ACCTAX1 - Income Taxation

Gross Income

CONCEPT OF INCOME

 Definition of Income;
o All wealth which flows into the taxpayer (person or corporation) other than as a mere return of capital.
o Distinction between other terms:
 Capital – wealth, fund or property existing at one distinct point of time;
 Income – service of wealth; flow of wealth during a definite period of time
 Receipts – broader than income; includes return of capital
 Revenue – fund or income derived by the government, whether from tax or other purposes
 Form of income – may need not be in the form of money, may consists of property which is convertible into money.
 Sources of Income
o Labor (e.g. payment for services)
o Use of Capital (e.g. interests or profits from investments)
o Profits derived from the sale or exchange of capital assets.
o May occur as a result of payment, assumption, reduction or cancellation of the taxpayer’s indebtedness (unless it amounts to
gifts) or other profit realized from the completion of a transaction.
 Requisites for Income to be Taxable:
o There must be gain
o Gain must be realized or received
o Gain must not be excluded by law from taxation
 Other notes:
o The fact that the gain is a portion of the value of the property received by taxpayer in the transaction does not negate its
realization.
o Not all economic gain is taxable income
o No right to retain / when there is [clear] duty to return  not taxable
o Condonation/Forgiveness of debt (with no donative intent)  taxable only when there is net asset position
 If from “capital deficiency position” to “net asset position”  taxable only to the extent of 0 to net asset position.
o Damages for breach of contract taxable (in the year received) to the extent that such damages constitute a loss of anticipated
profits, and non-taxable to the extent that the same represents return of capital.
o Award of damages
 Actual damages  return of capital/investment/value of something permanently loss (not taxable)
 Moral and exemplary damages  arising from a breach of contract (taxable); personal physical injuries or sickness
(no taxable)
 Attorney’s fees and costs  taxable only to the extent of actual damages,
o Advance rentals  taxable upon receipt
o Advance payments in the nature of security deposits  earned upon performance or rendition of services (future)
 Gross Income xx
Deductions (xx)
Taxable Income xx
ACCTAX1 - Income Taxation
Gross Income

COMPONENTS OF GROSS INCOME

 Gross Income
o Means all gains, profit, or income except (passive) income subject to final tax and exempt income (exclusions)
o Derived during a taxable year by a taxpayer, from whatever source (whether legal or illegal) in whatever form (money, property,
or services)

 Components of Gross Income (but not limited to)

o (1) Compensation for services
 Essential: Services must be rendered and that payment (in whatever form) must be made for such services
 Forms of Compensation:
 Payment is made in cash  full amount
 Services paid for with something other than money  fair market value
 Services were rendered at stipulated price  stipulated price (assumed to be fair market value)
 Taxable when?  generally taxable in the year of receipt (cash basis); where there is no determination of
compensation until the completion of services (accrual basis)
 Allowances and other facilities or privileges
 All kinds of allowances (whether in cash or in kind), and other fringe benefits  taxable gross income
o Subject to liquidation  company expense  not taxable
o If necessary to the proper performance of duties  not taxable
 Facilities or privileges (including courtesy discounts)  are generally not considered as compensation
subject to withholding tax
o If such are of relatively small and are offered or furnished by employer merely as a means of
promoting the health, goodwill, contentment or efficiency of his employees value (de minimis
benefits)  deductible from the taxable income of the employer as an ordinary and business
expense.
 Other notes:
 For tips, if directly to employee  100% taxable to employee;
if added to customer’s bill 85% to employee, 15% to employer
 Stock  fair market value at the time services were rendered
 Promissory notes or other evidences of indebtedness  no amortization of discount

o (2) Income from business or commercial transactions

 In the case of manufacturing, merchandising, or mining business
 Gross Income = Total Sales – Cost of Goods Sold + Other Income
 Income from farming (3 methods of reporting gross income) (see DL page 26-27)
 Cash basis  no inventory is used to determine profit
 Accrual basis  inventory is used to determine profit
 Crop basis  used when a farmer is engaged in producing crops which take more than a year to gather and
dispose of from time of planting

o (3) Income from sales or dealings in property (whether real or personal)

 Impairment loss is not considered
 Gain or loss = Selling Price – (Cost of Property – Accumulated Depreciation/Amortization)
 Includes income from expropriation (forced sale)

o (4) Income in the form of interests  only such interest as arises from indebtedness, that is, compensation for the use of
money or forbearance for its use.
o
o (5) & (6) Income in the form of rents and royalties
 Rents  payment for the use of real properties
 Taxes paid by lessee to lessor for a business property are additional rent and constitutes income taxable to
the lessor.
ACCTAX1 - Income Taxation
Gross Income

 Permanent improvements made by the lessee on leased property Lessor may choose to report income
between the two methods:
o Outright  report income at the time when such building or improvements are completed at fair
market value
o Amortization  spread over the life of the lease (starting from the completion) the estimated
depreciated value of such buildings or improvements at the termination of the lease and report as
income for each year of the lease.
 Income resulting from premature termination of lease contract
o Book value of the improvement/building when lease was terminated xx
Income already reported by lessor as of the year of lease was terminated (xx)
Income to be reported in the year the lease was terminated xx
 Destruction of improvement before lease term of lease expires
o Lessor is entitled to deduct as a loss for the year when such destruction takes place
o Amount previously reported as income xx
Salvage value (xx)
Loss compensated by insurance (xx)
Loss that can be deducted by lessor xx
 Income of corporation from leased asset
o Where a corporation has leased its property in consideration that the lessee shall pay in lieu of
rental an amount equivalent to a certain rate of dividend on the lessor’s capital stock or the interest
on the lessor’s indebtedness (together with taxes, insurance, or other fixed charges)
 Payment of the lessee (withstanding if paid directly to stockholders or bondholders of the
lessor)  rent expense/income for both the lessee and lessor (corporation)
 While for the stockholders and bondholders  accounted as their incom
 Royalties  payment for the use of personal properties

o (7) Income in the form of dividends

 Cash dividends
 Property dividends (e.g. bonds, securities or stock investments held by corporation)
 taxable to the extent of the fair market value of the property received at the time of distribution
 sale by stockholder of dividend received
o If listed and traded in local stock exchange  subject to percentage tax at ½ of 1% based on the
gross selling price or gross value in money.
o If not  the net capital gain which is not over P100,000 shall be taxed as income at 5% and any
amount in excess of P100,00 at 10%
 Determination of cost to arrive at net capital gain
 If the stocks can be identified  cost shall be the actual purchase price plus
all costs of acquisition
 If stocks cannot be properly identified  cost is computed using FIFO
 If books of accounts are maintained by the seller  Moving average method
 In all cases, stock dividend received must be assigned a corresponding cost by
allocating the original cost of acquisition to the total number of shares of stock
received as stock dividend.
 Stock dividends (see DL page 36-50)
 Paid in stock of corporation issuing it.
 Taxable when it results in changes in the proportionate interest of the stockholders.
 Liquidating dividends
 Not subject to income tax but the recipient is subject to ordinary income tax on the liquidating gain.
 Scrip dividends
 Issued in the form of promissory notes  taxable to the extent of its fair market value.
 Indirect dividends
 Other payments or rights received by the taxpayer which are really dividends.
 Thus, if a corporation to which the stockholder is indebted forgives his debt, the transaction has the effect of
the payment of dividend to the extent of the amount of debt.
ACCTAX1 - Income Taxation
Gross Income

 Sources of dividend payment

 For income tax purposes, every dividend declared by a corporation is presumed to come from the most
recently accumulated profits.
(8) Annuities
o (9) Prized and Winnings
o (10) Pensions
o (11) Partner’s distributive share from the net income of a general professional partnership.

o Income derived from “whatever source”

 Gains arising from expropriation of property which constitute income from dealings in property.
 Gambling gains and income derived from illegal business or from embezzlement
 Compensation for damages if it represents payment for loss of expected profits
 The amount of debt, where the stockholder is indebted to a corporation and the latter forgives such debt, because the
transaction has the effect of the payment as dividend.
 Bad debts previously charged-off but afterwards recovered
 Taxes paid and subsequently refunded
 Contest awards and prized received
ACCTAX1 - Income Taxation
Gross Income

EXCLUSIONS FROM GROSS INCOME

Exclusion – refers to income received or earned but is not taxable

 Receipts which are not income

o (1) Proceeds of life insurance (paid to the beneficiaries upon death of the insured)
 Immaterial whether the proceeds are received in a single sum or in installments
 Contract of insurance is considered more as an indemnity
 If proceeds are held by the insured under an agreement to pay interest  interest payments is included in gross
income
 If paid to a transferee for a valuable consideration  proceeds are not tax-exempt.
 Proceeds of insurance taken by a corporation on the life of an executive to indemnify against loss in case of his debt
 not taxable income
o (2) Amount received by the insured as return of premium paid by him under life insurance, endowment, or annuity contract
(other than amounts paid by reason of the death of the insured and interest payments on such amounts)
 Participating dividend is not an income because it is merely a return of premiums paid
 In case of a transfer for a valuable consideration by assignment or otherwise  only the actual value of such
consideration and the amount of the premiums and the sums subsequently paid by the transferee are exempt from
taxation.
o (3) Property received as gifts & or under a will/testament/legal succession [inheritance- bequests (personalty), and
devises (realty)] as well as alimony and allowance based on separation agreement
 Reason: Such transfers shall be subject to donor’s or estate tax
 However, the income from the property derived from its investment, sale or otherwise  taxable
o (4) Compensation for injuries and sickness (as well as any damages recovered by suit or agreement on account of such)
 Excluded from the gross income of the insured, his estate, and other beneficiaries.
 Extends to amounts received as moral damages for personal injuries which are non-physical in character (e.g.
alienation of affection, defamation, libel or slander, breach of promise to marry)
 Compensation for damages  taxable it represents payment for loss of expected profits.
 Tax-exempt income
o (5) Income exempt from treaty binding upon the government (see DL page 57)
o (6) Retirement benefits, pensions, gratuities, etc.
 Retirement plan and pension
 Requirements to be exempted (for the minimum requirements of Tax Code)
o Reasonable private benefit plan  BIR registered
o Employee must be at least 50 years old
o Employee rendered at least 10 years of service
o Benefits granted shall be availed only once
 *** Conservative position – follow all
Aggressive position – the last 3 requirements is enough
 In case there is a conflict between the Tax code and the retirement plan rules and regulations of the
company, the latter shall prevail if stricter.
 If there is no pension plan or if retirement plan is not BIR-registered
 Requirements to be exempted (follow minimum requirements of the Labor Code)
o Employee must be at least 60 years old
o Employee rendered at least 5 years of service
o ½ month salary for every year of service  minimum pension
 Separation pay (received by employee or his heirs)
 Requirements to be exempted
o Employee is separated from the service of the employer due to death, sickness or other physical
disability or for cause beyond the control of the official or employee
o The employer pays the benefit to the employee or his heirs as a consequence of such separation
 Employees contributions together with the earnings thereof can be returned to the employees if for any reason their
retirement plan is terminated
 Any and all amounts which represent a return of personal contributions  not taxable
 Earnings  taxable to the extent of the entire amount thereof in the year in which paid or distributed.
ACCTAX1 - Income Taxation
Gross Income

 Tax on income shall not apply to an employee’s trust fund which forms part of a pension, stock bonus, or profit sharing
plan of an employer for the benefit of some or all of his employees.
 Provisions of any existing law to the contract.
 Benefits received from or enjoyed under the Social Security System
 Benefits received from the GSIS
 Payment of benefits due or to become due to any person residing in the Philippines under the laws of US
o Other notes:
 Back wages is deferred salary, not a pension benefit
 Commutation of vacation and sick leave credits are part of the pension benefit since it is not availed while working.

o (7) Miscellaneous items

 (7a) Income of:
 foreign governments
 financing institutions owned or controlled or enjoying refinancing from foreign governments
 international or regional financial institutions established by governments,
o received from their investments in the Philippines in loans, stocks, bonds, or other domestic
securities and from interest on deposits in banks in the Philippines.
 (7b) Income derived by the government or any of its political subdivisions
 However, requires all government-owned or controlled-corporations , agencies, or instrumentalities to pay
income taxes (except SSS, GSIS, Phil. Health Insurance Corporation, PCSO, Philippine Amusement and
Gaming Corporation)
 (7c) Prizes and award
 Made primarily in recognition of religious, charitable, scientific, educational, artistic, literary or civic
achievement)
o Requirements to be exempted:
 The recipient was selected without any action on his part to enter the contest or
proceeding.
 The recipient is not required to render substantial future services as condition to
receiving prize or award.
 In sports competition (granted to athletes in local and international sport competitions and tournaments held
in the Philippines or abroad)
o Requirement to be exempted  must be sanctioned by their national sports association which
refers to national sports association duly accredited by the Philippine Olympic Commission.
 (7d) 13th month pay and other benefits (provided that the total benefits shall not exceed P90,000)
 (7e) GSIS, SSS, Medicare, PAG-IBIG and Union Dues of individuals
 (7f) Gains from redemption of shares in mutual funds.
 (7g) Gains from sale of bonds, debentures or other certificate of indebtedness with a maturity of more than
five years
 Should not be included in gross income
o (8) Income and gains not subject to final tax
 Other exclusions from income under special laws (see DL page 63)
ACCTAX1 - Income Taxation
Gross Income

SPECIAL TREATMENT OF FRINGE BENEFIT

Fringe Benefit - any good, service, or other benefit furnished or granted in cash or in kind by the employer to an individual employee

 Rank and file  Withholding Tax (Graduated Income Tax)

 Non-rank and file  Fringe Benefit Tax (FBT)  35%
o Fringe Benefit Tax (FBT)
 FBT = Grossed-up Monetary Value (GMV) x 35%
 GMV = Actual Monetary Value (MV) ÷ 65%
** Divided by 65% because the actual value that the employee received from the fringe benefit is only 65% of
the whole amount, while the 35% is for the payment of tax.
 Applies only to managerial and supervisory employees of the taxpayer granting the benefits (non-rank and file)
 Exception (not taxable)
 If fringe benefit is required by the nature or necessary to the trade, business, or profession of the employer
 If fringe benefit is for the convenience or advantage of the employer.
o Three Views on Fringe Benefit Tax
 (1) Enumeration is exclusive
 (2) Limited to perk benefits
 (3) Not limited to 1 & 2 all benefits
o Guidelines for Valuation of Fringe Benefits (General)
 Granted in money or directly paid for by the employer  Amount granted or paid for
 Property with ownership transferred (to the employee)  Fair market value of property
 Property without transfer of ownership (to the employee)  Depreciation value of property
o Specific Guidelines for Valuation of Fringe Benefits
 (1) Housing
 Residential property leased by employer (or employee) for use of employee as his usual place of residence
o Value of the Benefit = Amount of Rental
o MV = Amount of Rental x 50%
 Residential property owned by the employer and assigned to employee for use as his place of residence
o Value of the Benefit = 5% x Fair market value of the land and improvement or Zonal Value
(whichever is higher)
o MV = [5%(FMV or Zonal Value, whichever is higher)] x 50%
 Residential property purchased by employer on installment basis for use of employee as his usual place of
residence
o Annual Value of the Benefit = 5% x Acquisition cost (exclusive of interest)
o Annual MV = [5% x Acquisition cost (exclusive of interest)] x 50%
 Residential property purchased by employer and ownership transferred to employee
o Value of the Benefit = Acquisition Cost or Zonal Value (whichever is higher)
o MV = entire value of the benefit
 Residential property transferred to employee at less than employer’s acquisition cost
o Value of the Benefit = [Fair Market Value or Zonal Value (whichever is higher)] – Cost to Employee]
o MV = entire value of the benefit
 Non-Taxable Housing Fringe Benefit
o Housing privilege of military officials.
o Housing unit adjacent (within the maximum of 50m from the perimeter) to business establishment
or factory.
o Temporary housing for an employee (3 months or less)
*** Assumption of 50%  50% for business, 50% for personal use (derived from Australia)
Zonal value  as determined by the Commissioner pursuant to Sec. 6(E) of the Tax Code
Fair market value  as determined in the current real property tax declaration of a certain property
 (2) Expense Account
 Personal expenses incurred by employee but which are paid by his employer.
o Except: When the expenditures are duly receipted for and in the name of employer
 Personal expenses paid for by employee but reimbursed by his employer.
o Except: When the expenditures are duly receipted for and in the name of employer
ACCTAX1 - Income Taxation
Gross Income

 Personal expenses of employee paid for or reimbursed by employer (whether or not the same are duly
receipted for in the name of the employer).
 Representation and transportation allowances which are part of employer’s compensation income (which are
fixed and regularly received by employees)  not treated as taxable fringe benefit, but as a taxable
compensation income.

 (3) Motor vehicle of any kind

 Motor vehicle purchased by employer in the name of employee
o Value of the benefit = Acquisition cost
o MV = entire value of the benefit (regardless of whether is it used for personal or business purpose)
 Cash (received by employee) for the purchase provided by employer (ownership in the name of employee)
o Value of the benefit = Amount of cash received
o MV = entire value of the benefit (regardless of whether is it used for personal or business purpose)
 Except: when it is subjected to withholding tax as a compensation income.
 Purchase on installment basis by employer in the name of employee
o Value of the benefit = (Acquisition cost exclusive of interest) ÷ 5
o MV = entire value of the benefit (regardless of whether is it used for personal or business purpose)
 Portion of purchase rice shouldered by employer (ownership in the name of employee)
o Value of the benefit = Amount shouldered by the employer
o MV = entire value of the benefit (regardless of whether is it used for personal or business purpose)
 Fleet of motor vehicles owned and maintained by employer for use of the business and employees
o Value of the benefit = (Acquisition cost of all vehicles not normally used for sales purposes and
other non-personal use) ÷ 5
o MV = (Acquisition cost ÷ 5) x 50%
 Fringe benefit tax on interest-free loan to the employee computed at the benchmark
interest rate of 12% per annum
 Fleet of motor vehicles leased by employer for use of the business and employees
o Value of the benefit = (Amount of rental payments for all vehicles not normally used for sales
purposes and other non-personal use)
o MV = Rental payments x 50%
 Use of yacht owned or leased by employer (whether owned and maintained or leased by the employer)
o Value of the benefit = Depreciation of a yacht at an estimated useful life of 20 years
= Cost of the yacht ÷ 5
o MV = Entire value of the benefit
 The use of aircraft (including helicopters) owned and maintained by the employer  treated as business use
 non-taxable fringe benefit

 (4) Expenses of emplpyees which are borne by the employer for household personnel (e.g salaries of maid, driver
and others) and household expenses (e.g. payment for homeowners assosciation dues, garbage dues etc
 Taxable fringe benefits

 (5) Interests on loan at less than the market rate to the extent of the difference between the market rate and the
actual rate granted.
 Taxable Fringe Benefit (MV) = 12% - Interest charge (actual rate granted)
o Interest = Principal x Rate x Time

 (6) Membership fees, dues, and other expenses borne by the employer for the employee in social and athletic
clubs or other similar organizations.  Taxable fringe benefits

 (7) Expenses for foreign (business) travel

 Attendance at business meetings or conventions (supported by documents proving actual occurrences)
o Inland travel expenses (food, beverage, local transportation except lodging)
 US$300 or less per day  non-taxable fringe benefit
 Excess of US$300  taxable fringe benefit
ACCTAX1 - Income Taxation
Gross Income

o Lodging cost (no limit but reasonable) non-taxable fringe benefit

 Cost of Airplane tickets
o Economy and business class  non-taxable fringe benefit
o First class  30% taxable fringe benefit; 70% non-taxable fringe benefit

 (8) Holiday and vacation expenses  Taxable fringe benefits

 (9) Educational assistance to the employee or his dependents

 For employee
o If directly connected with employer’s trade business or profession , and there is a written contract
between them that the employee will remain in the employer after graduation  non-taxable fringe
benefit
o Otherwise  taxable fringe benefit
 For dependents of employee
o If provided with no requirement  taxable fringe benefit
o If provided through a competitive scheme under the scholarship program of the company  not a
taxable fringe benefit

 (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the
law allows.
 Cost of premiums borne by the employer for the group insurance of his employees’  not taxable fringe
benefit.

 Taxation of fringe benefits received by certain individuals

o Type of individual Taxpayers
 Citizens
 Resident Citizen  Graduated
 Non-Resident Citizen  Graduated
 Aliens
 Resident Alien  Graduated
 Non-Resident Alien  Graduated
o Non-Resident Alien engage in trade or business in the Philippines  Graduated
o Non-Resident Alien not engage in trade or business in the Philippines  25% (FBT)
 Alien employees & Filipino employees holding managerial & technical positions employed by:
o regional or area headquarters and regional operating headquarters of a multinational company
o offshore banking unit of a foreign bank established in the Philippines
o foreign service contractor or subcontractor engaged in petroleum operations in the Philippines
 If Employer (Train Law) is:
 Registered with SEC on or before January 1 , 2018  15% (FBT) (there is an issue
here but still follow this)
 Registered with SEC after January 1, 2018  Graduated
 Fringe benefits received by employees in special economic zones are also covered by the Regulations (35%, 25%, or
15%)

 Fringe benefit not subject to fringe benefit tax (not be interpreted to mean exemption from any other income tax unless the same is
expressly exempted in the code)
o Fringe benefits which are not authorized and exempted from income tax under Tax Code or under any special law
o Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans
o Benefits given to the rank and file, whether granted under a collective bargaining agreement or not
o If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the
employer
o If the grant of the fringe benefit is for the convenience of the employer
o De minimis benefits
ACCTAX1 - Income Taxation
Gross Income

 De minimis benefits are benefits of relatively small values provided by the employers to the employee on top of the
basic compensation intended for the general welfare of the employees. Being of relatively small values, the same is not
being considered as a taxable compensation and as such, not subject to income tax and withholding tax on
compensation. The amount of de minimis provided is a deductible salaries expense, while for the employee, it would
constitute as an additional salary that is not deducted withholding tax on compensation.
 To further appreciate the tax exemptions, below is the updated list of de minimis benefits in the Philippines both to
managerial and rand-and-file employees with some items updated in amounts by Revenue Regulations No. 11 – 2018
(RR 11-2018), the implementing rule of Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963
effective January 1, 2018 for guidance and easy reference.
1. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year.
2. Monetized value of vacation and sick leave credits paid to government official and employees .
3. Medical cash allowance to dependents of employees, not exceeding P1,500 per employee per semester or
P250 per month (as amended by RR 11-2018).
4. Rice subsidy of P2,000 or one (1) sack of rice 50 kilogram rice per month amounting to not more than
P2,000 (as amended by RR 11-2018).
5. Uniform and clothing allowance not exceeding P6,000 per annum (as amended by RR 11-2018).
6. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual
medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per
annum.
7. Laundry allowance not exceeding P300 per month.
8. Employees achievement awards, e.g. for length of service or safety achievement, which must be in the form
of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding
P10,000 received by the employee under an established written plan which does not discriminate in favor of
highly paid employees;
9. Gifts made during Christmas and major anniversary celebrations not exceeding P5,000 per employee per
annum,
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%)
of the basic minimum wage on a per region basis.
11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity
incentive schemes provided that the total monetary value received from both CBA and productivity incentive
schemes combined do not exceed P10,000 per employee per taxable year.
 As further provided under Revenue Regulations No. 15-2011 that has become effective starting the year 2011, all other
benefits given by employers which are not included in the above enumeration shall not be considered “de minimis
benefits, and hence, shall be subject to income tax as well as withholding tax on compensation income. Please note
also of the limitations as to amount because it is material to qualify for exemptions. If you provide more than the
limitations, the amount in excess of the limit would be taxable and subject to withholding tax on compensation, if the
recipient employee is a rank-and-file, or fringe benefits tax (FBT) of 35% if a supervisory or managerial employee. This
is however subject to the rule on the P90,000 amount for 13th month pay and other benefits where excess de
minimis benefits may not be taxable if the total of such excess plus the 13th month pay and other benefits is
within the P90,000 limitation.
 Other benefits
o not paid on a regular basis (e.g. 14th month pay)
o does not include allowances paid on a regular basis
 Tax accounting for fringe benefit and tax due thereon
o General rule: The amount of taxable fringe benefit and FBT  shall constitute allowable deductions from gross income of the
employer.
o However, if the basis for computation of FBT is the depreciation value, the zonal value, or the fair market value  only the actual
fringe benefit tax paid shall constitute allowable deductions from gross income of the employer.
o The value of the fringe benefit shall not be deductible and shall be presumed to have been tacked on or actually claimed as
depreciation expenses by the employer.
o If the aforesaid zonal value or fair market value of the said property is greater than its cost subject to depreciation, the excess
amount shall be allowed as a deduction from the employer’s gross income as fringe benefit expense.