BIR Ruling [DA-432-03]

November 28, 2003 BIR RULING [DA-432-03] 78 043-2001 Mr. Jose J. Valderrama Lot 8, Block 1 Alconville Subdivision Brgy. Landayan San Pedro, Laguna 4023 S i r : This refers to your letter dated September 30, 2002 requesting for reconsideration of the computation of your allowances for tax purposes. It is represented that you retired from Bangko Sentral ng Pilipinas (BSP) at the age of sixty (60) years old; that you are now sixty-eight (68) years old and a senior citizen; that you requested BSP for a refund of the income taxes withheld from your back benefits for COLA and amelioration allowance paid to you by BSP in 2001 and 2002, respectively, on the ground that the amount paid to you in their respective years did not exceed the Php60,000.00 tax exempt ceiling under Republic Act (R.A.) No. 7432, otherwise known as the Senior Citizens Act; that retiree-beneficiaries of back benefits such as yourself, recognize income only upon actual receipt; that BSP, however, informed you that the implementing guidelines for the payment of the above allowances provide that the taxability thereof is based on applicable tax rates of the personnel during the respective years said back benefits are supposed to be paid; and that said guideline is consistent with the rulings already issued by the BIR on the subject. In reply thereto, please be informed that COLA and Amelioration Allowances form part of compensation income subject to withholding tax. Thus, it is the liability of the employer, BSP to withhold and remit the corresponding tax due on the said allowances to the BIR. Considering that such back benefits, i.e. , COLA and Amelioration Allowances, constitute remuneration prior to the years 2001 and 2002 when actually received by you, a liberal construction of the statute is called for in this particular case if only to protect you from the payment of a tax heavier than what should have been imposed if BSP had promptly met its obligation. (BIR Ruling No. 346-88 dated July 21, 1988) Accordingly, in filing your income tax returns, you should report as income and pay your income taxes by allocating or spreading your back benefits for the years in which you were supposed to receive the said back benefits. (BIR Ruling No. 043-2001 dated September 21, 2001) You should file amended returns on taxes due for prior years covering the COLA and Amelioration Allowances. Regardless of the exemption given under R.A. No. 7432, if your back benefits in addition to the total compensation you received during the taxable year you were supposed to receive said back benefits do not exceed the statutory minimum wage of Php60,000.00 a year, no withholding tax shall be made. Conversely, if your annual taxable income, including your back lien fits exceeds Php60,000.00 a year, you shall be subject to the payment of individual income tax and consequently, to the withholding tax prescribed under Rev. Regs. No. 2-98, as amended. (BIR Ruling No. DA-193-2000 dated March 30, 2000) ECTAHc However, the exemption given under R.A. No. 7432 will not apply to you since the subject back benefits are part of your compensation for services rendered at the time you were not yet a senior citizen. In other words, the back benefits are not income of a senior citizen but income of an employee who is not a senior citizen at the time they were earned. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group