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

September 24, 1992 BIR RULING NO. 273-92 28 (b) (7) (B) 205-92 273-93 Itogon-Suyoc Mines, Inc. Rm. 306 One Corporate Plaza Bldg. San Juan, Metro Manila Attention: Ms . Aurelia G . Floria Division Manager for Finance Admin/Treasurer Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to Mr. Julius Gatchalian by reason of health condition are exempt from all taxes pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. LLphil Documents submitted disclosed that your employee, Mr. Julius Gatchalian was diagnosed by your company's physician, Dr. Manuel M. Acosta, to be suffering from Chronic Bronchial Asthma and he had difficulty in breathing; and that said illness affect the performance of his duties and endanger his life if he will 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 Mr. Julius Gatchalian will receive from you as a result of his separation from the service of your company due to his aforesaid health condition 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. 125 and implemented by Revenue Regulations No. 6-82, as amended. It is however, understood that this exemption does not include your payment of Mr. Julius Gatchalian's salary. cdll Very truly yours, JOSE U. ONG Commissioner of Internal Revenue