Separation Pay - Tax-Exempt

July 22, 1993 BIR RULING NO. 338-93 SEPARATION PAY TAX-EXEMPT 28 (B) (7) (B) 39-93 338-93 Ms. Gloria A. de Santos 3030 J. Agtarap St. Pasay City, Metro Manila This refers to your request for a ruling that the separation benefits to be received by you from your employer, the Philippine Airlines, 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 disclosed that on April 29, 1989, you underwent modified Radical Mastectomy at Medical City due to breast mass; that Histopathology report shows the following: Infiltrating Ductal Carcinoma (R) breast with metastasis to 11 out of 12 axillary lymph nodes; perineural and peri-vascular lymphatic permeation; that after surgery you were given a series of chemotherapy; that you were subjected to another operation due to pelvic mass; that total abdominal hysterectomy with Bilateral Selpingo-opherectomy was performed on you at Harbor-USLA Medical Center, LA and biopsy report revealed: 1. Motastic Breast Adano-Calcinome, bilateral ovaries, right left and uterine serosa, left side. 2. Metastatic Breast Carcinoma to lymph nodes, L & R pelvic nodes, left common ilisc node and periaortic nodes; that your company physician, Dr. Teresita G. Borja recommended for your early retirement based on physical disability at the rate of 100%; and that said illness affects the performance of your duties and endangers your life if you continue 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 her employer as a consequence of separation of such official or employee from the service of her employer due to death, illness 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 you will receive from Philippine Airlines as a result of your separation from the service of said company due to aforesaid health condition is exempt from income tax and consequently, from withholding tax as prescribed under 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 payment of your salary. cdtech LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue