Passive Income and Prize Taxation

• Passive income refers to earnings derived from activities where one is not actively involved.

Prizes

• Prizes are subject to different tax rates based on whether they are from individuals or corporations.
• Individual prizes of 10,000 or below are considered basic.
• Individual prizes above 10,000 are taxed at 20%.
• Prizes for athletes sanctioned by their National Sports Associations(NSAs), or those in recognition of religious or scientific achievements are exempt from taxes.

Mr. Tuao Example

• Mr. Tuao won P800,000 in a national dancing competition, where it was declared to be "tax-free".
• This means that the final tax remitted by the organizer to the Bureau of Internal Revenue (BIR) is P0.
• If the prize was not tax-free, final tax implications would apply.

Interest Income

• Interest Income involves different tax rates depending on the type of currency, the residency status, and the term length.
• Interest income from local currency with short-term investment of less than 5 years is taxed at 20%.
• Long-term investments in local currency are generally exempt from taxes if pre-terminated.
• For foreign currency the tax rates vary for resident citizens (RC), resident aliens (RA), and non-resident citizens (NRC).

Witholding Tax

• Exemption categories for interest incomes from non-banks pertain to those received by non-residents.

Witholding Tax Rates

• Pre-termination of the original term affects the tax rate as follows:
• Less than 3 years: 20%
• 3 years to less than 4 years: 12%
• 4 years to less than 5 years: 5%

Andrew Example

• Andrew must compute the final tax and reportable income, assuming he is a resident citizen.
• Reportable income is also calculated assuming Andrew is a Resident alien.
• His income is composed of interest from deposits in domestic/foreign banks, interest from bonds, from client's promissory notes and from lending to friends

Dividends

• Tax rules for dividends depend on the origin of the corporation such as domestic or foreign
• Tax rules depend on status of the recipient like, individual or corporate.

Domestic Corporation

• Dividends from domestic corporations are subject to varying rates for Non-Resident Alien Engaged in Trade or Business (NRA-ETB) at 20%.
• Other individuals are taxed at 10%, with exceptions such as Non-Resident Foreign Corporations (NRFC).

Foregin Corporation

• Foreign Corporations are generally subject to basic tax unless falling under NRA-NETB or NRFC categories.
• Resident Citizens (RC) and Domestic Corporations (DC) are 100% taxable.
• Stock dividends can be either exempt (pure stock dividend) or taxable (representing distribution of earnings or include options).
• Liquidating dividends are exempt, while scrip dividends are subject to final tax.

Philippine Income Source

• A corporation earned 60% of its income from Philippine sources, and declared P100,000 in dividends to a recipient shareholder.
• Determining the taxable amount depends on the tax scheme.
• Determining the rate depends on whether the declaring corporation is RC, domestic, or foreign.
• Also depends on whether the recipient shareholder is RC RA,DC or RFC.

Royalty Income

• Active royalty is considered basic tax.
• Passive royalty is 20% for "cinematographic films" and 10%/20% for "books, literary works & musical compositions" (individual/corporate).
• NRA-NETB is 25%
• NFC is 30%

Royalties Taxes

• Royalties from the Philippines have varying rates depending on whether there are RC/DC, RA/NRC, and NRA-NETB/NRFC.
• Indicate FIT + tax rate.
• Indicate RIT, or if it's exempt.

Total Final Taxes

• ABC Books royalty is:
• P3,000,000 from Filipino authors
• P1,800,000 from foreign authors
• 5,000,000 from Dream Books, Limited.(United States)
• Totaling in 9,800,000

Other Sources of Income

• Informer's reward is generally 10% or 1M, and is lower except for 6th degree relation etc.
• "Tax Benefit Rule" applies to Tax refunds.

What is Exempt and Taxable

• Damages for loss of life, property, and damage to a person are exempt.
• Any other damages are taxable.

Winnings

• Winnings as a source of income are taxed differently depending on whether it's an individual or corporate.
• Individual winnings are generally taxed at 20% while corporate winnings are taxed at the basic rate.

PCSO and Lotto

• PCSO & Lotto winnings of 10k & below are exempt
• Above 10k is taxed at 20%

ABC example

• On January 15, 2018, ABC bought a PCSO EZ-2 lotto ticket and a 6/42 PCSO Lotto ticket.
• The tickets won 5,000 and 50,000 respectively.
• Calculation occurs to determine how much withholding tax must be withheld by the PCSO.

Explore passive income streams and taxation rules for prizes, including rates for individual winnings and exemptions for athletes and achievements. Learn about interest income tax rates based on currency, residency, and investment term. Includes an example of tax implications on prizes.