Chapter 6

True or false
PART 1
1. A vacant and unused lot is an ordinary asset to a real estate dealer.
2. For taxpayers not engaged in business, assets shall cease to be ordinary assets when
they are discontinued from active use for more than two years.
3. Real and other properties acquired are ordinary assets to banks even not engaged in the
realty business.
4. Capital assets will not become ordinary assets when used in business.
5. An ordinary asset becomes automatically become a capital asset when it is withdrawn
from active use.
6. The sale of real property capital assets will never be subject to regular income tax.
7. Donated assets become ordinary assets even if the done do not employ the same
business.
8. An ordinary asset continues to be ordinary asset even if idled for more than two years if
the taxpayers is engaged in realty business.
9. The real properties used by exempt corporations in their exempt operations are capital
assets.
10. Dealers in realties are subject to the regular tax on their sale of properties.
11. Capital gains from assets other than domestic stocks and real properties are subject to
regular income tax.
12. Dealers in securities are not subject to the stock transaction tax but are subject in the
regular income tax on gains realized upon the sale of stocks through the Philippine stock
exchange.
13. Unit of participations in golf, polo, and similar clubs are considered domestic stocks.
14. The excess premium on the re-issuance of treasury stocks is subject to capital gains tax.
15. The issuance of shares of stock for property is subject to capital gains tax.
16. The sale of foreign stocks directly to a buyer is subject to capital gains tax.
17. The two-tiered final tax cannot apply unless and until there is a gain on the sale,
exchange, and other disposition of stocks directly to a buyer.
18. The stock transaction tax on the sale of stocks through the PSE cannot apply unless
there is a gain on the transaction.
19. The 6% capital gains tax cannot apply unless there is a gain on the sale of real property.
20. The sale of real properties located abroad is subject to the 6% capital gains tax.

Part 2
1. The annual capital gains tax return is simultaneously due with the annual regular income
tax return.
2. The basis of properties received by the way of inheritance is the basis in the hands of
the last owner who did not acquire the same by donation.
3. When specific identification is impossible, the cost of the stocks sold is determined by
the weighted average method.
4. The basis of the stocks received in tax-free exchanges is the basis of the shares given.
 5. The transactional capital gains tax return is required to be filed within 30 days from the
date of sale.
6. The gain on the sale of stocks for stocks pursuant to a plan of merger and consolidation
is exempt if it resulted in the transferor acquiring corporate control over the absorbed
corporation.
7. Instalment payment of capital gains tax is allowed if the ratio of down thpayment over the
selling price of the sale does not exceed 25%.
8. The selling price is used to determine the propriety of using the instalment method but
the contract price is used to determine the capital gains tax payable in instalment.
9. The excess of mortgage over the basis assumed by the buyer constitutes an indirect
receipt which is part of initial payment and the selling price.
10. Wash sales occur when there is a repurchase of shares within 30 days before and 30
days after the date of disposal of securities at a loss.
11. Control means more than 50% ownership in the voting power of a corporation.
12. The sale of delisted stocks is subject to stock transaction tax and not to capital gains tax.
13. Gain and loss in a share-for-share swap pursuant to a plan of merger or consolidated
shall be recognized up to the extent of the cash and other properties received.
14. The sale by the national housing authority of commercial lots is subject to capital gains
tax.

CHAPTER 7

PART 1

1. There are two types of regular income tax: proportional income tax for corporations and
progressive income tax for individuals.
2. NRA-NETBs and NRFCs are also subject to regular income tax.
3. All taxpayers are subject to final tax.
4. Taxable income is synonymous to net income.
5. For all taxpayers, taxable income means the pertinent items of gross income not subject
to capital gains tax and final tax less allowable deductions.
6. All taxpayers are subject to regular income tax.
7. Employed taxpayers can claim expenses from their employment as deductions against
their compensation income.
8. Items of gross income subject to final tax and capital gains tax are excluded in gross
income subject to regular income tax.
9. The P250,000 income tax exemption for individuals is designed to be in lieu of their
personal and business expenses.
10. Non-taxable compensation are items of compensation that are excluded against gross
income.
PART 2
1. The taxable compensation income is computed as gross compensation less than
non-taxable compensation income.
 2. The deadline of filling the corporate quarterly income tax return is the same with the
deadline of the quarterly income tax return of individuals.
3. Business expenses can be deducted against all types of gross income subject in
regular tax.
4. No deduction shall be allowed against gross income.
5. Only corporation may incur deductions against gross income.
6. The gross income from business is measured as sales or gross receipts less cost tos
sales or cost of services.
7. The tax due of individual is determined by means of schedules of tax rates.
8. The tax due of corporation is determined by multiplying their gross income by 30%.
9. The deadline of the annual income tax return of corporation using the calendar year
is similar to the deadline fixed for individual tax payers.
10. Every individual taxpayer is exempt from income tax on compensation up to P250,
000 annually but the same exemption does not apply to business income.

CHAPTER 8
PART 1
1. The proceeds of life insurance received by the heirs of the insured upon his death
is excluded in gross income.
2. The amount received in excess of the premium paid in an insurance constitutes
an item of gross income.
3. Donated income is included in the gross income of the done.
4. Compensation for injuries and sickness constitutes profit; hence, an inclusion of
gross income.
5. It is sufficient that the employee rendered more than 10 years of service for its
retirement benefit to be exempt.
6. An employee can secure retirement benefit exemption only once in a lifetime.
7. It is a must that the employer maintains a reasonable pension benefit plan for the
retirement benefit to be exempt.
8. An employee must have rendered more than 10 years of service before claiming
exemption for this termination benefits.
9. The income of the Philippine government from essential public functions exempt
from any income tax.
10. Prizes paid to corporations are an inclusion in gross income subject to final tax.
11. Only the mandatory portion of GSIS, SSS, PhilHealth, and union dues can be
excluded in gross compensation income.
12. Social security benefits, retirement gratuities, and other benefits from foreign
governments are excluded in gross income.
13. Social security benefits, retirement gratuities and other benefits from foreign
private entities are included in gross income.
14. The gain from redemption of shares in mutual fund is an exclusion in gross
income subject to regular tax because it is an inclusion in gross income subject to
capital gains tax.
15. 13th month pay and other benefits are taxable only up to P90,000.
PART 2

1. GSIS and SSS benefits are included in gross income to the extent they exceed
P90,000.
2. Prizes awarded upon the condition that the recipient shall render specified future
services is an item of gross income.
3. Prizes from contest are included in gross income subject to regular income tax.
4. The income of government owned and controlled corporation is an item of gross
income.
5. Benefits of veterans of war or retired US army personnel are excluded in gross
income.
6. The employer’s share to SSS, PhilHealth and Pag-ibig contributions are an exclusion
in gross income.
7. Compared to exclusion, deduction is included in the amount of gross income but
both exclusion and deductions are not reflected in the amount of taxable income.
8. The interest income from the any bond or debentures, short-term or long term, is an
item of gross income.
9. Cooperatives that transact business only with member will, in no case, be subject to
income tax.
10. Cooperatives, regardless of their classification, are taxable on income from their
unrelated activities.
11. The gain on the sale of long-term bonds with a maturity of five years is an
exclusion in gross income.
12. A non-stock, non-profit entity is subject to tax on income from unrelated activities.
13. A general professional partnership can be registered as a BMBE.
14. Items of income subject to final tax or capital gains tax are exclusions in gross
income subject to regular income tax.
15. A BMBE, Must have a net asset not exceeding P3,000,000.