‘Chapter 41 ~ Fringe Benefit Tax CHAPTER 11 FRINGE BENEFIT TAX - Chapter Overview and Objectives supervisory omg computations of whe ‘This chapter discusses fringe benefits of manage subject to final fringe benefit tax and the proced benefit tax. ‘After this chapter, readers are expected to demonstrate: Understanding of the nature of fringe benefits “Appreciation of the convenience of the employer rule and hybrid expense ‘Ability to distinguish exempt benefit, partially exempt, and fully taxable fi bene! ne 4, Understanding ofthe scope of the final fringe benefit tax 5. Knowledge ofthe characteristics of fringe benefits tax 6. Understanding of the procedures of fringe benefit tax computation 7. Comprehension ofthe general rules on monetary value 8 Comprebension on monetary value rules as applied to actual scenarios 9, Mastery ofthe procedures forthe computation of the fringe benefit tax 10_ Knowledge ofthe list of exempt fange benefits FRINGE BENEFITS Under labor laws, fringe benefits pertain to all other benefits or incentives of ‘employees other than the basic pay. The basic pay is the fixed regular salary or ‘wages of employees every payroll period. Under the NIRC. the term ‘fringe benefit” was defined to pertain to goods, services or other benefits furnished by the employer to the employees. Tax treatments of fringe benefits Under current tax rules, however, items of fringe benefits in the strict sense are treated differently depending on their nature: For example: a. Fringe benefits that are fixed every payroll period are considered regular ‘compensation. For example: Fixed transportation allowance b, Fringe benefits that are variable and performance-based are considered supplemental compensation. For example: commission, profit sharing and overtime pay 362 copter 14 ~ Fringe Benefit Tax inthe form of fmcentives are considered 13% month pay and ‘age haantls NIRA Tal . a Frimept from income tax. PRYErS convenience or necessity are On ee sus chap A mera tame fvompensas eo ra eae et aed or Mec cmpUItsndled sete eof cnes ees 2 ET ai Denes ene 1 month 2 Telome and are subjected to final rings tone tan aed compensation ‘ScOPE OF THE FRINGE BENEFIT TAX The fringe benefit tax covers onty the taxable frin of managerial supecvisory employees. Benes of “ For purposes of the fringe benefit tax, RR3-98 clarifies that taxable fringe bene facie hose Hem considered compensation come Hevea cea ‘understanding of the items of compensation income is extremely important in highlighting the bounds between compensation income and the fringe benefits subjectto fringe benefittax. GENERAL CATEGORIES OF FRINGE BENEFITS SUBJECT TO FINAL TAX te benefits expenses shouldered by the employer b. Benefits n Management perquisite benefits Perguisite benefits, also called “management perks" are highly privileged incentives given only to a special group of employees. These benefits are nom based and are given as incentives to management employees. Perquiste benefits are not considered as compensation income, but as fringe benefits subject to fringe benefit tax. In practice, the boundary between fringe benefits subject to final tax and compensation income subject to regular tax sometimes overlaps. Based on past ralings, however, the BI intain the view that performance-based benefits are compensation income while benefits in the nature of incentive oF perks are fringe benefits 363chapter 11 Fringe Benet Tax ‘as a safety net, it is therefore best rulings on the proper treatment of 1 inconvenience. recommended for taxpayers to came in their COMPENSation plane MT Bly ag Mustration Me Larewood, a managerial expatriate employee, was granted by his employe lowance in addition to his regular salary. ‘residence is P25,000. 30,000 monthly housing The ‘monthly rent of Mr. Lakew< % actual The P25000 personal expense asumed by the employer construe 0 taxab benef subject to fringe benefit tox. The monthly fired P5000 excess ig aie adatnona compenscton (BIR Ruling No 512-2011) ae ‘When the employer incurs expenses which is purported partly for business i a Oe ene ean mt ‘employee incentive is subject tothe fringe benefit tax. = ‘The following ae hybrid expenses under RR3-1998: 1 Housing benefits the form of rental accommodation ‘When an employer leases a residential unit for the use of the emaployee an: Basins the renal expen? dered half business expense and hal Rog benefito the employee. “ 2. Allowingan employee fre use of business property When the employer allows its employee to use business usiness properties, the rental value or depreciation value ofthe business property over the period of usage is deemed half business expense and half fringe benefit to the employee. lustration 1 ‘The University of Caceres pays forthe 750,000 monthly rental ofthe residential unit The amount of taxable fringe benefits shal be P25,000 computed as 5096 x P50,000. 364 ster 11 ~ Fringe Benes Tax rasa erature and distributor of consumer products a ovr the Plppnes leas and ae ice hue of emplpes The company eae capes a east 405 ofthe monty rental deductible tneugn es ove sme ae en sl teh er ore Se acs Oo dro nae ek rt ta cy es a gxempt fringe benefits Fhe following fringe benefits are exempt from the fringe benefit tax: 7 pringe benefits which are authorized and exempted from tax under special laws Examples: Employer's contribution to SSS, Phltcalth, HDMF or group insurance, Except excess over the mandatory amounts set by law “— 2, Benefits required by the nature of, or necessary to the trade, business or profession of the employer 4, Benefit given for the convenience or advantage ofthe employer 14. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans 5, Benefit given to rank and file employees whether or not granted under a collective bargaining agreement ‘The taxable fringe benefits ofr benefit tax, ut are subject De minimis benefits wi and employees are exempt from fringe nme tax as part of compensation income. heir legal Limits “Necessity or convenience of the employer” rule Ian expense is necessitated by the nature of the trade, business, or profession of or is furnished principally for the employer's convenience or is an ordinary business expense. The personal advantage of the employee the expense. These fringe benefits are not viewed as taxable fringe benefits under the NIRC. Examples of exempt benefits under this rule: 1 Scholarship program for an employee to stady and acquire competence for future use of the business 2. Carincentives to medical doctors so they will be available for duty anytime 3. Free transportation services to employees working at distant facilites 44. Mobile phone allowance to corporate secretaries wto are required to handle off uty client inquiries 5, Sleeping quarters to field engineers and staffs working on remote facilities 6 Helicopters assigned to fishing employees for locating schools of fish offshore or to mining engineers for mineral exploration purposes 365Chapter 11 ~ Fringe Benefit Tax 7. Personal aircraft to a chief executive officer managing busin, Subsidiaries spread across diferent countries igcompany salesman camp furnished to military personnel gy any time of insurgency ts for an employee and his family near the emplo business to ensure the employee's availability anytime when the em SS alates thera, 40, Ho * Phe» fim i) ‘THE FRINGE BENEFIT TAX The fringe benefit tx afna tax imposed on the fringe benefit furnished, gr or paid by the employer tothe employee, except rank and file employees, en such employer is an individual, a professional partnership or a corp, th ‘regardless of whether the corporation is taxable or not, ot the government set instrumet es. andy For the purposes ofthe fringe benefit tax, fringe Benefit means any good for other benefits furnished or granted in cash or in kind by. the nao iduat employees (except rank and file employees) such as, but the following: not limted, 1. Housing benefits 2. Expense account 3 Vehicles of any kind 4, Household personnel such as mad driveror others Interest, for the difference between the market rate (1. we fr (129%) and the act e Membership fees, dues and other expenses borne by the er employer forte employee in social and athletic clubs ‘or other similar orgentiates 7. Expense for foreign travel Holiday and vacation expenses 2 Educational assistance to the employee or his dependents 10. Life or health and other ‘non-life insuran ir accounts in excess of what the law allows se premiums or sitar (CHARACTERISTICS OF THE FRINGE BENEFIT TAX 1. Final tax ‘The fringe benefit tax is source Thus the crated Uaaktax wich is withheld by the employer tax return, Ployee need not report the fringe benefits in his icoot 366 chapter 11-Fonge Beneft Tax 4, Taxupon the fringe benefits of managerial or supervisory employees ‘the fringe benefit tax is not a tax to