Separation Pay - Tax Exempt

December 28, 1993 BIR RULING NO. 544-93 SEPARATION PAY TAX EXEMPT 28 (b) (7) (B) 480-93 544-93 Central Cement Corporation Akle, San Ildefonso, Bulacan Attention: Mr . Ernesto S . Paguia Assistant Vice-President This refers to your request for a ruling that the separation benefits to be paid to Messrs. DANILO F. CRUZ, WILLIAM S. FRONDA and RESTITUTO R. CAYETANO by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. prll Documents submitted disclosed that the following employees of that company were diagnosed to be suffering from, namely: 1. Mr. Danilo F. Cruz acquired Osteoarthritis, Sacral Joint; 2. Mr. William S. Fronda Closed Angle Glaucama o.d.; and 3. Mr. Restituto R. Cayetano Chronic Dermatitis on both feet. and that said illnesses affect the performance of their respective 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 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. 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 Messrs. Danilo F. Cruz, William S. Fronda, and Restituto R. Cayetano will receive from you as a result of their separation from the service of your company due to their aforesaid health condition are 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 salaries paid to Messrs. Danilo F. Cruz, William S. Fronda and Restituto R. Cayetano are subject to income tax. llcd LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue