Podcast
Questions and Answers
What is the general concept of gross income?
What is the general concept of gross income?
Any inflow of wealth to the taxpayer that increases net worth.
Which of the following is NOT considered a realized benefit?
Which of the following is NOT considered a realized benefit?
What are the elements of gross income?
What are the elements of gross income?
Return on capital that increases net worth, realized benefit, not exempted by law, contract, or treaty.
Gross income is regarded as the best measure of taxpayer's ability to pay ___
Gross income is regarded as the best measure of taxpayer's ability to pay ___
Signup and view all the answers
Match the following items to their classification in gross income:
Match the following items to their classification in gross income:
Signup and view all the answers
A recovery of lost capital is considered to maintain net worth.
A recovery of lost capital is considered to maintain net worth.
Signup and view all the answers
In the example, what was the annual franchise income guaranteed to Mr. Ramos?
In the example, what was the annual franchise income guaranteed to Mr. Ramos?
Signup and view all the answers
What type of payment is the P40,000 guarantee payment considered for Mr. Ramos?
What type of payment is the P40,000 guarantee payment considered for Mr. Ramos?
Signup and view all the answers
How much indemnity did Davao Crocodile Inc. receive for patent infringement?
How much indemnity did Davao Crocodile Inc. receive for patent infringement?
Signup and view all the answers
Study Notes
Concept of Gross Income
- Defined as the inflow of wealth to the taxpayer from any source, legal or illegal, increasing their net worth.
- Includes income from employment, trade, business, properties, and other sources.
Elements of Gross Income
-
Return on Capital that Increases Net Worth:
- Refers to any increase in the taxpayer's net worth due to a return on their capital.
- Return on capital is subject to tax.
- Return of capital, which maintains net worth, is not taxable.
- Capital includes any wealth or property.
-
Realized Benefit:
- Represents any form of advantage derived by the taxpayer.
- Increases net worth and indicates an ability to pay tax.
- Examples of realized benefits include receiving income, donations, and inheritances.
-
Not Exempted by Law, Contract, or Treaty:
- This means that income must be subject to taxation unless specifically exempted by law, a contract, or a treaty.
Return on Capital that Increases Net Worth
-
Examples of Capital Items with Infinite Value:
- Life: Proceeds of life insurance to heirs or beneficiaries, employer provided.
- Health: Compensation received for the loss of health.
- Human Reputation: Indemnity received as compensation for its impairment.
-
Examples of Return on Capital/ Insurance Policies - Taxable
- Excess over premiums
- Gains from assignment or sale of policy
- Interest income from the unpaid insurance proceeds balance.
- Excess of proceeds over acquisition costs and premiums.
Recovery of Lost Capital/ Lost Profit
- Recovery of lost capital maintains net worth and is not taxable.
- Recovery of lost profits increases net worth and is taxable.
- Examples of taxable lost profit recoveries:
- Proceeds from crop or livestock insurance
- Guarantee payments
- Indemnity received from a patent infringement lawsuit
Realized Benefit
-
Examples of Realized Benefits
- Employee retaining a portion of a transportation advance after liquidating expenses.
- Security agency receiving payment for services, where a portion is attributable to the agency's profit.
-
Not Benefits:
- Receipt of a loan
- Discovery of lost properties
- Money or property held in trust
The “Realized” Concept
- "Realized" means "earned."
- Requires some degree of undertaking or sacrifice from the taxpayer to be entitled to the benefit.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your understanding of gross income concepts, including its definition and the various elements that contribute to a taxpayer's net worth. Explore how returns on capital, realized benefits, and tax exemptions play a crucial role in taxation. This quiz is essential for grasping financial concepts related to income and taxation.
