Which of the following is an exclusion from gross income? (1%)
(A) Salaries and wages
(B) Cash dividends
(C) Liquidating dividends after dissolution of a corporation
(D) De minimis benefits
(E) Embezzled money
Suggested answer only. Not an official answer and not legal advice.
(D) De minimis benefits are excluded from gross income. Under Sec. 32(B)(7) and Sec. 33(C)(4) of the NIRC (in relation to RR No. 2-98), de minimis benefits are facilities or
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Quick check
What are de minimis benefits under Philippine revenue regulations?
De minimis benefits are small-value facilities or privileges provided by employers to promote employee efficiency and contentment.
Which of the following describes the tax treatment of de minimis benefits within statutory limits?
De minimis benefits within statutory ceilings are exempt from compensation income tax and fringe benefits tax.
How do exclusions from gross income differ from itemized deductions under the NIRC?
Exclusions are entirely omitted from gross income, whereas deductions are subtracted from gross income to arrive at net taxable income.
How are liquidating dividends treated for income tax purposes upon corporate dissolution?
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Which statutory provision enumerates the items excluded from gross income under the NIRC?
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Learn more about these topics
1. De Minimis Benefits
De minimis benefits are facilities or privileges furnished or offered by an employer to employees that are of relatively small value and are offered or targeted merely as a means of promoting the health, goodwill, contentment, or efficiency of employees. Under Philippine tax laws, de minimis benefits within statutory ceilings are explicitly exempt from income tax on compensation, as well as from fringe benefits tax, and are treated as exclusions from gross income.
2. Exclusions vs Deductions
In Philippine taxation, exclusions from gross income refer to items of flow of wealth that are not included in the computation of gross income because they are exempt by statutory provision or constitutional mandate. In contrast, deductions are amounts allowed by law to be subtracted from gross income to arrive at net taxable income. De minimis benefits are categorized as exclusions, meaning they do not form part of gross income from the outset.
3. Taxability of Dividends
Under Section 32(A) of the National Internal Revenue Code, dividends received by individuals or corporations form part of gross income unless specifically exempted. Liquidating dividends received by stockholders upon corporate dissolution are treated as payment in exchange for stock, resulting in taxable capital gain or deductible capital loss. Cash dividends are subject to final withholding tax or corporate income tax, distinguishing them from statutory exclusions like de minimis benefits.