Separation Pay - Tax-Exempt

December 28, 1993 BIR RULING NO. 536-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 265-93 536-93 Superstar Security Agency, Inc. Consular Area, Fort Bonifacio Makati, Metro Manila Attention: Col . Virgilio G . Poblete, P . C . (Ret . ) Acting General Manager This refers to your request for a ruling that the separation benefits to be paid to MS. ELME M. IBARDALOZA 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 your employee, Ms. Elme M. Ibardaloza, was diagnosed by Dr. Adoracion M. Vergara on June 21, 1993 to be suffering from a malignant tumor of the right leg and was advised to undergo amputation; that this finding is confirmed by the BIR Medical Officer; that because of her probable permanent disability, you are considering her retirement from the service. 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 his 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, as amended. 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. Elme M. Ibardaloza will receive from you as a result of her separation from the service of your company due to her 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 the salary to be paid to Ms. Elme M. Ibardaloza shall be subject to income tax. LLpr LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue