Tax relief by claiming casualty losses incurred

Natural disasters are events that are caused by environmental factors.

The recent Typhoon Odette (Rai internationally), for example, was a powerful and catastrophic tropical cyclone that struck the Philippine area of responsibility from December 12 to 22, 2021.

Damage to infrastructure and agriculture was estimated at Php 23.4 billion ($459 million). As per government directives, affected individuals or corporations may avail of tax treaty by claiming casualty losses.

Any loss rising from fires, storms or other casualties, and from robbery, theft, or embezzlement, is allowable as a deduction for the taxable year in which the loss is sustained.

For losses to be generally allowed as deductions, the following provisions are set:

a) must be related to trade, business, or profession;

b) should be actually sustained and written-off during the year;

c) should not be compensated for by insurance; and

d) must be evidenced by closed and completed transactions.

Pursuant to Revenue Memorandum Order (RMO) 31-2009, the taxpayer shall submit a declaration of loss sustained from casualty or from robbery, theft or embezzlement, during the taxable year within forty-five (45) days.

The same applies to non-resident alien individuals or foreign corporations, wherein the losses deductible shall be those actually sustained during the year incurred in business, trade or exercise of a profession conducted within the Philippines, when such losses are not compensated for by insurance or other forms of indemnity.

RMO 31-2009 prescribes the policies and guidelines that shall govern the declaration of casualty losses incurred by taxpayers, which summarized the documentary requirements as follows:

Documentary requirements for claiming deductible losses:

1. Sworn declaration of loss filed within 45 days after the date of the event causing the loss, and stating the following:
   1. Nature of the event that gave rise to such loss and the time of its occurrence;
   2. Description and location of the damaged properties;
   3. Items needed to compute the losses (cost or other basis of the properties; depreciation allowed, if any; value of the property before and after the event; and cost of repair); and
   4. The amount of insurance or other compensation received;

2. The Financial Statement for the year immediately preceding the event;

3. Proof of the elements of the losses claimed:

1. Photographs of the properties before and after the typhoon to show the extent of the damage.
2. Documentary evidence for determining the cost or valuation of the damaged properties (canceled checks, vouchers, receipts, and other evidence of costs);
3. Insurance policy, in the event that there is an insurance coverage for the properties; and
4. Police report, in cases of robbery/theft during the typhoon and/or as a consequence of looting.

A copy of RMO 31-2009 is attached to this advisory for everyone’s reference.       bir-rmo-31-2009