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ReSA

The Review School of


Accountancy
Tel. No. 735-9807 & 734-3989

TAXATION TAMAYO/GARCIA
TX 901: INCOME TAX (FRINGE BENEFITS AND FRINGE BENEFIT TAX)

1. Definition of Certain Terms


a. Fringe benefits Any good, service or other benefit furnished or granted by an employer in cash or
in kind, in addition to basic salaries to an individual employee (except rank and file
employee) such as but not limited to the items enumerated below.
b. Rank and file All employees who are holding neither managerial nor supervisory position.
employees
c. Managerial employee One who is vested with powers or prerogatives to lay down and execute
management policies and/or to hire, transfer, suspend, layoff, recall, discharge,
assign or discipline employees.
d. Supervisory Those who, in the interest of the employer, effectively recommend such
employees managerial actions if the exercise of such authority is not merely routinary or
clerical in nature but requires the use of independent judgment.

2. Imposition of Fringe Benefit Tax


a. A final tax Fringe benefit tax is a final tax.
b. Imposed on the Fringe benefit tax is imposed on the grossed-up monetary value of fringe benefits
grossed-up monetary furnished granted or paid by employer to employees except rank and file
value employees.
c. Imposed regardless Fringe benefit tax is imposed whether the employer is an individual, professional
of who the employer partnership or corporation, regardless of whether the corporation is taxable or not,
or the government or its instrumentalities.
d. Withheld by Fringe benefit tax shall be treated as a final tax on the employee, which shall be
employer withheld and paid by the employer on a calendar quarterly basis.
e. Tax base and tax rate Monetary value of fringe benefit P
xxx
Divided by 68%
Grossed-up monetary value xxx
Tax rate
32%
Fringe benefit tax P
xxx
f. Tax base and tax rate Monetary value of the fringe benefit P xxx
for NRA-NETB Divided by 75%
Grossed-up monetary value xxx
Tax rate 25%
Fringe benefits tax P xxx
g. Tax base and tax rate Monetary value of the fringe benefit P xxx
for special aliens and Divided by 85%
their Filipino Grossed-up monetary value xxx
counter-parts and Tax rate 15%
employees in Special Fringe benefits tax P xxx
Economic Zone

3. Examples of Fringe Benefits


a. Fringe benefits a. Housing;
subject to final tax b. Expense account;
c. Vehicle of any kind;
d. Household personnel, such as maid, driver and others;
e. Interest on loan at less than market rate to the extent of the difference
between the market rate and actual rate granted (12% benchmark rate);
f. Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs and similar organizations;
g. Expenses for foreign travel;
h. Holiday and vacation expenses;
i. Educational assistance to the employee or his dependents;
j. Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.
b. Fringe benefits not a. Fringe benefits which are authorized and exempted from income tax under the
subject to fringe Tax Code
benefit tax or under any special law;
b. Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans;
c. Benefits given to rank and file, whether granted under a collective bargaining
agreement
or not;
d. De minimis benefits; TX-
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e. Benefits granted to employee which are required by the nature of, or necessary
to the trade, business or profession of the employer; or
f. Benefits granted for the convenience or advantage of the employer.

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4. De Minimis Benefits
a. Meaning of de De minimis benefits are facilities or privileges furnished or offered by an
minimis employer to his employees that are of relatively small value and are offered or
benefits furnished by the employer merely as a means of promoting the health,
goodwill, contentment, or efficiency of his employees.
b. Examples of de minimis benefits (as amended by RR No. 5-2011)
Item Ceiling
1) Medical benefits given to the Actual medical assistance, e.g. medical allowance to cover
employees by the employer medical and healthcare needs, annual medical/executive
check-up, maternity assistance, and routine consultations,
not exceeding P10,000 per annum
2) Employee achievement awards (e.g. Must be in the form of a tangible personal property other
for length of service or safety than cash or gift certificate with an annual monetary value
achievement) not exceeding P10,000 received by the employee under
an established written plan which does not discriminate in
favor of highly paid employees
3) Gifts given during Christmas and major Not exceeding P5,000 per employee per annum per
anniversary celebrations employee
4) Uniforms and clothing allowance given Not exceeding P4,000 per annum (old P3,000) (R.R. No.
to employees by the employer 5-2008 published in Manila Bulletin April 25, 2008)
5) Rice subsidy granted by an employer P1,500 (old P1,000) or one (1) sack of 50 kg. rice per
to his employees month amounting to not more than P1,500 ( R.R. 5-2008
published in Manila Bulletin April 25, 2008)
6) Laundry allowance Not exceeding P300 per month
7) Medical cash allowance to dependents Not exceeding P750 per semester or P125 per month.
of employees
8) Daily meal allowance for overtime Not exceeding 25% of the basic minimum wage on a
work and night/graveyard shift per region basis
9) Monetized unused vacation and sick Not exceeding 10 days during the year.
leave credits
Note: All other benefits given by Not considered as de minimis benefits and shall be
employers which are not included in subject to income tax as well as withholding tax as
the above enumeration compensation income.
*

5. Tax Accounting for the Fringe Benefit Furnished to the Employee and the Fringe Benefit Tax Due
Thereon
Deductible fringe benefits and fringe benefits tax.
Basis of fringe benefits tax Amount deductible from employers gross income
1) General rule Taxable fringe benefits and the fringe benefit tax
2) Depreciation value Actual fringe benefit tax paid
3) Zonal value per BIR Commissioner Actual fringe benefit tax paid
4) FMV per current real property tax Actual fringe benefit tax paid
declaration
Notes: 1) In cases where the basis of fringe benefit tax is the depreciation value, zonal value or FMV per current
real property tax declaration, the value of fringe benefit is not deductible because it is presumed to
have been tacked on or actually claimed as depreciation expense by the employer.
2) If the zonal value per BIR or the FMV per current real property tax declaration of the property is greater
than its cost subject to depreciation, the amortized excess amount shall be allowed as a deduction from
employers gross income as fringe benefit expense.

6. Computation of Monetary Value


Basic rules a. In case of housing privilege and motor vehicle:
1) If there is no transfer of ownership, the monetary value of benefit is 50% of the value
of benefit.
2) If there is transfer of ownership, the monetary value of the benefit is the same as the
value of the benefit.
b. In case of other fringe benefits The monetary value of the benefit is the same as
the value of the benefit.

7. Monetary value of housing privilege


Monetary value of
Value of the benefit the benefit
a. Employer leases residential property for the use Rental paid 50% of the value of
of the employee the benefits
b. Employer owns residential property which was 5% of the FMV of the land 50% of the value of
assigned to an officer for his use as residence and improvements the benefits
c. Employer purchases residential property on the 5% of the acquisition cost 50% of the value of
installment basis and allows the employee to use exclusive of interest the benefits
the same as his residence
d. Employer purchases a residential property and Employers acquisition Entire value of the
transfers the ownership in the name of the cost or FMV, whichever is benefit
employee higher

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e. Employer purchases a residential property and FMV xxx Entire value of the
transfers ownership to his employee for the Less: Payment by benefit
latters residential use at a price less than the employee
employers acquisition cost xxx
Value of benefit
xxx

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g. Exercises
a) During the year 2011, ABC Corporation paid for the monthly rental of a residential house of its branch
manager,
Mr. J. de la Cruz, amounting to P68,0000. Prepare the necessary journal entries.
b) XYZ Corp. owns a condominium unit. During the year 2011, the said corporation furnished and granted
the said property for the residential use of its Assistant Vice President. The fair market value of the
property per BIR amounts to P10,000,000 while its fair market value as shown in its current Real Property
Declaration amounts to P8,000,000. Prepare the necessary journal entries.
c) Using the same data in illustration no. 2) above and assuming that the acquisition cost of the residential
property is P7,000,000 and the remaining useful life is 15 years. Prepare the necessary journal entries.
d) In 2011, Taprolani Corporation purchased a residential house and lot for P2,300,000. The property was
sold to the President of the corporation for P1,980,000. The fair market value per BIR and per Assessor's
Office were P2,500,000 and P2,607,000 respectively.
How much was fringe benefits tax, if any?
e) A house and lot were owned by Bonafe Laundry Corporation. The ownership of the said house and lot was
transferred to its President, Mars Bonafe, in 2011. The following data were made available:
Cost P5,000,000
Fair market value per BIR 4,500,000
Fair market value per Assessor's Office 3,000,000
How much was the fringe benefits tax, if any?

f) SB Corporation bought a residential property in installment for the use of its President. The total amount
paid by the
corporation was P5,500,000 (inclusive of P500,000 interest.)

How much was the fringe benefits tax?

8. Monetary value of vehicles of any kind


Monetary value of the
Value of the benefit benefit
a. Employer owns and maintains a fleet of Acquisition cost of all motor 50% of the value of the
motor vehicles for the use of the business vehicles not normally used benefit
and employees for business divided by 5
years
b. Employer leases and maintains a fleet of Amount of rental payments 50% of the value of the
motor vehicles for the use of the business for motor vehicle not benefit
and the employees normally used for business
purposes
c. Employer purchases the motor vehicle in Acquisition cost Entire value of the
the name of the employee benefit
d. Employer provides the employee with cash Amount of cash received by Entire value of the
for the purchase of a motor vehicle in the the employee benefit
name of the employee
e. Employer shoulders a portion of the amount Amount shouldered by the Entire value of the
of the purchase price of a motor vehicle in employer benefit
the name of the employee
f. Employer purchases the car on installment Acquisition cost exclusive of Entire value of the
in the name of the employee interest divided by 5 years benefit
g. Use of yacht, whether owned and Depreciation of a yacht at an
maintained or leased by employer estimated useful life of 20
years
h. Exercises
1) In 2011, Mata Optical Shop, sole proprietorship, purchased a motor vehicle for the use of its Manager, Dr.
Malachi Mata.
It was registered in Dr. Mata's name. The cost of the vehicle was P400,000. The vehicle was used partly for
the benefit of the company. How much is the fringe benefits tax?
2) Eyes Drop, maker of the best-selling ice cream, owns a fleet of motor vehicles for use of the business and its
employees. One of the motor vehicles costing P450,000 is not used for business purposes, but for the
employees' personal needs. How much is the annual fringe benefits tax?

9. Other fringe benefits


Monetary value of the
Value of the benefit benefit
a. Expense account Amount given or paid by Entire value of the
b. Household personnel, such as maid, driver and employer benefit
others

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c. Interest on loan at less than market rate to the
extent of the difference between the market rate
and actual rate granted (12% benchmark rate)
d. Membership fees, dues and other expenses borne
by the employer for the employee in social and
athletic clubs and similar organizations
e. Expenses for foreign travel
f. Holiday and vacation expenses
g. Educational assistance to the employee or his
dependents
h. Life or health insurance and other non-life
insurance premiums or similar amounts in excess
of what the law allows.

Exercises
1) In 2011, ReSA Corporation paid the P50,000 vacation expenses of its President, Ms. Rita Ube to Dayag
Rezzort.
Question 1- How much is the value of the fringe benefit?
2- How much is the monetary value of the fringe benefit?
3- How much is grossed-up monetary value of the fringe benefit?
4 How much is the fringe benefit tax?
5- What entries will have to be made to record the fringe benefits expense and the fringe benefits
tax expense?
2) Bruce Lee, an executive of the ReSA Bank, was granted a loan by the bank. The amount of the loan was
P2,000,000 at 8% interest per annum. The loan was payable in four (4) months. How much is the monthly
fringe benefit tax?

10. Fringe benefits that are not subject to fringe benefits tax
a. Housing privilege The following housing benefits are not considered as taxable fringe benefits:
1) Housing privilege of military officials of AFP consisting of officials of Philippine
Army, Philippine Navy and Philippine Air Force;
2) Housing unit which is situated inside or adjacent to the premises of a business
or factory (within the maximum of 50 meters from the perimeter of the business
premises);
3) Temporary housing for an employee who stays in a housing unit for 3 months or
less.
b. Vehicle of any kind Use of aircraft and helicopters owned and maintained by the employer (treated as
business expense)
c. Expenses accounts 1) These are not taxable as fringe benefits when receipted in the name of the
employer and do not partake the nature of personal expense attributable to
employee:
1) Expenses incurred by employees but paid by employer;
2) Expenses by employees reimbursed by employer.
2) Not treated as taxable fringe benefits but taxable as compensation income
under Sec. 24 (A) - Representation and transportation allowance given regularly
on a monthly basis.
d. Expenses for foreign 1) Expenses in connection with attending business meeting or convention (except
travel of employee lodging cost in a hotel) at an average of $300 per day are considered reasonable
paid for by employer expenses and shall not be subject to fringe benefit tax (with documentary
evidence).
2) The cost of economy and business class airplane ticket shall not be subject to
fringe benefit tax.
3) 70% of the cost of first class airplane ticket shall not be subject to fringe benefit
tax.
e. Educational Cost of educational assistance is not treated as taxable fringe benefit:
assistance 1) when the study is directly connected with the employers trade, business or
profession and there is a written contract between the employee and employer
that the former is under obligation to remain in the employ of the employer for
a period of time;
2) when given to employees dependents through a competitive scheme under
scholarship program of the company.
f. Life or health The following shall not be treated as taxable fringe benefits:
insurance and other 1) Contributions under SSS law;
non-life insurance 2) Contributions under GSIS law;
premiums or similar 3) Similar contributions under existing laws;
amounts in excess of 4) Premiums for group insurance of employees.
what the law allows

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g. Exercises

1) The books of accounts of Jones Company showed the following:


Fringe benefits expense P750,000
Fringe benefits tax expense 76,470

Question 1- How much is the grossed-up monetary value of the fringe benefits given to managers
and supervisors?
2 - How much is the monetary value of fringe benefits given to managers and supervisors?
3 - How much is the value of the fringe benefits given to rank and file?
4 - How much is the total amount of deductions?

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2) A resident rank-and-file employee has three (3) qualified dependent children at the beginning of the year.
The following date are made available for the year 2011:

Salary, net of P10,000 withholding tax, P2,400 SSS contributions,


P2,000 Philhealth contributions and P1,500 union dues P206,000
13th month pay 18,000
Rice subsidy (P1,500 x 12) 18,000
Uniform and clothing allowance 5,000
Monetized unused vacation leave credits (12 days) 6,000
Actual medical benefits 15,000
Christmas gift 10,000
Laundry allowance (P400 x 12) 4,800
Monetary gift given on account of birth of a child during the year 5,000
Separation pay from a previous employer (terminated due to redundancy) 150,000
Interest income from a long term deposit which was pre-terminated
(remaining maturity is 4 years) 40,000
Dividend from regional operating headquarters of a multinational
corporation in the Philippines 10,000

Compute the following:


a) Tax-exempt de minimis benefits
b) Total exclusions/exemptions (including de minimis benefits)
c) Total final withholding taxes
d) Taxable compensation income

-=END=-

THOT: Your attitude determines your altitude.

jb

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