Separation Pay - Tax-Exempt

December 9, 1993 BIR RULING NO. 480-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 126-93 480-93 Goodyear Philippines, Inc. Barangay Almanza Las Pias, Metro Manila Attention: Mr . Pedro R . Dela Cruz Human Resources Manager This refers to your request for a ruling that the separation benefits to be paid by you to Mr. Bonifacio Medina 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 he was certified by your physician, Dr. Eduardo R. Dela Cruz, to be suffering from progressive osteoarthritic degenerative disease of the knee; 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 his 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 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 his terminal leave pay (sick leave and vacation leave credits) which Mr. Bonifacio Medina will receive as a result of his separation from the service of that company due to his abovementioned condition, are exempt from income tax 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 the salary paid by your company to Mr. Bonifacio Medina is subject to the aforesaid withholding tax. aisadc LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue