties received in the active pursuit of business is subject to a normal tax of

30%.6. True7. True8. True9. True

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10. False – If the unrelated income of the proprietory educational institution exceeds the related income, the income tax rate applicable would be the corporate income tax of 30%.

11. False – Sale of real property outside the Philippines by a resident foreign corporation is not subject to tax in the Philippines.

12. False – 10% based on gross income within

Problem 12 – 4 Problem 12 – 5 1. C 1. B2. A 2. A3. A 3. D4. D 4. A5. C 5. B6. A 6. B 7. A 7. A8. B 8. D9. A 9. B10. C 10. C11. A* 11. D – Only family-closed corporation is subject to IAET.12. A 12. A13. B 13. C

*This is on the assumption that a resident foreign corporation acquired a real property and subsequently sold it without the confiscation of the real property by the Philippine Government.

As a rule, foreign corporations are not allowed to own and acquire real properties in the Philippines as provided by the anti-dummy law. (PD 715, May 28, 1975)

Problem 12 – 61. Letter C Taxable

incomeIncome tax

dueGross income (P8,000,000 + P4,000,000) P12,000,000Business expenses (P5,000,000 + P3,000,000) ( 8,000,000)Gain on sale of warehouse (P3,000,000 – P2,000,000) 1,000,000 Net taxable income P5,000,000

Corporate income tax (P5,000,000 x 30%) P1,500,000

Note: The land and warehouse sold is an ordinary asset. Hence, subject to normal tax.

2. Letter BGross income within P8,000,000Business expenses ( 5,000,000)Gain on sale of warehouse (P3,000,000 – P2,000,000)* 1,000,000 Net taxable income P4,000,000

Corporate income tax (P4,000,000 x 30%) P1,200,000

*This is on the assumption that a resident foreign corporation acquired a real property and subsequently sold it without the confiscation of the real property by the Philippine Government.

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Problem 12 – 7 DGross income within P2,800,000Multiplied by normal corporate tax rate 30% Income tax due P 840,000

Problem 12 – 8 Not in the Choices = P2,700,000.Gross income within P15,000,000Less: Allocated operating expenses (P30,000,000 x 15/75) 6,000,000 Net taxable income P 9,000,000Multiplied by normal corporate tax rate 30% Income tax due P2,700,000

Problem 12 – 91. Letter D

Domestic corporation:Total net income (P160,000 + P240,000) P400,000Multiplied by normal tax rate 30% Income tax due P120,000Less: Tax credits: Local P42,000 Foreign, Actual, P60,000 – lower limit (P120,000 x 240/400) = P72,000

60,000 102,000

Income tax still due and payable P18,000

Supporting computation: Philippines Foreign Gross income – within P450,000 – without (P180,000 + P75,000 + P190,000)

P445,000

Deductions – within (290,000) - without (P80,000 + P25,000 + P100,000) . (205,000)Net income P160,000 P240,000

2. Letter CResident foreign corporationGross income within P445,000Deductions within (205,000) Net income P240,000Multiplied by normal corporate income tax 30% Income tax due P 72,000Less: Local 42,000 Income tax still due and payable P 30,000

Problem 12 – 10 DNet income from PAGCOR (P30,000,000 - P28,000,000) P2,000,000Net income from NAPOCOR (P10,000,000 – P4,000,000) 6,000,000 Total net income P8,000,000Multiplied by normal corporate tax rate 30% Income tax due P2,400,000

Problem 12 – 11 CNet income from National Power Corporation P 8,000,000Net income from National Books Store 5,000,000 Total net income P13,000,000Multiplied by corporate normal tax 30% Income tax due P 3,900,000

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Problem 12 – 12 AGross profit (P3,000,000 – P1,400,000) P1,600,000Capital gains on sale of paintings 940,000Operating expenses before charitable contribution (P800,000 – P100,000)

(700,000)

Net income before charitable contribution P1,840,000Charitable contributions - limit (P1,840,000 x 5%), lower ( 92,000) Actual – P100,000 . Net taxable income P1,748,000Multiplied by corporate normal tax rate 30% Income tax due P 524,400

Problem 12 – 13COperating expenses P4,000,000Less: Net operating loss – 4th year 100,000 Gross income P3,900,000Multiplied by MCIT rate 2% Minimum corporate income tax P 78,000

Domestic and resident foreign corporation taxed during the taxable year with MCIT cannot enjoy the benefit of NOLCO. Nevertheless, the running of the three (3) year period for the expiry of NOLCO is not interrupted by the fact that such corporation is subject to MCIT. (Rev. Reg. 14-2001)

Problem 12 – 14 BOperating loss (P 200,000)Operating expenses 1,000,000 Gross income P 800,000Multiplied by minimum corporate income tax rate 2% Income tax payable 4th year P 16,000

5th year net income P320,000Multiplied by normal tax rate 30% Income tax due P 96,000Less: Excess of minimum income tax over normal tax 16,000 Net income tax payable P 80,000

Problem 12 – 151. Letter A

Net income per GAAPAdd: Allowance for bad debtsIncome before incentive to CHED contributionLess: Incentive to CHED contribution (P300,000 x 50%)Net taxable incomeMultiply by normal corporate income tax rateIncome tax due

P5,000,000 150,000 P5,150,000 150,000 P5,000,000 30% P1,500,000

2. Letter CNet income per GAAPAdd: Operating expensesGross incomeMultiply by minimum corporate income tax rateMinimum corporate income tax – higher

P 5,000,000 80,000,000 P85,000,000 2% P 1,700,000

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Normal tax (P5,000,000 x 30%) P1,500,000

Problem 12 – 161.

Letter A

Income tax payable – current year MCIT (P8,000,000 x 2%) P 160,000

2.

Letter C

Net operating income (P8,000,000 – P7,000,000) P1,000,000Multiplied by normal tax rate 30% Normal tax P 300,000Less: Excess of MCIT 100,000 Income tax payable P 200,000

Problem 12 – 17 ANone. There is no excess corporate MCIT over NCIT in year 3 to be applied on year 4 because the MCIT is not yet applicable for the company as it only has 3 years of operation in year 3.


Income tax payable P 200,000Divided by MCIT tax rate 2% Gross income P10,000,000

2. Letter CIncome tax expense P 150,000Divided by corporate normal income tax rate 30% Net taxable income P 500,000

The excess of MCIT over NCIT shall be recorded in the corporation’s books as an asset under the account title “Deferred Charges, MCIT.” This asset account shall be carried forward and may be credited against the normal tax due for a period not exceeding three taxable years immediately succeeding the taxable year(s) in which the same has been paid. (Rev. Regs. No. 9-98)

Problem 12 – 19 CRental income (P1,900,000/95%) P2,000,000Capital gains 500,000 Total gross income P2,500,000Operating expenses (2,350,000)Net taxable income P 150,000Multiplied by corporate normal tax 30% Income tax due P 45,000

Excess of MCIT over NCIT P 40,000Add: Expanded withholding tax (P2,000,000 – P1,900,000) 100,000 Total creditable income tax P140,000Less: Income tax due 45,000 Tax refund P 95,000

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Problem 12 – 20 AGross income (P1,600,000 – P1,200,000) P400,000Less: OSD (P400,000 x 40%) 160,000 Net income P240,000Multiplied by normal tax rate 30% Income tax due P 72,000

Capital gains tax (P1,600,000 x 6%) P96,000

Tax advantage using normal tax (P96,000 – P72,000) P24,000

Problem 12 – 211. Letter D Domestic Corporation:

a. Not traded in local exchange: Selling price Cost (P110 x 12,000 shares) Capital gain

Tax on P100,000 x 5% Tax on excess (P280,000 – P100,000) x 10%

b. Traded in local exchange (P1,800,000 x .005)

c. Sale of land abroad (P3,000,000 – P2,500,000) x 30%d. Sale of land – Philippines (P1,200,000 x 6%)

P1,600,000 1,320,000 P 280,000

P 5,000 18,000 P 23,000

9,000

150,000 72,000 P254,000

Note: OSD is not applicable to land sold in Japan because the land is a capital asset.

2. Letter A Resident Foreign Corporation

a. b.c.d. (P1,200,000 x 6%)Total

P 23,0009,000

72,000 P104,000

3. Answer not in the choices = P122,000.Nonresident Foreign Corporationa. b. c.d. (P1,200,000 – P900,000) x 30%Total

P 23,0009,000

90,000 P122,000

Problem 12 – 22 CInterest from savings deposits (P3,000,000 x 20%) P 600,000Royalty income (P1,000,000 x 20%) 200,000Interest from a depository bank EFCD (P1,500,000 x 7.5%) 112,500 Total passive final tax P 912,500

Dividend from a domestic corporation received by a domestic corporation is tax exempt.Dividend from a nonresident foreign corporation is subject to normal tax.

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Problem 12 – 231. Letter B Domestic Corporation

a. ($20,000 @ 7.5% x P50)b. P300,000 @ 20%c. P100,000 @ 20%*d. P 80,000 @ 20%Total

P75,00060,00020,000

16,000 P171,000

2. Letter B = Resident foreign corporation (same as letter 1)

3. Letter C Nonresident foreign corporation

a. Exemptedb. (P300,000 @ 30%)c. (P100,000 @ 30%)d. (P 80,000 @ 30%)Total

P90,00030,000

24,000 P144,000

*It is assumed that the royalty income from franchising is a passive income.

Problem 12 – 241. Letter B

Dividend income - (PCB and Magnolia are both domestic corporations) ExemptInterest income on US dollar loans ($3,000 x 10% x P50) P15,000

2. Letter CInterest on Philippine peso loans P2,000,000Operating expenses ( 900,000) Taxable income P1,100,000Multiplied by normal corporate tax 30% Income tax due P 330,000

Problem 12 – 25 ARelated income P1,000,000Unrelated income 1,500,000 Total revenue P2,500,000Operating expenses (3,000,000)Net loss (P 500,000)

Minimum corporate income tax (P2,500,000 x 2%) P50,000

Problem 12 – 261.

Letter D

2.

Letter A

Educational income: 200A 200B Tuition and miscellaneous fees P4,000,000 P6,000,000 Sales of canteen 700,000 1,600,000 Sales of bookstore 300,000 400,000 Total related income P5,000,000 P7,000,000

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Non-educational income: Rent income (net/95%) P5,200,000 P5,500,000 Sale of scrap materials 60,000 20,000 Total unrelated P5,260,000 P5,520,000

Costs and expenses: Cost of sales – canteen (P400,000) (P 800,000) Cost of books sold ( 240,000) ( 320,000) Operating expenses (2,000,000) (3,000,000) Purchase of library books (1,000,000) (1,500,000) Cost of classroom construction ( 500,000) Purchase of school furniture . ( 200,000) Total costs and expenses (P4,140,000) (P5,820,000

)Net taxable income P6,120,000 P6,700,000

200A Income tax (P6,120,000 x 30%) P1,836,000200B Income tax (P6,700,000 x 10%) P670,000Less: CWT from rent 200A (P5,200,000 - P4,940,000) 260,000 200B (P5,500,000 – P5,225,000) . 275,000 Income tax still due and payable P1,576,000 P395,000

A proprietory educational institution has an option to either deduct its capital expenditures on depreciable assets during the year for the expansion of school facilities (outright expense) or deduct allowances for depreciation on such assets, [Sec. 34 (A) (2), NIRC]. In this case, it is more advantageous for BCU to treat capital expenditures on depreciable assets as outright expense.

The non-educational income in 200A is greater than the educational income; therefore, the tax rate to be used in 200A should be the normal corporate income tax of 30%. On the other hand, a special tax rate of 10% should be used in 200B because the educational income is greater than the non-educational income. [Sec. 27 (B), NIRC]

Problem 12 – 27 DP-0-, Government educational institutions are tax-exempt.

Problem 12 – 28 BIncome tax payable (P700,000 x 0.025) P17,500

Problem 12 – 29 AManila to Beijing (P5,000 x 2,000)Manila – Hong Kong – Beijing (P6,000 x 4,000) x P3,000/P6,000Manila to Hong Kong (P3,000 x 2,000)Total reportable gross income withinMultiplied by applicable rateIncome tax

P10,000,00012,000,000

6,000,000 P28,000,000 2.5% P 700,000

Problem 12 – 30 AWithin Dragon Films American AircraftGross receipts P10,000,000 P20,000,000Multiplied by special tax rate 25% 7 ½% Philippine income taxes P 2,500,000 P 1,500,000

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Note: Gross income means gross receipts. The aforementioned resident foreign corporations are subject special tax rates (final taxes). They are not allowed to deduct costs or expenses from their gross receipts. The cost of service is only applicable for MCIT purposes. (Sec. 27(E)(4), NIRC)

Problem 12 – 31 AOperating net income after tax P24,000,000Tax rate on branch remittance 15% Branch profit remittance tax P 3,600,000

Branch profit remittance, net of tax (P24,000,000 x 85%) P20,400,000Dividend income from Pharma Co. 7,000,000 Total branch profit remittance P27,400,000

Note: Sec. 28 (A) (4) of NIRC provides that the following income within of a foreign corporation shall not be treated as branch profit for tax purposes unless the same are effectively connected with the conduct of the trade or business in the Philippines:

1. Interest, dividends, rents, royalties;2. Remuneration for technical services;3. Salaries, wages, premiums, annuities, emoluments;4. Other fixed or determinable annual, periodic or casual gain, profits, income

and capital gains.

Problem 12 – 32 BIncome tax (P80,000/80%) x 20% P20,000

Note: Although cooperatives are tax-exempt, they are still subject to final income taxes on interest income.

Problem 12 – 33 AAll of the transactions of Unlad Cooperative are exempt from income taxes.

Problem 12 – 34 B1.

Letter A

Income tax due – 1st quarter [(P495,000/99%) – P480,000) x 30% P 6,000Less: 1% creditable withholding tax (P495,000/99%) – P495,000

P5,000

200A excess tax credit used in first quarter 200B 1,000 6,000 Income tax still due and payable – 200B first quarter P - 0 -

2.

Letter C

Income tax due – 2nd quarter [(P792,000/99%) – P700,000) x 30% P 30,000Income tax due – 1st quarter [(P495,000/99%) – P480,000) x 30% ( 6,000)Withholding tax – 2nd quarter [(P792,000/99%) – (P495,000/99%) x 1%

( 3,000)

Remaining excess tax credit – 200A (P10,000 – P1,000) ( 9,000)Income tax still due and payable – 2nd quarter 200B P 12,000

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Problem 12 – 35 CGross receipts (P2,940,000/98%) P3,000,000Less: OSD (P3,000,000 x 40%) 1,200,000 Net taxable income P1,800,000Multiplied by corporate normal tax rate 30% Income tax due P 540,000Less: Creditable income taxes paid 1st Qtr. (P1,960,000/98%) x 60% x 30% P360,000 2% creditable tax 2nd quarter’s gross receipts (P2,940,000/98%) – (P1,960,000/98%) x 2% 20,000 380,000 Income tax still due and payable – 2nd Qtr. P 160,000

With the issuance by the BIR of RMC No. 16-2010 in relation to RR No. 2-2010, the taxpayers are no longer allowed to change methods (OSD to Itemized Deductions or vice versa) from quarter to quarter within the same taxable year. The said RMC provides that the method adopted for the 1st quarter shall be the same method to be applied to the succeeding quarters of the same taxable year as well as in the preparation of the annual ITR of the said taxable year.

Problem 12 – 36 CIncome tax from ordinary net income (P1,000,000 – P900,000) x 30% P30,000Final income taxes: Interest income on peso savings (P100,000 x 20%) 20,000 Expanded foreign currency deposit (P100,000 x 7.5%) 7,500 Total income taxes P57,500

Problem 12 – 35 AIncome tax on interest income from peso savings bank (P100,000 x 30%) P 30,000Tax on cash dividend – domestic corporation (P100,000 x 30%) 30,000Tax on cash dividend from a resident foreign corporation (P100,000 x 30%)

30,000

Total income tax P90,000

Interest income earned by nonresident foreign corporation from EFCD is tax-exempt.

Problem 12 – 36 C3 rd Quarter 4 th Quarter

Gross income - cumulative P880,000 P1,120,000Itemized deductions - cumulative (704,000) (896,000) Net taxable income P176,000 P 224,000Multiplied by normal corporate income tax 30% 30% Income tax due P 52,800 P 67,200Total income tax paid in previous quarters - tax credit ( 52,800)Income tax still due and payable P 14,400

Problem 12 – 37 CRegular tax (P1,000,000 – P900,000) x 30% P 30,000Final tax on interest income – peso deposit (P100,000 x 20%) 20,000Final tax on interest income – EFCD (P100,000 x 7.5%) 7,500 Total income tax P 57,500

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Problem 12 – 38 AInterest income from peso savings bank (P100,000 x 30%) P 30,000Cash dividend from domestic corporation (P100,000 x 30%) 30,000Cash dividend from a resident foreign corporation with 100% earnings in the Philippines (P100,000 x 30%) 30,000 Total income tax P 90,000

Problem 12 – 39 CCash dividend from a domestic corporation (P100,000 x 30%) P 30,000

The cash dividend received from a resident foreign corporation is considered income outside the Philippines because its earnings within does not reached 50%.

Problem 12 – 40 DZero because the earnings of the said resident foreign corporation have no tax situs in the Philippines.

Problem 12 – 41 CIncome subject to normal tax rate (P300,000/30%)Passive income (P60,000/20%)Capital gains (P35,000: 5,000 at 5%, 30,000 at 10%)Total incomeLess: Income taxes paid: Income tax per annual tax return Final tax on passive income Capital gains taxAmount subject to 10% surtax

P300,00060,000

35,000

P1,000,000300,000

400,000 P1,700,000

395,000 P1,305,000

Problem 12 – 42 ANet taxable income (P300,000/30%) P1,000,000Add: Passive income (P60,000/20%) 300,000 Capital gains (P100,000) + (P35,000/10%) 450,000 Total P1,750,000Less: Income tax per ITR P300,000 Passive income final tax 60,000 Capital gain tax 40,000 400,000 IAET base P1,350,000Multiplied by IAET tax rate 10% IAET P 135,000


Reserve funds, beginning P1,000,000Add: Net additions to reserve funds during the year 500,000 Total P1,500,000Less: Reserve funds, ending 900,000 Amount of reserve funds released P 600,000

2. Letter BGross premium collected P10,000,000Add: Reserve funds release 600,000 Gross income P10,600,000Less: Operating expenses P4,600,000

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Net additions to reserve funds 500,000 5,100,000 Net income P 5,500,000

In the case of insurance companies, whether domestic or foreign doing business in the Philippines, the net additions, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts may be deducted from their gross income: Provided, however, that the released reserve be treated as income for the year of release. [Sec. 37 (A), NIRC; Sec. 129, Rev. Regs. No. 2]

Problem 12 – 441. Letter D

Franchise fee P10,000,000Less: Creditable withholding tax (P10,000,000 x 2%) 200,000 Net amount of franchise fee P 9,800,000

2. Letter BFranchise fee P10,000,000Less: Pre-operating and training costs 6,000,000 Gross income P 4,000,000Less: OSD (P4,000,000 x 40%) 1,600,000 Net taxable income P 2,400,000Multiplied by normal tax rate 30% Income tax due P 720,000Less: Creditable withholding tax (P10,000,000 x 2%) 200,000 Income tax still due and payable P 520,000

When royalties are received in active pursuit of business, it is subject to 30% regular corporate income tax. If royalties are derived from passive income, these are generally subject to 20% final tax. (BIR Ruling No. DA (C-101) dated October 17, 2008)

Problem 12 – 45Year 201A

Within Without Total Gross income: Philippines USA JapanDeductions: Philippines USA JapanNet incomeMultiply by tax rateIncome tax payableTax credit allowed – see supporting computationIncome tax still due

P1,000,000

(800,000)

. P 200,000

P 400,000300,000

(200,000) (200,000) P300,000

P1,000,000400,000300,000

(800,000)(200,000)

(200,000) P 500,000 30% P 150,000 ( 90,000) P 60,000

Supporting computation:

US

Japan

Tax credits:(P200,000/P500,000) x P150,000 = P60,000 vs. P80,000

Allowed, lower(P100,000/P500,000) x P150,000 = P30,000 vs. P30,000

Allowed, lower

P 60,000

30,000 P90,000 90,000

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Total (P300,000/P500,000) x P150,000 = P90,000 vs. P100,000Allowed, lower P90,000

Problem 12 – 46Interest from savings deposit – Metrobank (P3,000,000 x 20%) P 600,000Royalty income – Philippine Mining Company (P1,000,000 x 20%) 200,000Interest from a depository bank under expanded foreign currency deposit - PCI Bank ($30,000 x P50 x 7.5%) 112,500Dividends from Zerxes, a resident foreign corporation (P500,000 x 30%) 150,000 Total final passive income taxes P1,062,500

Problem 12 – 47Reported income before taxAdd: Loss from sale of shares of stock outside stock marketTotal Less: Gains subject to final income tax:

(1) Gain from sale of stock in the stock market(2) Gain from sale of short-term debt securities(3) Gain from sale of real property (P9,400,000 – P4,400,000)

Adjusted income subject to corporate income taxMultiply by normal corporate income taxCorrect amount of income tax

Total reported income before taxLess: Normal corporate income taxTotal accounting income after tax

P 25,00010,000

5,000,000

P10,000,000 5,000 P10,005,000

5,035,000 P 5,630,000 30% P 1,689,000

P10,000,000 1,689,000 P 8,311,000

Problem 12 – 48Total revenue P1,000,000Operating expenses ( 10,000)Service charge – credit card (P1,000,000/5%) x 3% ( 600,000) Net income P 380,000Multiplied by normal corporate tax 30% Income tax due P 114,000Less: Creditable expanded withholding tax (P1,000,000/5%) x ½%

100,000

Income tax still due and payable P 14,000

Problem 12 – 49Taxable income (normal tax)Add: Income subject to final tax Income exempt from tax Income excluded from gross income Amount of NOLCO deductedTotalLess: Dividends Income tax paid for the yearImproperly accumulated incomeMultiply by tax rateTax on improperly accumulated income

P 60,00050,00010,000

50,000

P150,000 200,000

P 900,000

170,000 P1,070,000

350,000 P 720,000 10% P 72,000

Problem 12 – 50Tuition feesMiscellaneous feesIncome from rents

P2,843,100362,60060,000

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Net income, school canteenNet income, book storeGross incomeLess: Allowable deductions: Payroll and administrative salary Other operating expenses Interest expense Outright expense of capital expenditures for new six roomsTaxable incomeMultiply by the applicable tax rateIncome tax

P1,425,420762,33082,100

750,000

36,200 24,800 P3,326,700

3,019,850 P306,850

10% P 30,685

Note: The tax differential on interest income shall now be used because under R.A. 9337 specifically requires that the interest expense is to be reduced by 33% of the interest income subjected to final tax during the taxable year. It is assumed that the educational institution opted to treat the capital expenditures as outright expense to avail of a lower tax.

Problem 12 – 51(1)Taxable income from operation (P1050,000/70%) P1,500,000Add: NOLCO deducted 100,000 Interest income (P120,000/80%) 150,000 Capital gain (P230,000 – P5,000)/90% 250,000 Total income for GAAP reporting, before tax P2,000,000

(2)Tax on income from operation (P1,500,000 x 30%) P450,000Tax on interest income (P150,000 x 20%) 30,000Tax on capital gain (P250,000 – P230,000) 20,000 Total income tax paid P500,000

(3)GAAP income P2,000,000Less: Total income tax (see 2) 500,000 Net income after tax – GAAP P1,500,000

(4)Taxable income from operation P1,500,000Add: NOLCO P100,000 Income subjected to final tax (P150,000 + P250,000) 400,000 500,000 Total P2,000,000Less: Income tax paid 500,000 Net income after income tax P1,500,000Multiplied by surtax rate 10% IAET = Surtax P 150,000

Problem 12 – 521. 3 rd year 4 th year 5 th year 6 th year

Sales P1,000,000 P2,500,000 P4,000,000 P5,000,000Cost of sales ( 600,000) (1,200,000

)(2,400,000

)(2,700,000

)

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Rent income 200,000 300,000 100,000 50,000 Gross income P 600,000 P1,600,000 P1,700,000 P2,350,000Operating expenses allowed ( 300,000

)(1,300,000

)(1,400,000

)(1,500,000

)Net taxable income P 300,000 P 300,000 P 300,000 P 850,000Multiplied by NCIT rate 30% 30% 30% 30% Income tax due P 90,000 P 90,000 P 90,000 P 255,000Quarterly tax paid ( 10,000

)( 20,000

)( 30,000

)( 40,000

)Income tax still due and payable P 80,000 P 70,000 P 60,000 P 215,000

2. 3 rd year 4 th year 5 th year 6 th year Royalty income, net of tax P 80,000 P160,000 P120,000 P 40,000Interest income, net of tax 20,000 32,000 16,000 24,000 Total passive income, net of tax P100,000 P192,000 P136,000 P 64,000Divide by 80% 80% 80% 80% Total gross passive income P125,000 P240,000 P170,000 P 80,000Multiplied by final tax rate 20% 20% 20% 20% Final taxes P 25,000 P 48,000 P 34,000 P 16,000

Problem 12 – 531. Sales P10,000,000

Less: Cost of sales 6,000,000 Reportable gross income per ITR P 4,000,000

2. Gross profit P4,000,000Less: Operating expenses: Salaries P1,000,000 Depreciation 300,000 Supplies 200,000 Interest expense [P50,000 – (P32,000/80% x 33%)

36,800 1,536,800

Net taxable income per ITR P2,463,200

Note: Interest income is subject to final tax of 20% Inter-corporate dividend is tax-exempt. Losses on investment in securities is not deductible – capital loss

3. Final withholding tax paid (P32,000/80%) x 20% P 8,000

4. Net income before tax per GAAP P2,200,000Less: Income tax (P2,463,200 x 30%) 738,960 Net income P1,461,040

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chapt 12+income+tax+ +corporations2013f

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