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

October 27, 1992 BIR RULING NO. 308-92 28 (b) (7) (B) 209-92 308-92 Benguet Corporation Antamok Gold Project Itogon, Benguet Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to Mr. Hilario Miranda by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that your employee, Mr. Hilario Miranda was certified by his Attending Physician, Dr. Francisco L. Hernandez to be suffering from Right-Hemiparesis and Ideational Apraxia secondary to Cerebro-Vascular Disease (Ischemic Stroke Embolism) and that said illness affects 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. Hilario Miranda 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. Hilario Miranda's salary. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue