income tax - chapter 9

8/9/2019 Income Tax - Chapter 9

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CHAPTER 9 – LOSSES

Losses – reductions of resources due to

unintended destruction.

Allowed as deductions from gross

income if related to business. Actuallysustained during taxable year and not

compensated by insurance.

Kinds of losses:

1. Ordinary losses – incurred in relation

to trade. Generally DEDUCT!"E from

gross income.#. Capital losses – in relation to capital

asset transactions. Capital losses only

DEDUCT!"E T$ CA%TA" GA&'.

Examples:

"osses from sale of capital assets

"osses from s(ort sales of property

"osses from securities becoming

wort(less) not ordinary assets "osses due to exercise option to buy or

sell property

*. Special in!s of losses – losses not

related to ordinary business and capital

asset transactions

Examples:

"osses from sales of property bet.

+elated taxpayers ,agering losses

"osses due to -oluntary remo-al

C(ange in business conditions Abandonment

Requisites for deductibility of ordinary losses:

(deductible from gross business income)

1. 'ustained in a close and completed

transaction#. ncurred in trade

*. &ot be compensated by insurance. /rom casualty) robbery) or

embe00lement) must be reported to !+

from * – 2 days from disco-ery date.

Losses not allo"ed #y la" as ded$ctions

1. 3oluntary remo-al of bldg.#. Gambling losses not co-ered by

gambling gains*. Capital loss not co-ered by capital gains. /rom corporate read4ustments5. llegal transactions6. Exc(ange of property w(ere property

recei-ed is not substantially differen

from property disposed7. &ot incurred in trade

8. 'ales bet. +elated taxpayers

Classification of ded$cti#le losses

1. !usiness losses#. Casualty losses 9due to storms) fires

s(ipwrec:;*. Due to t(eft) robbery) embe00lement. &$"C$

Partial loss

< T(e deductible loss is t(e lower amountof replacement cost or boo: -alue o

asset=s damaged portion.

Loss "% ins$rance reco&ery

< A loss reco-ery from insurance s(al

reduce t(e deductible lossdeductibleloss

(insurance recovery)net deductible loss

< nsurance proceeds > boo: -alue of

asset destroyed) and t(en it is a

TA'A(LE )A*+.

+et operatin! loss – t(e excess of allowable

deduction o-er gross income

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***estimated losses or expenses NOT

ALLOWED FOR TAXATION PURPOSES***

+et operatin! loss carry – o&er ,+OLCO-

< Excess of allowable deductions o-er

business income in taxable year.

< &$"C$ s(all be carried o-er as specialdeduction from gross income for t(e

next * consecuti-e taxable years.< Taxpayer w(o claims ? $'D s(all

&$T simultaneously claim &$"C$.< DC and +/C taxed wit( @CT cannot

en4oy &$"C$.

Taxpayers entitled to deduct NOLCO (from

business gross income)

1. ndi-idual taxpayers ET!#. DC and +/C sub4. to normal income tax*. 'pecial Corp. sub4. to preferential tax

rates

***prior to Jan !" !##$" not %&ali'( 'or

NOL)O***

Persons not entitled to ded$ct +OLCO

1. Any person) natural or 4udicial en4oying

exemption from income tax s(all &$T

!E entitled to deduct &$"C$.

Entities not allo"ed of +OLCO

1. $!U and /CDU 9foreign currency

deposit unit;#. +egistered w !oard of in-estments)

en4oying income tax (oliday*. +egistered w %EBA 9%(il. Economic

0one Aut(ority;. +egistered under bases con-ersion and

de-elopment act5. /C engaged in international s(ipping or

air carriage in %(il.

+OLCO for #$siness com#ination

($siness com#ination – c(ange in business

owners(ip

1. .er!er – absorption of a corp. by

anot(er corp. 9A!!;#. )onsolidation – extinguis(ment of # or

more corps. +esulting to creation of a

new corp. 9A!C;

Rules for NOLCO shall be applied hene!er

there is business combination

1. &$"C$ s(all be allowed only if t(ere=s

been no substantial c(ange in

owners(ip 975? of paid – up capita

retained by same persons;#. &$"C$ s(all be allowed as deduction

of t(e same taxpayer w(o sustained andaccumulated t(e &$" regardless o

c(ange in owners(ip*. Unless ot(erwise pro-ided) &$"C$

s(all not e transferred or assigned to

anot(er person) directly or indirectly

+OLCO of mines ot/er t/an "ells

0 &$"C$ incurred in any of t(e 1st 1

years of operation may be carried o-er

as deduction for t(e next 5 years

immediately ff t(e year of suc( loss.

+OLCO in t/e tax ret$rn and $n$sed

+OLCO

0 &$"C$ separately s(own in T+0 Unused &$"C$ presented in t(e notes

to financial statements0 /ailure will disFualify for &$"C$

Special r$les on losses

T/e .arcelo steel doctrine on losses

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< A loss in one line of business is not

permitted as allowable deduction from

gain in anot(er line of business.

Losses #et1 Related taxpayers

< +ule gains bet. +elated taxpayers are

TAA!"E) but losses are &$TDEDUCT!"E.

)am#lin! losses

< $nly to be deducted from gambling

gains

Losses from t/eft or em#e22lement

< &ot compensated by insurance

occurring in a year but disco-eredanot(er year are DEDUCT!"E for year

in wc t(ese were sustained.< &ot determined year of disco-ery< Embe00led year w(en rig(t of reco-ery

becomes wort(less

.ort!a!e losses

< Difference of purc(ase price and unpaid

indebtedness is &$T A""$,A!"E

DEDUCT$& from bad debts. t is

deferred until property foreclosed (as

been disposed of.

Losses d$e to &ol$ntary remo&al of

property

1. As incidents to renewal and

replacements) DEDUCT!"E /+$@

G+$'' &C$@E

#. As cost to remo-e useless structure int(e real property acFuired) added as

part of cost of t(e acFuired land

Losses d$e to s/rina!e in &al$e of stocs

< +OT A 3E34CT*(LE LOSS) to be

deductible) loss must e suffered w(en

stoc: is disposed of.

Losses of $sef$l &al$e d$e to:

1. Tec(nological c(anges

#. &ew legislation< &$T DEDUCT!"E) except w(en asset

in-ol-es bldg. and mac(ineries t(at are

permanently abandoned.

A#andonment of petrole$m operation

R$les:

51 All accumulated exploration and

de-elopment exp. Allowed as

3E34CT*O+#. ncurred prior to 6an1 57 5989) deduction

only from any income deri-ed from

same contract area.*. &otice of abandonment filed w !+

Commissioner Unamorti0ed cost allowed as

deduction f reentered) costs included as

part of gross income in year of

restoration.

Losses from farmin! – ded$cti#le from )*

+onded$cti#le loss

1. '(rin:age in weig(t or p(ysical -alue#. Total casualty losses*. 3alue of animals t(at peris(

3ed$cti#le loss

1. /arm not for recreation#. Dies from disease) in4ury) :illed by order

of aut(orities*. Actual cost of property destroyed by

$$A

CHAPTER 5 – (AS*C *+CO.E TA'

PATTER+S

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ncome tax system

1. Global income tax system#. Gross income tax system*. 'c(eduler tax system

Global income tax system – combination of

gross compensation income andor net incomefrom business

Examples

1. Compensation income#. &et income from business*. %assi-e income 9not sub4. to final tax;. Capital gains 9not sub4. to CGT;

Gross income tax system – tax is fixed or

computed based on gross income.

Examples

1. /!T#. %assi-e income sub4. to final tax*. CGT on real property. @CT

'c(eduler tax system

Examples

1. Annual T+ 9for global income tax;#. CGT return 9sale or real property as

capital asset and sale of stoc:s not

traded in stoc: mar:et;

SEE ATTA)ED PAPER+ ,ASI) SU--AR.

OF PIL IN)O-E TAX P /0$

SEE ATTA)ED PAPER+ SU--AR. OF

1ROUPS IN)O-E P /0#

Deductions from business income

1. temi0ed allowable deductions 9business

exp.;

#. $'D – ? ndi-idual gross sales gross

receipts Corp. gross income

%ersonal exemptions

1. !asic exemption %5) for eac(indi-idual taxpayer. 9'@H/;

#. Additional of %#5) for eac(

dependent c(ild max. of

SEE ATTA)ED PAPER+ )OLLE)TION

POINTS OF IN)O-E TAX P /23

SEE ATTA)ED PAPER+ ,ASI) -ATRIX OF

IN)O-E TAX P/2!

SEE ATTA)ED PAPER+ TAXPA.ERSRETURNA,LE IN)O-E AND APPLI)A,LE

TAX P /22

CHAPTER 55 – *+CO.E TA' O

*+3*;*34ALS

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income tax - chapter 9

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