Separation Pay - Tax-Exempt

November 19, 1993 BIR RULING NO. 462-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 276-93 462-93 Hotel Magellan Gorordo Avenue Lahug, Cebu City Attention: Mr . Johnny Ramos General Manager This refers to your request for a ruling that the separation benefits to be paid to your employees namely, Messrs. Benigno Labajo and Eugenio R. Macarat, by reasons 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 Messrs. Benigno Labajo and Eugenio B. Macarat were certified by your physician, Dr. Camilo Enriquez Jr., for Mr. Benigno Labajo to be suffering from Lung Adenocarcinoma with metastasis to the brain; and for Mr. Eugenio B. Macarat to be suffering from CVA20 to thrombosis hemeparesis, right and Essential Hypertension; and that said illnesses affect the performance of their duties and endanger their lives if they continue working. Said findings are 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 the 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 their terminal leave pay ( sick leave and vacation leave credits) which Messrs. Benigno Labajo and Eugenio R. Macarat will receive as a result of their separation from the service of that company due to their aforesaid conditions, are exempt from income taxes and consequently, from the 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 these exemptions, do not include your payments of Messrs. Benigno Labajo's and Eugenio R. Macarat's salaries. casia LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue