Separation benefits req’ts ruling; principal residence sale

PURSUANT to Section 32(B)(6)(b) of the Tax Code, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official oR employee shall be excluded from the gross income and shall be exempt from income tax regardless of age or length of service.

Section 32(B)(6)(b) requires as a condition for tax exemption the fact that (1) the official or employee is separated from the service of the employer due to death, sickness, or other physical disability, or for any cause beyond the control of the said official or employee, and (2) the official or employee or his heirs received any amount from the employer on account of such separation.

Requests for rulings are usually secured by employees who then submit the same to the employer to prove that his separation benefits are exempt from income tax and that no withholding taxes should be deducted therefrom.

Without a ruling, the employer deducts withholding taxes and remits the same to the BIR to avoid the possibility of being assessed.

Thus, Revenue Memorandum Order No. 26-2011 was issued devolving to the Revenue Regions the processing of such requests for rulings confirming that the amounts received by the employee or by his heirs from the employers because of death, sickness, or other physical disability are tax exempt.

Instead of a confirmatory ruling, a Certificate of Tax Exemption shall be issued by the Office of the Regional Director.

* * *

Sale of Principal Residence update

On June 14, 2011, a memorandum was issued by Nelson M. Aspe, deputy commissioner of the operations group of the Bureau of Internal Revenue (BIR), addressed to all Regional Directors and all Revenue District Officers (RDO) involving the escrow accounts on Taxpayer’s Sale of “Principal Residence.”

The memorandum basically reminded all appropriate BIR offices on the implementation of Revenue Regulation No. 17-03 which provides that if within thirty (30) days after the lapse of the 18-month period from date of sale/disposition of the principal residence, the Seller/Transferor fails to submit documentary evidence showing utilization of the proceeds of sale/disposition of his old principal residence to acquire/construct a new principal residence, he shall be treated as deficient in the payment of the capital gains tax on the sale/disposition of his aforesaid Principal Residence, and shall be accordingly assessed for deficiency capital gains tax, inclusive of penalties and the 20 percent interest per annum computed from the 31st day after the date of sale/disposition of the said principal residence.

Thereafter, the RDO shall forthwith apply the escrowed bank deposit account against the deficiency.

* * *

You may contact the author at [email protected].