Tax Exemption of Separation Benefits Paid to Employee Separated from Service by Reason of Health Condition

March 19, 1992 BIR RULING NO. 085-92 28 (b) (7) (B) 053-92 085-92 Philippine Long Distance Company, Inc. P.O. Box No. 952 Makati, Metro Manila Attention: Mr . P . A . Caoili Manager-Financial Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to Mr. Daniel D. Drilon 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 shows that your employee, Mr. Daniel D. Drilon was certified by your company's Attending Physician, Dr. Felix M. Rustia to be suffering from Adeno carcinoma and that said illness affects the performance of his duties and endangers his life if he continues working. Said finding is confirmed by the BIR Medical Officer. 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 the 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. Daniel D. Drilon will receive from you 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 72, 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 however, understood that this exemption does not include your payment of Mr. Daniel D. Drilon's salary. adc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue