BIR Ruling [DA-049-99]

January 28, 1999 BIR RULING [DA-049-99] University of St. La Salle P.O. Box 249 Bacolod City 6100 Attention: Ms . Ligaya D . Castor Personnel Officer Gentlemen : This refers to your letter dated April 25, 1997 stating that the University of St. La Salle College of Nursing has been experiencing a steady decline in student enrollment since 1991-1992 up to the present; that for school year 1996-97, you practically have no enrollees in the freshmen year for the BSN course and that the administration has no recourse but to retrench a number of BSN faculty members. cdll In connection therewith, you now request for a ruling that the separation pay to be paid to the said faculty members be exempt from income tax. In reply thereto, please be informed that pursuant to Section 32(B)(7)(e) of the Tax Code of 1997 any amount received by an official or employee from the service of the employer due to death, sickness, or other physical disability or for any cause beyond the control of said official or employee is exempt from taxes regardless of age or length of service. The above-mentioned law requires the presence of these two conditions in order that the employee benefits may be granted tax exemption: (1) the 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 employer pays benefits to the official or employee or his heirs as a consequence of such separation. Since the separation of your employees due to decline of student enrollment is beyond your faculty members' control, any and all amounts received by them as a result thereof are exempt from all taxes and consequently from the withholding tax prescribed by Section 79 of the Tax Code of 1997 and as implemented by Revenue Regulations No. 6-82, as amended. In view of the foregoing, the separation benefits, including terminal leave pay of your employees, are exempt from income tax and consequently from the withholding tax. It is understood, however, that the salaries of the said retrenched faculty members are subject to income tax. (BIR Ruling No. 058-94 dated February 11, 1994) cdta Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)