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

July 9, 1992 BIR RULING NO. 201-92 28 (b) (7) (B) 183-92 201-92 Holland Pacific Paper, Inc. 226 Quirino Highway Baesa, Quezon City Attention: Mr . Victor M . Mendoza HRD Officer Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to Messrs. Arnaldo R. Pitallano and Leoncio O. Osma by reason of health condition are exempt from all taxes pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. LibLex Documents submitted show that the foregoing employees were certified by their attending and your company Physician, Dr. Patrocinio D. Dayrit to be suffering from: 1. Arnaldo R. Pitallano myocardial infraction; diabetes mellitus; and hypertension which is stubborn and oftentimes uncontrolled and which is symptomatic; and 2. Leoncio O. Osma Ischemic heart disease; diabetes mellitus; and Hypertension which is uncontrollable inspite of medications especially when too much tension when on work duty. and that their respective illnesses affects the performance of their duties and endanger their lives if they continue working. Said findings are 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 the foregoing employees will receive from your company as a result of their separation from the service due to their aforesaid health conditions 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 payments of Messrs. Arnaldo R. Pitallano and Leoncio O. Osma's salaries. cdll Very truly yours, JOSE U. ONG Commissioner of Internal Revenue