(10%)
Noel Santos is a very bright computer science graduate. He was hired by Hewlett Packard. To entice him to accept the offer for employment, he was offered the arrangement that part of his compensation would be an insurance policy with a face value of P20 Million. The parents of Noel are made the beneficiaries of the insurance policy.
a) Will the proceeds of the insurance form part of the income of the parents of Noel and be subject to income tax? Reason briefly.
b) Can the company deduct from its gross income the amount of the premium? Reason briefly.
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1 comment:
X.
a.
It depends. If the insurance policy is a life insurance payable upon the death of the insured to the heirs or beneficiaries, then the proceeds will be excluded from the computation of income tax. In such case, the proceeds of the insurance will not form part of the income of the parents of Noel. Such proceeds are regarded as indemnity, not income.
b.
No. The amount of premium cannot be considered as deductible expense, because expenses, to be deductible, must be ordinary and necessary, that is, the expenses must be normal or usual, useful, and reasonable. In the case at bar, the expense of the company in procuring the insurance does not appear to be so.
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