Separation Pay - Tax-Exempt

November 19, 1993 BIR RULING NO. 450-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 24-93 50-93 Mr. Jose Y. Zamora III c/o Philippine Airlines Makati, Metro Manila This refers to your request for a ruling that the separation benefits to be paid to you by 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. prcd Documents submitted show that you were certified by your physician, Dr. Godofredo B. Banzon, to be suffering from Mascular degeneration of both eyes, Mixed type deafness, Mild Systemic Hypertension, Hypertrophic Osteoarthritis, both knee joints 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 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 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 as a result of your separation from the service of that company due to your 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 your salary is subject to income tax. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue