Scribd Logo
Upload

Welcome to Scribd!

  • 215 views

    Vacation and Sick Leave Allowances

    Uploaded by

    Mark Angelo Hasal Duana
    The document discusses various tax situations regarding forgiveness of indebtedness, donations, recovery of bad debts, and tax refunds. It provides definitions and examples to illustrate how these situations would be treated for tax purposes. For forgiveness of debt, whether the amount is taxable income or a taxable gift depends on if services were rendered. Recovered bad debts previously deducted are included in taxable income up to the prior tax benefit. Donations can be taxable or not depending on the motivation. Tax refunds may be taxable if the tax was previously deducted as an expense.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Vacation and Sick Leave Allowances

    Uploaded by

    Mark Angelo Hasal Duana
    215 views16 pages
    The document discusses various tax situations regarding forgiveness of indebtedness, donations, recovery of bad debts, and tax refunds. It provides definitions and examples to illustrate how these situations would be treated for tax purposes. For forgiveness of debt, whether the amount is taxable income or a taxable gift depends on if services were rendered. Recovered bad debts previously deducted are included in taxable income up to the prior tax benefit. Donations can be taxable or not depending on the motivation. Tax refunds may be taxable if the tax was previously deducted as an expense.

    Original Description:

    Vacation and Sick Leave Allowances

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses various tax situations regarding forgiveness of indebtedness, donations, recovery of bad debts, and tax refunds. It provides definitions and examples to illustrate how these situations would be treated for tax purposes. For forgiveness of debt, whether the amount is taxable income or a taxable gift depends on if services were rendered. Recovered bad debts previously deducted are included in taxable income up to the prior tax benefit. Donations can be taxable or not depending on the motivation. Tax refunds may be taxable if the tax was previously deducted as an expense.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    215 views16 pages

    Vacation and Sick Leave Allowances

    Uploaded by

    Mark Angelo Hasal Duana
    The document discusses various tax situations regarding forgiveness of indebtedness, donations, recovery of bad debts, and tax refunds. It provides definitions and examples to illustrate how these situations would be treated for tax purposes. For forgiveness of debt, whether the amount is taxable income or a taxable gift depends on if services were rendered. Recovered bad debts previously deducted are included in taxable income up to the prior tax benefit. Donations can be taxable or not depending on the motivation. Tax refunds may be taxable if the tax was previously deducted as an expense.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 16

    Forgiveness of Indebtedness

    A.On account of debtor’s services to the creditor, the same is


    taxable income to the debtor.
    B. If no services were rendered and but the creditor condones
    the debt. It is taxable gift not taxable income.
    C. If the creditor is a corporation and the debtor is a
    stockholder - the forgiveness of indebtedness has the effect of
    a payment of dividend.
    D.If the creditor is a stockholder and the debtor is a
    corporation – the forgiveness of indebtedness shall be
    considered as an additional investment.
    Illustration

    Ferdie, an architect owes Mel, a businessman P30,000. the latter


    engaged the services to the former to remodel his house. The
    value of the service amounted to P30,000.
    Subsequently, Mel cancelled the debt of Ferdie.

    A. Is the P30,000 value of services taxable to Ferdie?


    B. Suppose Mel condone the debt of Ferdie without requiring the
    latter to render any services. Is the P30,000 subject to income
    tax?
    Answer
    A.
    -YES, because it is simple case of paying the indebtedness to
    Mel.
    Consequently, the P30,000 is taxable to Ferdie.

    B.
    NO. It is not an income, it is considered more as a gift which is
    governed by the law on donor’s taxation.
    Remuneratory donations

    Remuneratory donations are those which remunerate past


    services which do not constitute demandable debts. The
    motivating cause is gratitude acknowledgement of a debt, or a
    desire to compensate and not the liberality of the donor.

    They are deemed income subject to income tax.


    Illustration

    Berganio saved the life of Buenafe who met a car accident. The
    latter in display of gratitude gave him cash of P50,000.

    Is the P50,000 taxable income?


    Answer

    YES, because this is a case of remuneratory donation which is


    subject to Income tax.
    Illustration

    Suppose without doing anything, Berganio received P50,000


    from Buenafe due purely to the liberality of the latter.
    Is the P50,000 taxable?
    Answer

    NO, because the situation does not concern remuneratory


    donation anymore.

    The cause of the gift is purely the liberality of Berganio.


    Hence, it is not considered taxable income.
    Recovery of bad debts previously deducted

    When bad debts are ascertained to be worthless and charged off


    during the year, they are allowed as deductions from the gross
    income of the taxpayers, whether individual or corporate

    There are situations where bad debts that have been claimed as
    deduction from gross income are recovered by the taxpayer in
    the succeeding periods. The recovery of the bad debts
    previously deducted shall be included as part of the gross
    income in the year of recovery to the extent of the income tax
    benefit of the said deduction. (Tax Benefit Rule)
    Illustration
    Indicate the amount of taxable income or deductible loss.
    2014 CASE 1 CASE 2 CASE 3

    Net Income/loss before write-off P60,000 P(30,000) P60,000

    Less: Bad debt written off 10,000 10,000 100,000

    Net income/loss after bad debt 50,000 (40,000) (40,000)

    2015

    Bad debt recovered 10,000 10,000 100,000

    Case 1: Taxable to the extent of P10,000


    Case 2: Not Taxable
    Case 3: Only the amount of P60,000 is taxable
    Refund of Tax
    Tax refund is taxable if the tax was previously
    deducted as an expense in computing the tax
    during the previous year.
    It shall be included as part gross income in the
    year of receipt to the extent of the income tax
    benefit the said deduction.
    If the tax is not deductible, refund of which is not
    taxable.
    Illustration
    Sol Dranto had the ff data in 2015
    Taxable Income before deduction of taxes P150,000
    Taxes paid:
    Income Tax 12,000
    Common carrier’s tax 15,000
    Local Business Tax 10,000
    Donor’s Tax 6,000

    These taxes have been refunded to her in 2016

    How much is the taxable income of Sol Dranto in 2016 if her income
    tax refund is P200,000?
    Answer

    Taxable Income before tax refund P200,000


    Add: Common carrier’s tax P15,000
    Local Business taxes 10,000 25,000
    Taxable Income P225,000
    Refund of Indirect Tax

    If the tax is an indirect tax, the proper party to


    question, or seek a refund of an indirect tax is the
    statutory taxpayer, the person on whom the tax is
    imposed by the law and who paid the same even
    if he shifts the burden thereto to another.
    Illustration

    Bart Company purchased from Grace Gasoline Station


    100,000 liters of fuel from January to December 2010.
    such product is subject to Excise Tax which is added to
    the price it paid to the gasoline station.

    If Bart Company is exempt from excise tax, who is entitled


    to claim refund on the excise taxes erroneously paid to the
    government?
    Answer

    In the refund of indirect taxes, the statutory


    taxpayer is the proper party who can claim the
    refund.

    You might also like