Tax Exemption of Separation Benefits Paid by Reason of Health Condition

August 27, 1992 BIR RULING NO. 231-92 28 (b) (7) (B) 191-92 231-92 Philippine Geothermal, Inc. Metrobank Plaza, 15th Floor Sen. Gil J. Puyat Ave. Ext. Makati, Metro Manila Attention: Ms . Angelita L . Manabat Manager of Accounting and Finance Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to Mr. Ernesto B. de Guzman by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. prcd Documents submitted show that your employee, Mr. Ernesto B. de Guzman was certified by your Company Physician, Dr. Edwin Lino B. Romero to be suffering from Cerebro Vascular Accident (CVA) with bacosis, loss of speech and arrhythmia and that said illness affected 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. Ernesto B. de Guzman will receive as a result of his separation from the service of your company due to the 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 payments of Mr. Ernesto B. de Guzman's salary. casia Very truly yours, JOSE U. ONG Commissioner of Internal Revenue