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

July 20, 1992 BIR RULING NO. 209-92 28 (b) (7) (B) 052-92 209-92 Coca-Cola Bottlers Phil., Inc. Grd., 6th & 7th Floors, Penthouse, Ace Bldg. Rada Street corner Dela Rosa, Legaspi Village Makati, Metro Manila Attention: Mr . Mariano A . Limjap Senior Vice President & Administration Director Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to MESSRS. ROGELIO FLORES and PEDRO U. ALAMAN by reason of health condition are exempt from all taxes pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. cdt Documents submitted show that your employees, Messrs. Rogelio Flores and Pedro U. Alaman were certified by your company's retained and Plant Physicians, Dr. Nestor Baisac and Dr. Antonio V. Orencia to be suffering from Cerebral Infraction, right parietal & AV-Malfunction; and Status Post Leminectomy for compression of vertebrae T12-L2 secondary to malignant lymphoma with residual paraplegia, respectively; and that said illnesses affect 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 his employer as a consequence of separation of such official or employee from the service of his 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, including terminal leave pay (sick leave and vacation leave credits) which Messrs. Rogelio Flores and Pedro U. Alaman will receive from you as a result of their separation from the service of your company due to their 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 Messrs. Rogelio Flores and Pedro U. Alaman's salaries. cdta Very truly yours, JOSE U. ONG Commissioner of Internal Revenue