Exemption of Separation Benefits to be Paid to Employee by Reason of Health Condition

March 2, 1992 BIR RULING NO. 073-92 28 (b) (7) (B) 027-92 073-92 Goodyear Philippines, Inc. P.O. Box 7260 Domestic Airport, Manila Attention: Mr . Pedro R . dela Cruz Personnel Manager Gentlemen : This refers to your letter dated February 18, 1992 requesting for a ruling that separation benefits to be paid to Mr. Francisco C. Aguilar by reason of health condition be exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that Mr. Francisco C. Aguilar was employed by Goodyear Philippines, Inc. from October 23, 1956 until January 31, 1991 as Production Scheduler; that he has been suffering from chronic diabetis mellitus, hypertension and had been operated for acute prostatic hypertrophy as certified by Dr. Soledad S. Abad, clinic physician of Goodyear Philippines, Inc.; that said illness affects the performance of his duties and endangers his health if he continues working; that this fact has been confirmed by the BIR Chief, Medical and Dental Division; that he was separated from the service on January 31, 1991; and, that the Company has granted him his separation benefit a portion of which has been withheld for income tax purposes. In reply, please be informed that pursuant to Section 28(b)(7)(B) of the Tax Code, as amended, 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 due to death, sickness or other physical disability or for any cause beyond the control of said official or employee shall not be included in gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which Mr. Aguilar will receive as a result of his separation from the service of your company due to his aforesaid health condition are exempt from income tax and consequently from withholding tax prescribed by Section 71, Chapter 10, Title II of the Tax Code, as amended by B.P. Blg. 135 and implemented by Revenue Regulations No. 6-82 as amended. It is understood, however, that this exemption does not include your company's payment of salary to Mr. Aguilar. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue