Whether the Terminal Leave Pay you Receive from Petron Corporation is Subject to Tax

October 22, 1992 BIR RULING NO. 297-92 28 (b) (7) (B) 209-92 297-92 Mr. Federico Y. Alikpala, Jr. P.O. Box No. 365 Greenhills Post Office San Juan, Metro Manila 1502 S i r : This refers to your letter dated August 7, 1992, requesting a ruling as to whether or not the terminal leave pay you receive from Petron Corporation is subject to tax. It is represented that you were an employee of Petron Corporation until June 30, 1992; that as a consequence of the reorganization of your company, your position was abolished and declared redundant, hence you were terminated; that aside from your termination pay, you were paid an amount equivalent to nineteen (19) days of your unused vacation leave credits; and that Petron had withheld the corresponding tax due thereon. In reply, I have the honor to inform you that under 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 the employer due to death, sickness or other physical disability or for any cause beyond the control of said official or employee is exempt from taxes regardless of age or length of service. The phrase "for any cause beyond the control of said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him. In other words, the separation must not be of his own making or choice. Since your separation is beyond your control, any and all amounts to be received by you from the company as a result thereof including terminal leave pay (sick leave and vacation leave credits) are exempt from all taxes and consequently from the withholding tax prescribed by Section 72, Chapter X, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82 as amended. It is understood, however, that this tax exemption does not include the payment of your salary. LibLex Very truly yours, JOSE U. ONG Commissioner of Internal Revenue