11. Overtime pay and night shift differential are not subject to tax. 12. In addition to rent, other considerations which the lessee may pay third parties such as interest, taxes, dividends and insurance premiums are taxable to the lessee. 13. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines, are exempt from income tax. True or False 1. In accounting for gross income of farmers under the accrual basis in contrast to cash basis, beginning and ending inventories of livestock and farm products raised and purchased are considered. 2. Income derived from illegal sources, such as gambling, extortion, theft, bribes, embezzlement, and smuggling are not taxable. 3. The portion of each annuity payment that represents return of premium is not taxable while that portion that represents interest is taxable. 4. In general, the situs of the income whether within or without the Philippines, is determined by the place where the service is rendered. 5. Source of income is either within the Philippines, without the Philippines or partly within and partly without the Philippines. 6. Amounts received, through accident or health insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received are exempt from income tax. 7. Pensions are taxable to the extent of the amount received except if there is an approved pension plan by the Bureau of Internal Revenue. 8. Payroll period means the period of services for which a payment of compensation is ordinarily made to an employee by his employer. 9. The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured are exempt from income tax and if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be excluded from gross income. to Gross income derived from interest is only such interest as arising from indebtedness, that is, compensation for the loan or forbearance of money, goods, or credits. 109 14. A non-taxable stock dividend does not constitute income if the new certificates plus the old ones change the proportionate interest of the stockholder in the net assets of that corporation 15. Facilities and privileges furnished by an employer to his employees, are not considered as compensation if such facilities or privileges are of relatively small value and furnished by the employer merely as a means of promoting the health goodwill, contentment, or efficiency of his employees, 16. Prizes and awards granted to athletes in local and international sports competitions and tournaments held in the Philippines or abroad and sanctioned by their national sports associations are not exempt from income tax. 17. In the case of a manufacturing, merchandising, or mining business, gross income means total sales, less cost of goods sold minus any income from investments and from incidental or outside operations or sources. 18. Prizes and awards received in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement are not taxable if the recipient was selected without any action on his part to enter the contest or proceedings and the recipient is not required to render substantial future services as a condition to receiving the prize or award. 19. Compensation from damages if it represents payment for loss of expected profits are taxable but compensatory damages constituting returns of capital are not taxable. 20. There is employer-employee relationship when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished. 21. Dividends are distributions made by a corporation out of its earnings or profits accrued since Mar. 1, 1913, and payable to its shareholders, whether in money or in other property. 22. Remuneration for services as employee of a nonresident alien individual, foreign partnership or foreign corporation constitutes compensation only if such employer is engaged in trade or business within the Philippines. 23. If services are paid for in a medium other than money, it is not to be included as compensation. 24. Holiday pay and hazard pay are exempt from income tax. 25. Crop year basis is used by farmers whose crop take more than one year from planting up to harvesting and disposing-the entire cost of production underwhich is deducted from the gross income in the year it was realized. 26. In general, individuals who follow an independent trade, business, or profession, in which they offer their services to the public, are employees, 11. The tax benefit rule states that recovery of accounts previously written off constitutes a receipt of a taxable income if in the year of recognition of its being worthless, the write-off resulted in reduction of taxable income. 18. Compensation means all remuneration for services performed by an employee for 29. Passive income subject to final tax shall form part of the gross income for purposes of computing the normal income tax liability of individuals and corporations, 31. Thirteenth month pay and other benefits received by officials and employees of public and private entities are exempt provided, however, that the total exclusion his employer under an employer-employee relationship. 30. Employer is an individual performing services under an employer-employee 32. Remuneration for services performed outside the Philippines by a resident citizen relationship shall not exceed P82,000. for a domestic or resident foreign corporation or partnership, or for a nonresident corporation or partnership, or for a non-resident individual not engaged in trade or business in the Philippines shall be treated as compensation which is subject to tax. 33. Tips or gratuities paid directly to an employee by a customer of the employer which are not accounted for by the employee to the employer are not considered as taxable income. 34. All GSIS, SSS, PHIC and HDMF contributions, and union dues of individuals are exempt from income tax. 35. The timing or basis upon which the remuneration is paid is material in determining whether the remuneration constitutes compensation. 36. Pensions, retirement and separation pay constitute compensation unless otherwise exempted by law. 37. Vacation allowances or sick leave credits which are paid to an employee constitute compensation including the monetized value of unutilized vacation leave credits of 10 days or less. 38. As a general rule, the entire amount of the gain or loss arising from dealings in property is a taxable gain or a deductible loss