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

October 27, 1992 BIR RULING NO. 312-92 28 (b) (7) (B) 052-92 312-92 Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles Fourth Floor, King's Court 2129 Pasong Tamo Makati, Metro Manila Attention: Ms . Jacqueline Theresa J . Romero Gentlemen : This refers to your request for a ruling that the separation benefits to be paid by your client, The Coca-Cola Export Corporation (Philippine Branch) to its employee, MS. NAOMI O. ESTANDARTE, by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. LLpr Documents submitted show that Ms. Naomi O. Estandarte, was certified by her Attending Physician, Dr. Roel Neri, and Dr. Maria Felicidad A. Sotto, an Electroencephalographer to be suffering from an A-V malformation, left posterior parietal area; intracerebral hematoma, left posterior parietal and right hemiplegia and antero-grade amnesia; and that she walks with a limp and has a difficulty remembering recent events and has been put on physical therapy; and that said illness affects the performance of her duties and endangers her life if she continues working. Said finding is confirmed by the BIR Medical Office. 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/her 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, including terminal leave pay (sick leave and vacation leave credits) which Ms. Naomi O. Estandarte will receive from her employer, the Coca-Cola Export Corporation (Philippine Branch) as a result of her separation from the service due to her 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 the payment of Ms. Noemi Estandarte's salary. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue