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Chapter 6 1.

Define fringe benefits Fringe benefits as any good or service or other benefit furnished or granted by an employee in cash or in kind, in addition to basic salaries to an individual employees 2. Give the reasons to justify the granting of fringe benefits to employees Form of incentive to encourage employees productivity and loyalty to employer During financial difficulties, the employer may decrease or discontinue giving fringe benefits but cannot reduce wage or salary Additional remunerations for overtime and separation pay do not include fringe benefits 3. Whose income tax is the fringe benefit tax? Final tax on the employees income to be withheld by the employer Withholding and remittance shall be made quarterly 4. What is the grossed-up monetary value of fringe benefit and what is the tax rate of fringe benefit tax? Grossed-up monetary value- determined by dividing the monetary value of fringe benefits by 68% Tax rate of fringe benefit tax: 32% 5. Illustrate the applicable income tax for the fringe benefit received by: a. Management employees: taxable with a final fringe benefit of 32%; except for de minimis & benefits provided for the convenience of the employer b. Rank-in-file employees: taxable as compensation income subject to normal tax 6. Why is fringe benefit tax important? Primarily intended to recover the lost revenue of the government due to a previous malpractice of the employer and managerial employee Malpractice occurs by declaring only partial of the total negotiated salary to lower the taxable employees compensation 7. Stage the three general rules in determining the monetary value of fringe benefit Rules Valuation 1: Granted by money or directly paid for Amount granted or paid for by the employer 2: Granted or furnished by the employer FMV of the property in property other than money and ownership is transferred to the employee 3: Granted or furnished by the employer Depreciated value of the property in property other than money and ownership is not transferred to the employee

8. Enumerate the different instances of housing privilege and explain their respective fringe benefit tax base Housing Privilege Fringe Benefit Tax Base 1. Lease of residential property for MV = 50% x rental payments residential use of employees 2. Assignment of residential property for MV = [5% x (FMV or ZV, whichever is higher) use of employees x 50%] 3. Purchase of residential property on MV = 5% x AC x 50% installment bases for the use of employees 4. Purchase of residential property and MC = FMC or ZV, whichever is higher ownership is transferred in the name of the employees MV = Monetary value of the fringe benefit FMV = Fair market value ZV = Zonal value, value of the land and improvement AC = Acquisition cost, exclusive of interest 9. What are the instances when housing privilege is not taxable? a. Housing privilege of the AFP officials b. Housing unit, which is situated inside or adjacent to the premises of a business or factory, located within maximum of 50 meters away from the perimeter c. Temporary housing of an employee, 3 months or less 10. When will personal expense incurred by an employee subject to fringe benefit tax? When the personal consumption of the employee and his family paid for or reimbursed by the employer to the employee whether or not the same are duly receipted for in the name of the employer 11. Enumerate the different instances of vehicular privilege and explain their respective fringe benefit tax base Motor Vehicle Privilege Fringe Benefit Tax Base 1. Purchase of motor vehicle in the name MV = AC of the employee 2. Cash is given to the employee for the MV = Cash received by the employee purchase of the vehicle; ownership is placed in the name of the employee If it is subject to WTW, not subject to FBT anymore 3. Purchase of car on installment basis, MV = AC/5 the ownership of which is placed in the name of the employee 4. Employer shoulders a portion of the MV = Amount shouldered by the employer purchase price, the ownership of which is placed in the name of the employee 5. Employer owns and maintains a fleet MV = (AC/5) x 50% of motor vehicles for the use of the business and employees

6. Employer leases and maintains a fleet of motor vehicles for the use of the business and employees

MV = 50% x rental payment

12. Can household expenses be subject to FBT? Expenses of the employee which are borne by the employer for household personnel shall be treated as taxable fringe benefit 13. State the rules when interest on loan from employer be considered fringe benefit a. The difference of the interest assumed by the employee and 12% rate (If the employer lends money to his employee free of interest or lower than 12% per year) b. Benchmark interest rate of 12$ shall remain in effect until revised by a subsequent regulation c. This regulation shall apply to installment payments or loans with interest rate lower than 12% 14. How much is the monetary value of fringe benefit related to membership fees in social and athletic clubs paid by the employer? Entire expenditure shall be treated as taxable fringe benefits of the employee in full 15. Explain the rule on expenses for foreign travel Reasonable business expenses paid for by the employer are taxable fringe benefits Must be supported by documents proving the actual occurrences of the meetings and conventions Absence of documents: shall be subject to FBT Not subject to FBT: o Inland travel expenses (food, beverages, local transportation) o Cost of economy and business class plane ticket Subject to FBT: o Lodging cost in a hotel in excess of US$300/day o 30% of the cost of the first class plane ticket

16. Are employees holiday and vacation expenses borne by employer subject to FBT? Yes 17. State the rules on educational assistance fringe benefit granted to a. employee b. dependents of employee Taxable FB Nontaxable FB a. General rule: Cost of the educational Exception: assistance to the employee which are Scholarship grant to the employee by the borne by the employer employer, with the following conditions met: 1. Directly related with the employers trade, business or profession 2. Written contract between them to the effect that the employee is under the obligation to remain in the

employ of the employer for the period that they have mutually agreed upon b. Cost of educational assistance extend by an employer to the dependents of an employee The assistance was provided through a competitive scheme under the scholarship grant of the company

18. Can life or health insurance be subject to FBT? Yes, except for the following: Contributions of the employer for the benefit of the employee under SSS or GSIS Cost of premiums borne by the employer for the group of insurance of his employees 19. Enumerate and describe the insurance, tax rate and tax base of fringe benefit granted to special aliens See page 330 20. What are the nontaxable fringe benefits? a. Authorized and exempted from income tax under the code or special law b. Contributions of the employer for the benefit of the employee for retirement, insurance and hospitalization benefit plans c. Benefits given to the rank-and-file d. If the grant of FB to the employee is required e. Grant of FB is for the convenience of the employer f. De minimis benefits