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

April 20, 1992 BIR RULING NO. 128-92 28 (b) (7) (B) 177-91 128-92 Edward Keller (Philippines), Inc. 1890 Domestic Road Pasay City Attention: Mr . Dieter Lehmam President Gentlemen : This refers to your request for a ruling as to whether or not the separation benefit to be paid to your employee, Mr. Gregorio S. Capulong by reason of health condition is exempt from income and consequently from the withholding tax pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. Documents submitted show that your employee was certified by your company physician, Dr. Damaso de Castro to be suffering from compulsive asthma and is advised to take a complete rest, avoid polluted environment and refrain from strenuous activities, considering the nature of Mr. Capulong's asthma may be severely complicated by his existing heart ailment; that his illness affects the performance of his duties and would endanger his physical well-being if he will continue working; and that by reason of the said findings, he was declared to be unfit for work and advised by the said physician to retire from his work. 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 your employee will receive from your company as a result of his separation from the service of your company due to his ill health (sickness) is 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. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue