Chapter 3 Fringe Benefit Tax d source by the goverment. Acc compensation which was given in the forms of perks and other nem benefits were Virtually untaxed, giving rise to inequity in the distrd.cx - the tax burden. The Provision of salaries in the form of untaxeé Dee became a Popular means of tax avoidance. Hence, the Fringe 5 T. ax (FBT) was proposed to enhance the progressivity of the incore > and to broaden the tax base. Definition of a Fringe Benefit and Fringe Benefit Tax A) of RRS The term "compensation" under Section 2.78.1 ( yee tf means all remuneration for services performed by an omporec) employer under an employer-employee relationship, On fr - excluded by the Code. The name by which the oe ei ments is designated is immaterial. Thus, salaries, wages, © presenta” honoraria, allowances, commissions (e.g. transportation. Fe direct” S entertainment and the like), fees including director's fees, ! ation: aa” at the same time, an employee of the employericorrort to the mt bonuses and fringe benefits except those which are subjec ind retire"? benefits tax under Sec. 33 of the Code; taxable pensions 4 san impel Pay; and other income of a similar nature constitute compe income . vice or 28 On the other hand, a “fringe benefit” is any goods, $e benefits furnished or granted oe by an employer in cash or in kind, dt to basic salaries. In short, it is a form of pay which may be in the pay property, services, cash or cash equivalent to supplement a stal Poet the performance of services. Under the tax code, fringe benefits nod 102 to fringe benefit tax cover only those fringe benefits given or furnis! 152‘ Fringe Baus Tae isory emp Ny ulations do not cover those | of SUPE! rt of taxable compensation income because such fa wit ec to withholding tax on compensation in accordance wae 7.98 as amende' The tax treatment of fringe benefits given ners js shown in Table 3-1 below: loyee. The reg | Part of Basic Salaries or Subject to Basic Tax and | Subject ye: "Taxable Compensation CWT on compensation | to FBT parkbfie | Yes Yes No. + Sperry! | No” No Yes zlaries presented in the Income Tax Retum of ‘Taube compensation income in the table refers to s a rial taxpayer a ve . supervisory and managerial employees are taxable, nonetheless, it is subject to % x, 2 final withholding tax, not the graduated tax rate for compensation income. The Labor Code distinguishes a rank-and-file employee from a on smployee: It provides that a managerial employee is one who ranagement ‘ibe of prerogatives to lay down and execute discharge, est no and/or to hire, transfer, suspend, lay-off, recall Such mmanageria or discipline employees, or to effectively recommend actions. All employees not falling within this definition ae consi sidered rank-and-file employees. Nature of Fringe Benefit Tax ‘reignite Benefit Tax (FBT) is @ monet burden imposed by the 0 employer, any good, service, or other benefit furnished or granted by vidual orplo eee Kind, in addition to basic salaries. to an ployee, other than a rank and file employee: obyar® FBT is a final tax imposed on the employee withheld by the Mectivity, Computed at 35% (beginning January 1, 2018 or upon the te tring of TRAIN Law) on the grossed-UP monetary value (GUMV) of @ benefit granted by the employer fo an employee who holds @ rial or supervisory position. Being 4 final tax, the FBT is collected held at source by the employer. ne vaning, at the firm's level rather Veritate tax administration. For one. at th Val @ taxpayer's level to algelion Of bonelte je easier at the firm's level and the problem of even benefits among dividuals is avoided ‘The Bureau of intemal ue (BIR) has also to contend with fewer corporate tax returns. OF with 163é MH Beech x FBT is effective regardless of whether the employer we dividual, professional! partnership or a corporation (regardiess 5 whether the corporation is taxable or not), the government Os nstumentalites. FBT shall be withheld and paid by the employer thus, the employer is the one liable to pay the FBT) on or before the vs of the month following the calendar quarter. items of Fringe Benefits subject to Tax Unless exempt, the following items of fringe benefits received by a Supervisory or managerial employee shall be subject to fringe benefit tax 1) Housing 2) Expense account 3) Vehicle of any kind 4) Household personnel, such as maid, driver and others i) ) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted 8) Membership fees, dues and other expenses bome by the iar employer for the employee in social and athletic clubs and sim organizations 7) Expenses for foreign travel 8) Holiday and vacation expenses 9 Educational assistance to the employee or his dependents or Hite or health insurance and other non-life insurance premiums lar amoun\ f what the law allows. | MRUSTRATION Covered Empayeag Ana was hi tor Scrat oy at ran | his) unit whieh Ana could use her ee ences te mat | vae oe condo by an !@mporary residence. Is the fait | Denali tax mposoy 2, Ana a “tinge benefit’ that is subject tO ®* Section 33 of the National Internal Revenue Code?” ts in excess Answer: No, Supervisory em, . Only fring? benefits tan 22! OF supervisor’ eevee 'Sory employees are subjeeFringe Benefit Tae Benefits . . ee ee benefits shall not be subject to basic tax or fringe plow ge benefits which are authorized and exempted from income 4 taxunder any special law such as: + Contributions required under SSS law + Contributions required under GSIS law = Similar contributions under an existing law . Premiums for group insurance of employees 2) ifthe grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer. ILLUSTRATION 2: Pogaeas Allowance (covers meals and trip-related expenses)” are granted to managerial and supervisory employees of Philippine Gaming Management Caperton (PGMC) who will be away from the office site for at least 8 hours to | Poe franchise holders for repairs and/or inspection of equipment leased by te ftom Philippine Charity Sweepstakes Office (PCSO). Should the | #orementioned allowance be subjected to tax? | % Answer: No The allowance is required by the nature of or necessary to the trade or | business of PGMC, hence, not subject to the fringe benefits tax Prescribed in Section 33(A) of the Tax Code. Consequently, it is not Subject to Income Tax and to withholding tax. By the same token, the aforestated allowance which may be incurred or expected to be incurred- by the managerial and supervisory employees in the performance of their | duties cannot be considered as part of compensation subject to withholding tax even if the employees fail to accountiliquidate the same considering that said expenses are pre-compuled On a caly Das and are paid to employees while on an assignment or duty (BIR Ruling __No. 013-2002 dated April §, 2002).____—-—— ———— 4 De minimis benefits (refer to page 160) 165Cringe Beagle c 4) If the grant of benefits is for the convenience or aq * employer. [ILLUSTRATION3; CASE A. Use the same data in Illustration # 1. Question 1: \s the fair market value of the use of the condo unit by Ana a "compensafce income” that is subject to basic tax under Section 24A of the Tax Code ang consequently to creditable withholding tax on compensation income? “Answer: No. The condo unit is provided for the convenience of the employer hence does not constitute a taxable fringe benefit. Being hs personal secretary, it is necessary for Ana to be accessible to Eat anytime. Vantage of be Question 2: . Assuming Ana is a managerial or supervisory employee, is the fair marke value of the use of the condo by Ana a “fringe benefit” subject to FBT? “+ Answer: No. As explained in question #1, if the grant of benefits is ss convenience or advantage of the employer, irrespective of | employee's rank, the benefit shall not be subject to fringe beneft | and basic tax on compensation income. CASE B: Authur Henderson and Marie Henderson filed their annual income tax wit | BR. Asthur is president of American Intemational Underwriters for | Patippines, Inc., which is a domestic corporation engaged in the re? | Seneral non-life insurance, and represents a group of American ii \fr engaged in the business of general non-life insurance. The BIR demanded “ Payment for alleged deficiency taxes. In their compu! the BIR included as Part of taxable income: * Arthurs allowances for rental, residential expenses, subsistence, we lectricity and telephone expenses by ns \* Entrance fee to the larikina Gun and C Club which was paid Mi ‘ountry i | employer for his account, and " |" Traveling atowance of his wife The aoerers justifications are as follows: te lomances 20" ental and utlties, Arthur did not receive money ® | employer corporation act? 2bartment ts fumished and paid for by NS {the mother company of American International), "2 156 —— |Fringe Benefit ie the employer corporation's purposes. The spouses had no choice but to live in the expensive apartment, since the company used it to entertain guests, to accommodate officials, and to entertain customers. The entrance fee should not be considered income since it is an expense of his employer, and membership therein is merely incidental to his duties of increasing and sustaining the business of his employer. | His wife merely accompanied him to New York on a business trip as his secretary, and at the employer-corporation’s request, for the wife to look at details of the plans of a building that his employer intended to construct. Such must not be considered taxable income. Ruling: The Supreme Court ruled that the claims are not part of taxable income because no part of the allowances in question redounded to their personal benefit, nor were such amounts retained by them. The bills were paid directly by the employer-corporation to the creditors. The rental expenses and subsistence allowances are to be considered not subject to income tax. The taxpayer's high executive Position and social standing, demanded and compelled the couple to live in a more spacious and expensive quarters. Such “subsistence allowance" was a separate account from the account for salaries and wages of employees. The company did not charge rentals as deductible from the salaries of the employees. These expenses are company expenses, not income by employees which are subject to tax (Collector vs Henderson). C mputation of Fringe Benefit Tax _ In general, fringe benefit tax rate is 35% (beginning January 1, 2018 oF upon the effectivity of TRAIN Law). However, FBT rato. for ‘nresident alien not-engaged in trade or business is 25%. The “Omputation of the fringe benefits tax is done by: : ) Evaluating the value of the benefit granted or determining the Monetary value. ’ 2) Determining the proportion or percentage (gross monetary factor) of the benefit which is subject to the FBT. 3) Determining the grossed-up monetary value of the fringe benefit by dividing the monetary value of the fringe benefit by the gross Monetary value factor; and 4) Multiplying the grossed-up monetary value factor by the FBT rate. 157T Rates efit tax vary depending on how FB’ The rates of fringe ben is that the FBT tends to recor The reason | r ¢ employees ate tare ployee so the rate follows the income taxation ied hown in table 3-2 below: such employees as SI Pea hea bree mae BENEFIT TAX B: NRA-NETB —SAESI/SFEs# Classification of Taxpayers CILRANRAET NRANETE SAESSFES" Monetary value Divide by gross monetary value factor Grossed-up monetary value ____ 65%" 75% 85% NOTE: (4 Phorto 2018, the FBT rate was 32%, (4 “Upon effectivity of the TRAIN Law, SAEs and SFEs are now subject to graduated tax rate on ‘her compensation income, Consequently, the FBT rate applicable to them shall be 35% Seoining January 1, 2018. Therefore, the 15% tax rate illustrated in the table shall only app {the taxable fing benefit was given prior 2018 taxable year. . ILLUSTRATION 4; Petemine the grossed-y 9 IP Monetary valu P fhe toning apical) for 2078 taxable your Me ge benef tx 0 | P39 grocery allowar . ; HC Crete nce for the personal consumption of an executed) . P40.800 ey ; tecebled forint oa BY aN executive of ABC Corporation di | Led orn the none inthe al expense, “ame of ABC Corporation and is not in the nature 0 800 expenses j | Connecion wih atn®4 OY an executive of ABC Corporation i no grocery al ra uses Meeting or convention. ‘Orporation’ F the ic e of newer tion's rank and file employecs | Consumption of on | GUMV=p3946 5% R60 0p, we Pa an ya. FET=roouesy 35%=021,000 X8cutve, henge 89 n the nz Ordinan 9 M2NC8, i ig 'alure of personal ns 4 inary Duane gpa tinge beret? sane expense of the compan es NY = Pao agg, FBT ABC Comporaton "© meinvee. = P40,800 san. PO; 8 i FBT = po 100 sang i monet, nanation with #2 Subject tg basic tax ry value 158Friage Benefit Tae L of fringe benefits was adopted in order to align the benefits wilh salaries and wages, Compensation incomes presented IN the income tax returns of individual taxpayers are at amounts, meaning, the Income tax payable on it are included in the 9 fringe benefits are therefore grossed-up so that the income Jered as part of the total benefit The grossed-up monetary fit represents the entire income earned by the mount of money received or the net ") and the The grossing up tax trealment of tinge qrona computation. TN tax in also ConttC value of the fringe bene! employes, Thi includes the net ar monetary value of any property received (known as “monetary value amount of FBT received by the employee from the employer. Valuation of fringe benefits i granted in money, the value is the amount granted. It granted in property and ownership is transferred to the employee, the value is the fair market value of the property. If granted in property but ownership Is not transferred to the employee, the value is equal to the depreciation value of the property Deductible expense of the employer If the fringe benefit is given to a rank and file employee, or toa supervisory or managerial employee, but is not subject to fringe benefit tax, the deduction for the employer is the monetary value of the fringe benefit. On the other hand, If the fringe benefit is given to a supervisory or managerial employee and Is subject to fringe benefit tax, the deduction is the grossed-up monetary value of the fringe benefit which compose of the fringe benefit expense and the fringe benefit tax. ILLUSTRATION 5: ‘Assume an employer furnished cash fringe benefit subject to fringe benefit tax amounting to P975,000 Quostion 1, What should bo the appropriate journal entry In the books of the employer? Answer: Fringe benefit expense P975,000 (monotary value) 525,000 Fringe benefit tax expanse (P975,000/06%) x 35% Gash (GUMY) *** (P975,000/65%) 1,500,000 “The P1,500,000 grossed-up monetary value is composed of 076,000 paid to the employee and P525,000 paidiremitted to the BIR. 160(ige Bache, Question 2: i fit is not subject to frin that the cash fringe bene aaitte the appropriate journal entry of the employer? “Answer: 5 Fringe benefit expense 975,000 (Compensation expense) Cash 9e benefit tay Me POTS DE MINIMIS BENEFITS it jedical services, Facilities and Privileges such as eae known as ‘Te oF so called “courtesy” discounts on purchases, loyer to his employees Minimis Benefits,” furnished or offered by an oe iS income tax are not considered as compensation Subject or privileges ae d consequently to withholding tax, if such facili ne employe meet relatively small value and are offered or furnished ert or efficiency as means of Promoting the health, goodwill, pa ereayonae as ai his employees [Section 2.78.1 (A)(3) of RR 2-98 RR ; by RR 5-2011, RR 8-2012 and RR 1-2015). sot ‘ t The following shall be considered de minimis benefits re of bot" to income tax as well as withholding tax on compensation it Managerial and Tank and file employees: a 1. Monetized unused vacation leave Credits of private employees exceeding “10 days” duri 7 : , Any amount exceeding the ee Selling discussed in page 162 and 163 shail be subject RR i ©n compensation income mort ofc ¥alve facation and sick leave Credits paid te gover a zeq ‘2 ©Mployees in the ment mi Private sector, payme ona lalvorncation “and slok? inns a Says shall tg Miclalevempion rdless of the number exemp; ror nm compensation income.Linge Penoft en Medical cash allowance fo dependents of employees not exceeding 2750 per semester or P125 a month. 4. Rice subsidy of not more than P1,500 pes month or 1 sack (50kg.) rice per month. - 48 §. Uniforms given to employees by the employer not exceeding P5,000 per annum (as amended by RR 8-2012). 6 Actual medical assistance given not exceeding P-10,000 per annum such as medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance and routine consultations. 7. Laundry allowance not exceeding P300 per month, Employees achievement awards (e.g. for length of service or safety achievement, which must be in the form of a tangible personal Property other than cash or gift certificate with and annual monetary value not &xceeding R10,000 under an established written plan which does not discriminate in favor of highly paid employees). Sits given during Christmas and major anniversary celebrations not ®*0eeding P5,000 per employee per annum (RR 8-2012). "9 Daily meat allowance for overtime work and night/graveyard shift not *eeding 25% of the basic minimum wage on a per region basis Provided Such benefit is given on account of overtime work or if given to “nployees on nightigraveyard shift. ‘4 The grant of Meal allowance, it not for overtime work or nighVgraveyard shit, be subject to income tax (RR 05-2011). However, meal alowance and {7% Tumshed by the employer lo the employees aro exempl tom tan f Lurie for the ‘advantage or convenience of the employe? Meal allowance, in * batcutar case, should be furnished within the premises of the employer 161nr Pep Bafa i taxable “de mini ary 5, 2015 includes as non- e minins me see ‘aloe benefits received by an employee by virtue of pe bargaining agreement (CBA); and, Productivity ‘ncentiy eee Provided that the total annual monetary value Teceived fron fn on EF fae sham condlees, oa err ateoea 710,000.00 per employee per taxable year. 3 bene ive. Meaning, all cher ing lists of de minimis benefits are all inclusive. d nae by employers which are not included in the enumeration above Shall not be considered de minimis benefits (RR 8-2012; RR 1-2015). Excess of de minimis benefits over their respective ceilings The amount of de minimis benefits conforming to the ceiling i minimis benefits shall not be Considered in determining the P90.0 celing of “other benefits” excluded from the gross income under et 32B(7)(e) of the Code ag amended by RA10963-TRAIN Law (previo a 82,000 under RA10653; RR 3-2015). On the other hand, the excess the de minimis benef is over their respective ceilings prescribed under this sation shall be considered On the exce: SS Over the R99 09 crumeraus garetts given by employers which are not included nite benefis bu snowy MMS benefits sha ot NS considered de mins efore su ject in a ler the Classification of “other benefits” on et wou 2.0 tn og 22009 cong, ‘The apcason® the benefits ‘orm part of an individuat' income @! Subject lual's gross ‘anes, Refer aie wee eS @Pplicable creditable withholding de minimis benefits. "22! 3-3 for the “pplicable tax on fringe benefits a” 0 ceiling, 90,000 Coiling for 4 13” month pa iH amended py 2287) )or ye eY bony @ Ta feceived py of t0883 Provides that 79008 Sxempt trom income, al and “Other Benefits” ; 'n relation to PD’ 851 si ceenth pay and other bene bovded hn and oranges Wipllbic and private eolites a? ret tit cy yon cee Nee a pA Ln Site * Fraditabie with (COM ang Would be subject 0 Mhholding taxe: ° su 1S. 162ft i fi riefe Beasft Lie s that the amount of R90,000 exclusion (as “only” 43" id other benefits” 4) shall “only” apply to 13" month pay: an am state under the provisions of 2.78.1(B)(11 ‘a and “b") of RR 2-98 tion received by an amended) and shall not apply to other compensa’ 2 Se an employer-employee relationship such as basic salary and other allowances. RR 3-2015 provide: “Other Benefits” under these regulations include: * Christmas bonus * Productivity incentive bonus = Loyalty awards * Gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices Further, RR 3-2015 emphasized that this exclusion from gross income is not applicable to: (1) Self-employed individuals; and (2) Income generated from business Fixed or Variable allowances In general, fixed or variable allowances which are received by a Public officer or employee or officer or employee of a private entity, in addition to the regular compensation, fixed for his position or office, is compensation subject to income tax and consequently, creditable withholding tax on compensation income [Section 2.78.1 (A) of RR 2-98 as amended by RR 10-2008]. Examples of fixed or variable allowances are transportation allowance, representation allowance, communication allowance, living away from home allowance (LAFHA), and the like. Reasonable amounts of reimbursements/advances for travelling and entertainment expenses which are pre-computed on a daily basis and are Paid to an employee while he is on an assignment or duty need not be ‘Subject to the requirement of substantiation and to withholding. 163Fringe Benefy on % bject to liquidation nses/ Allowances Su! Business related expe! i i \dvances or reimburseme id specifically, either as a S a a eo ator and other bona fide ordinary and nece oe a ed or reasonably expected to be incurred by the employes rarigenasistad of his duties are not compensation subject withholding, ifthe following conditions are:satisfied: + Itis for ordinary and necessary travelling and representation » entertainment expenses paid or incurred by the employee in the Pursuit of the trade, business or profession; and The employee is fequired to account expenses in accordance Substantiation for each cat liquidate for the foregoing with the specific requirements ¢ or t to Sec. # of the tax code, itegory of expenses pursuan! Representation and ‘ Representa Transportation Allowance Y ofthe oe fansPortation Allowances (RATA) grant eres of the go said Appropriations Act to certain officials =ena MRoured in the vt 2"@ Considered reimbursements for t © performance y i than 3 the Compensation, One's duties rather Embloyer constitutes OWEN S taxable nn '® ®XCess of RATA, if not retumed® Under compensation income af the employe SO tneet Tings igg feimbur in Ued by y the BIR (ie, BIR Ruling No. OX Ns oF 36, UE Shall likews (ie, Ruling rvicyee uO advange for gate @Pply to reasonable amounts # "e-com ling and representation of privat te rh ASsign, ent on ally basis and which are pai amoung 1 Matgn TSAtion Subject Guty, Such allowance should : 8nd Mane, Wthholding tax. On theo \ i On all hh fix "8Ceive, ‘Owances which are Commun er Subject to hae employees as part of emp carn ancy fax fr mene allowance) granted a co ‘enefit’ tax and ta Mis tg OD Of the eUICAtion allowencs is deat Venlenc 288 and deemed neces ce ang benefit. CySubject to Fringe Benefit Tax Invexcess” of P90,000 limit when odded with “other benefits? EXCESS Is subject to basic & creditable withholding tax In“excess” of 290,000 limit when added with “other benefits? Fringe Benefit (Rank and File) Exempt from tox & creditable withholding toxSAL ates HOUSING Employer leases a residential property for | Monetary Value: Rental paid x 50%, ee ne ON property for the | Monetary Value: The higher between FMV ints fe declaration or Zonal value x 5% y S0ye the employee property ult, are ey residential property in | Monetary Value: Acquisition cost, exclusive dines installment for use of the employee x5% x 50% * Employer purchases residential property and | Monetary Value of the Benefit. The higher betwee eer to employee me the acquisition cost or Zonal value as deteminet the CIR. Employer purchases residential Property and | Monetary Value: The higher between the FAVini Nansfers ownership to employee on a lesser | real property declaration or Zonal as determined > stone CIR less cost to the employee ligher x 5% Whichever is higher x 5% x 50% interest x 5% Cost exclusive of interest x 5% x 50% ™ Annual Benefl= FMV or Zonal, whichever is fi Value of the benefit = FMV or Zonal, ea Benefi= Acquisition cos exclusive of lonetary value of the benefit = Acquisition TABLE 35; Ri ET eu us ‘Owns and maintains a fleet of Motor vehi meen i so le Use of the business OAR Rela oh ST -aleies Monetary Value: Acquisition cost of vehicles normally used for business divided by 5 yeas" — wera peahaitaing a fleet of motor Monetary Value: I sot Use of 'Y Value: Amount of rental payment the business and the hormally used for business purposes x 50% - Monsiry Vale Requsion cost Monetary Value: Cash received Sed by ge Acquistion cost excuse fears Monelan y=— - a lary Value: Amount Shouldered by empr 166Fringe Benefit Tae TRATION 6 AL RULES IN COMPUTING MONETARY VALUE) The following illustrations are based on the illustrations under Revenue Regulations 3-98 (as amended under RA1 0963-TRAIN Law). CASE A: in 2018, a domestic corporation paid for the monthly rental of a residential house ofits branch manager, Mr. Juan Dela Cruz, amounting to 1 56,000. (Assume there is no transfer of ownership) Question 1; What is the monetary value of the benefit? Question 2; Whats the grossed-up monetary value of the benefit? Question 3: How much is the fringe benefit tax? Question 4: Total amount deductible by the employer from its gross income? Question 5: What is the appropriate journal entry to record the provision of the above benefit? ‘Answers: Question 1: P78,000 Question 2: P120,000 Question 3: 242,000 Question 4: P198,000 Solution: Rental payment P156,000 x s 50% Monetary value P78,000 Divide by 5% GUMV 120,000 x Fringe benefit tax rate 35% Monthly Fringe benefit tax expense 42,000 ‘Add: Rentals paid __156,000_ Total Deductible Expense —¥198,000_ Question 5: To record the transaction, the following journal entries ‘the employer for the month: —__ Fringe benefit expense 156,000 Fringe benefit tax expense 42,000 Cash (Rental payment) 156,000 F.B. Tax Payable _ _ 42,000 167Fringe Ben, 4 NOTE: . the monetary value of the benefit is 50% only of i ee en the total deductible amount ofthe empbyei total of the actual rental payment and the applicable fringe bene | tax. The entire amount (P198,000) is considered ag fog ‘compensation expense incurred by the employer. Therefore te special rules in computing the monetary value of the benefit shou | be taken into consideration only for purposes of computing te | fringe benefit tax. CASE B: _ fic ‘A domestic corporation owns 2 condominium unit In 2018, the said corporaton fumished and granted the said property for the residential use of its Assisart Vice President. The fair market value of the property per BIR asses Props bee OH000, while is fir market value as shown in ls cuent ed Property Declaration amounts to P8,000,000. Determine the following: 1: Monthly Monetary value of the benefit? 2 Monthly Grossed-up monetary value of the benefit? Monthly Fringe benefit expense? 3 Monthly Fringe benefit tax expense? ie ‘amount deductible by the employer for the month? piles ent to record the provision ofthe above benefit? 1: P20 833 | 2:P32.054 ° | 3:R9 | : P11 248 Selign, P28 | Fuy x BR assessment (higher Pro.oonen Val Jue othe benefit — 500000 | hm a | Dida MOM value P250,000- ae . 42 months | Dt oy netay Value ae CL na or Fa 96 bene tar ad lve (annual) 32,051 Ge bone we 35% ey he yur pH4,218 Ployer for the year prize | a, aeil Tee (NOTE: « — Fringe benefit expense is PO The ‘Fringe benefit tax expense” in this case is already the amount deductible from the employer's gross Income as fringe benefit expense. The employer, shall not further claim other deduction such as the monetary value of the benefit because the cost for the use of the residential property has been or will be recovered as deduction from its gross income under “Depreciation expense” (RR 3-98). = To record the transaction, the following journal entries should be made: Fringe benefit tax-expense P11,218 Fringe benefit tax payable 11,218 | CASE C: | Using the same data in Case B and assuming that the acquisition cost of the property is P5,000,000 with a remaining useful life of ten (10) years. How much is the monthly fringe benefit expense? Answers: P41,667 computed as follows: FMV per BIR assessment (Higher) 10,000,000 Less: cost (5,000,000) Excess of FMV over cost 5,000,000 Divide by its remaining life 10 years Fringe benefit expense (for the year) 500,000 Divide by 12 months Monthly fringe benefit expense P41,667 NOTE: Fringe benefit expense for the month is P41,667 If the zonal value or fair market value of the said property is greater the excess amount shall be used from the employer's gross income as fringe benefit expense and shall be amortized throughout the remaining useful life (RR 3-98). The journal entry for the month in this case as provided in the foregoing Fringe benefit expense Fringe benefit tax expense 11,218 Income constructively realized P 41,667 jable 11,218 169Prige Beach, Non-taxable Housing Benefits The following housing benefits shall not be considered taxable fringe ° . benefits (Section 33 - tax code): 1) Housing unit inside or adjacent (within 50 meters) from the perimeter of the business premises. =e . , - A housing unit which is situated “inside or adjacent” to the premises of a business shall not be considered as a taxable fringe benefit. A housing unit is considered adjacent to the premises of the business if it is located within the maximum of fifty (50) meters from the perimeter of the business, A housing unit shall be considered to be for the “convenience or advantage of the employer” if the same is within fifty (50) meters from the perimeter of the business premises and the employees are required to be on-call due 0 the nature of the employ ° er’s operation (BIR Ruling No. DA-635-04, December 15, 2004 issued to Foreign Holiday Philippines, Inc. and BIR ling No. DA-241-04, May 7, 2004 issued to Sohbi Koghei (Phils.), Inc.) 2 ir ! enporary housing for a stay in the housin, 3) Housing privit Sil : Philippines. o> ©! Miltary officials of the Armed Forces of the 9 unit for three (3) months or Other Frin, Under this eeenefits is cat GIVEN oF paig byte yal of the benefit fepresenting the amount benefit Ployer should also be the “monetary” value of the 1) Expense account Expe "NSE Account compensa May be Pronded io” iNcome dene taxable as fringe be: ni Nefits or treated as & Taxable ae eyees wean te mui a f the expens: unt nse aU® benefits panwe acre ft TSO Paid f A However it thee’ Il ‘roverelMbursed by employer (such & Srboyer a 16, ee 805 eee taxable fringe benefits: attibut not ipted i taxable oe fi employeee ak the nature of “pen lo ae ina Minatign BS? benef, ty xPense accounts. shoule cot be meome, nn ot the individual pul either be Inchon ers’ ta, able compensatio” 170Fringe Benefit Lae us = as taxable fringe benefits esentation and transportation allowance given regularly on a monthly basis are not taxable fringe benefits but n income subject to basic tax under Sec. 24(A) ot treated vn Repr (Page 163) " taxable as compensatior of the Tax Code. 2) Expenses for foreign travel Expenses in connection with attending business meeting or convention (inland travel expenses) such as food, beverages and transportation during foreign travel (except lodging cost in a hotel) at an average of $300 per day are considered reasonable expenses and shall not be subject to fringe benefit tax. The cost of economy and business class airplane ticket shall not be subject to fringe benefit tax. However, 30% of the cost of first class airplane ticket shall be subject to fringe benefit tax. In the absence of documentary evidence showing that the employee's travel abroad was in connection with business meeting or convention, the entire cost of ticket, including cost of hotel accommodations and other expenses shouldered by employer shall be treated as taxable fringe benefits. Traveling expense of family members of employees paid for by employer shall be treated as taxable fringe benefit. 3) Educational assistance to the employee or his dependents 'n general, cost of educational assistance is treated as taxable fringe benefit except: a. When the study is directly connected with the employer's 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 b. When given to employee's dependents through a competitive scheme under scholarship program of the company. 4) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. The benchmark is 12% Until revised. The taxable fringe benefit is: a. Interest foregone by the employer; or b. The difference of the interest assumed by the employee and the fate of 12%. 1715) 6) uA Fringe Beng i f employees borne by employer in sora bership dues or fees 0 yees Sc wet clubs or other similar organizations. ang % Life or health insurance and other non-life insurance premiums are eng as taxable benefits. The following shall not be treated as taxable fringe benefits: a. Fringe benefits which are authorized and exempted from income ty under the Tax Code or under any special law (Page 155). b. The fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer (Page 155). When the fringe benefit is for the convenience or advantage of te employer (Page 166). Contributions of the employer for the benefit of the employee retirement, insurance and hospitalization benefit plans. & Froetts Given to rank and file employees. 4 Dan taxable housing benefits discussed in Page 170. Nnon-taxable benefits discussed in this chapter. Use of Aircraft and Helicopters employer ig not rat and helicopters owned and maintained by te employer, ‘able fringe benefit but treated as business ons, of Returns Of the mony ‘ - Me fnge benefits were oNOming the end of the calendar quarter in whi © granted to the recipient. 172