the employer. It is a tax sd by the managerial or supervisory employee. it apples regardless of the identity it applies even if the employer is a sole prop yn whether taxable or exempt, or the government. ald by the employer ‘As a final tax, the tax is presumed withheld at source and remitted by the ‘employer to the government. partnership, . Grossed-up tax ‘The monetary value or the amount the employee is effectively net of is to be withheld at source. Hence, the monetary value 1s first grossed-up by the complement percentage of the applicable fringe benefit tax rate before the fringe benefit tax rate is applied sd or taken home by * Due quarterly ‘The fringe benefit taxis due for remittance quarterly based on the accounting period (fiscal or calendar) selected by the employer. The monetary value of tach taxable fringe benefit is determined and reported quarterly through BIR Form 16030 ‘The quarterly fringe benefit tax is due on or before the last day of the month following the quarter in which withholding was made. PROCEDURES IN COMPUTING THE FRINGE BENEFIT TAX 1. Determine the monetary value, Monetary value refers to the taxable amount of benefits taken home or realized by the managerial or supervisory employee. The monetary value is presumed net of final tax. 2. Determine the gross-up rate and fringe benefit tax rate applicable for the taxpayer. ‘The grass up rate is the complement ofthe fringe benefit ax ux 59%, the gross-up rate is (100% less 35%) or 659%, ates 2596, the gross-up rate is 758. the fringe benefit fringe benefit tax 3. Determine the grossed-up monetary value by dividing the monetary value by the gross-up rate. ‘4. Determine the fringe benefit tax by multiplying the fringe benefit tax rate to the grossed-up monetary value 367Chapter 11 ~ Fringe Beneft Tax RULES ON VALUATION OF FRINGE BENEFITS dincash Sete ea ic given in cash or pid for in cash, the monetary rahe amount pad for in cash 8 oe The oly xeon bere is when th mle pas for he ret ofthe ples Mowery eletsSO% be ren pyten. 2. Benefits paid in kind When benefits given n kind, the monetary value i the fal Value ote fie unless Book valu shige Book value is the costes any pet for deprecation for depreciable properties. ot Simply stated, the monetary value is the fair value or the book valu given, whichever is higher. met 1 O the When ownership aver the property is transferred to the eny ‘monetary value isthe entire fair value of the property even if the partially used in the business of the employer. 3. Benefits that are furnished ‘When the benefit is given in the form of free use of the em the monetary value is 50% of the rental value of the prope: thas no available rental value, the depreciation value is used, lovee, te Property. ployer's propery, property are: 3. 20years for real properties. Hence, the depreciation value is computed as 1/20 or 5% of the vahie! the property . Syears for movable properties. Hence, the depreciation value is computed as 1/5 or 2096 of the value af the property. Since the fringe benefit tax is patd quarterly, ‘monetary value 1s also done quarterly. In case of, "eporting of monetary value ceases from the mon the valuation and reporting use of employer properties, be th the free use is discontinued {ustration: Determination of depreciation value A prtership ranted te ue os propery wih a ale of 2,000,008 The annul depreciation valve shallbe: Ifthe property isan immovable such ie uch as a residential unit ue shall be P100,000 computed as P2,000,000 x 58 368 es py A i sc bu i i Fe erent cM ma we, eam 4 cect epitg 'te Hag hat the quarterly monetary val determined by dividing the annual value by 4 ey ue Is ‘SPECIAL GUIDELINES ON MONETARY VALUE DETERMINATION ‘Taxable Housing Benefits dential property for the use of his employee and the said property isthe usual residence of the employee. Monetary value = 50% of the benef Mlustration ‘Asole proprietorship bus business manager for P20, ses a residential house and lot for the use of his The monetary value shall be: Quarterly value = (20,000x3 months) = Quarterly monetary value = P 60,000 x50% = 2. Employer owns a residential property and assigns the same for the use of his ‘employee as his usual place of residence; the annual value of the benefit i $% of ‘whichever is higher of the zonal or ascessed value ofthe land and improvement. Monetary value = 50% of the annual value ofthe benefit IMlustration P 60,000 e000 allowed one ofits unused realty investment costing P3.500,000 iue of P4,000,000 and assessed value of P3,000,000 to be used by its P 200,000 P 50,000 £28,009 3. The employer purchases a residential property on Jastallment basis and allows his employee to use the same as his usual place of residence; the annual value is 5% or 1/20 of the acquisition cost, exclusive of interest. Monetary value = 50% of the annual value of the benefit This the same with No 2 excep thatthe basis I the purchase price ofthe property. Mlustration Cotabato Corporation purchased a residential property fr the use of ts manager. The property is payable over 11 annual installments of P200,000 including Interests but have a cash price of P2,000,000. For accounting purposes, Cotabato 369 ‘Quarterly monetary value = P50,000 x 50%chapter 11 ~ Fringe Benet . Purchase by employer of property and transfer Tax talize the interest and recorded the P2.200,099, cer cer ie «(Lee ‘Note: ‘The purchase price isthe cost net of interest. alten faonet re a residential dwelling f Maret corporation bought a residential dwelling for P5,009000 aor re mtnipto ts president. The property has P3,000,000 zonal wit Since there i transfer of ownership, the monetary value is the entire P50 the higher of book value (e.costin this case) and zonal value. “on to employee for ies thar adequate consideration, the value i (fair market value or zonal value, whichen Ishigher) less consideration paid by employee “Monetary value = 100% of the value ofthe benefit statin Dewey» grofesion practi, transfered his residential propery int ane ous mmogelerlays P2000. The propery bas wap tdesiratona #240009 an 500000 sonal ale, Shc there ataner of omer (ie the monetary vale Computed 0000 ae ls the 2.00000 conierton pal 1m the perimeter of The Sots le me be elated when pon the bass of M suck nthe case of chemical manufacturing the ‘be located at a farther location, eee Temporary housing fran em otexeeding one gate) oye In housing unk for 3 raonths or est 370 copter 11 ~ Fringe Baveft Tax Expens expense and Po efits. The monetary Vale is th ane Dipenehts. The monetary values the amount pad by the employer. property documented employer expense ent expe, ts ta taxable ringe benefit Because itis a business expense. fe Account personal expenses ofthe employee such as groceries for the personal consumptos Aaremployee and/or his family, if paid age benefits whether or not receipted inthe name ofthe employer. fied and regular RATA are treated as part of regular compensation income and are ae creditable withholding taxes, not to fringe benefit tax. itlustration Denver Corporation pald for the following expenses which were liquidated by its managerial employee: Water and electricity bill at manager’s home P 15000 Meals and groceries at manager's home 38,000 2,000 Bill on business telephone 1000, Bill on pe Transpor 12,000 Transpor 10,000 Foods and beverages for visting business clients 8000 ‘The monetary value of fringe benefits shall be computed as follows: Water and electricity bill at director's homme P 15000 Meals and groceries at director's home 18,000 Bill on personal phone 1000 ‘Transportation from office to and from home 10.000 ‘Total monetary value Bossooe ‘Note: Business telephone bills, ofce to cent transportation and food and beverages for client visitors are business expense, not fringe benefits tothe manager. Motor Vehicles of Any Kind 1 ‘Purchase by employer of motor veblcle in che name ofthe employee regardless of whether the same is used partially inthe business of the employer Monetary value = 100% of the cost of the motor vehicle Note that the monetary value shall be reported in the quarter of purchase. 2. Cash benefit to emplo "used in the business of the employer 371 incurred by an employee but which are paid by his employer or incurred id by employee but reimbursed or advanced by the employer are taxable he expense is receipted for and in the name of the employer and the personal expense attributable tothe Sn of bursed by the employer, are taxable for the purchase ofa vehicle, even ifthe vehicle is partlychapter 11 ~ Fringe Benett Tax . cash benef except wien the a vrretary vue = 100% ofthe cosh bene mount eratreaag exon compens2e® Sy rym ewh and are subjected C0 W1Moling Ger erie sea reguar t ntt0 fing bene or Wau ie re onearyvlu sabe reported” he Tr Payer, ry Purchase of car on Installmet basis by the employer with ownershi rarsrae of the employee even the cars used party forthe employer cre benehtis the equisivon cost divided by 6 years Monetary value « (1/5) oF 20% of the acquisition cost Placed ‘Sbusinng, imustration Ar erployer purchased 2 car for P2,000.000 payable in four installments 10% interest on the outstanding unpaid balance of the car. has cost shall be recognized 06 Monetary vale since thee Over 5 eos He mplayer shall report P200000/6 or Pee ily reported over S years sain Monetary value = the portion shouldered by the employer Afustration managerial employee in purchasing a brand-new carr value is deductible against future salaries of he be 1,600,000 computed as 4,000,000 x 40% sidered by the employer. This will be reported in the ployees, the ght, delivery not used in business # 509% of the benefit 372 captor 14 — Fange Benefl Tax rank and fie alike), (Re regulations simply subjected it tothe final fringe benefit ax ot of motor vehicles sed for the use ofthe business and the employee, the oo payments for motor vehicles not normally used Tatsnles. freight, delivery service, and other non-personal use Monetary value = 5036 ofthe vale ofthe Benefit 6 Fie crafts including helicopters are deemed solely for business use; hence, they are ac subject a fringe benefit tax. a. Yachts whether owned and maintained or leased by the employer are presumed Yacht pusiness use ence, taxable as tringe benef. I owned or maintained the aoe ee he beneits measured asthe deprecation value ver 20 years. Mustration atisame a corporation acquired a PY0,000,000 yacht forthe use of its executives “The monetary value shal be determined as: ‘anoval depreciation value = P10,000.000/20 P $00,000 Quarterly monetary value = P500,000/4 plas.oue sasidered immovable by virtue ofthe fact that Hence, the 20-year presumptwe useful properties 1s used payment is the monetary Meine, Note that the S0% rule isnot applied by the regulation Supposing the yacht 1s purchased and transferred to the name of the executive, the monetary value shall be the entire P10,000,000. atts makes it inherently prohibitive or impractical med by the regulations as solely for are exempt from fringe ber gh pr iy Taek any sensible business purpase aade from be personal pleasure: hence. ts depreciation value is subject to fringe benefit tax tainment of guests or prospective he fringe ben this case, the depreciation of the vament, omusement, and recreation expense: Household Expenses Empinyee expenses bore by the employer for household personnel, salaries of Haeaeee ee ersonal driver of the employee, and other personal expenses uch ay homeowners assocatwn dues, garbage dues, electncty, and water are taxable fringe benefits. The monetary vale the amount paid. 373Chapter 11 ~ Fringe Beneft Tax Mhustration Henesy Corporation granted the folowing benefits toa managerial employeg Salary of household persoanel P12,000/month Salary of personal driver 10,000/month Home owner's association dues 4000/year ‘The quarterly monetary value of the benefit shall be determined as follows, Salary of household personnel P12,000x 3, P 36,000 Salary of personal driver P1003 30.000 Home owner's assocation duest 4000/4 00 Farszir) Note: A years compose of quarters Interest on Loan at Less than Market Rate The interest 3c by the employer representing the difference between 124 and the actual interest charged isa taxable fringe beneft. Mlustration Europa Cooperative lent its chief executive offic interest rate, The monetary value shall be compl 100,000 at a minimal 3% annua lows: ‘Annual monetary value = (12% - 3%) x 1,000,000 Quarterly monetary values = P-90,000/4 P 90000 B22500 ‘Membership fees, dues, and other expenses borne by the employer for his employees in social and athletic clubs or other similar organizations constitute taxable fringe benefits. The monetary value is the amount paid. Expenses for Foreign Travel Reasonable business expenses for foreign travel for attending business meeting: and conventions are exer as the fc L inurl rind comes ood beverage and local transportation costs mg cases im F establishment an ave ras establishment amounting to an average 0 |. Economy and business class airplane tickets 705 of the cost of first-class ticket Note that 30% of the cost of or that 30% ofthe com of fistcass ike in foreign travels ‘minimis. Note also thatthe foregoing rules apply only on foreign ‘of domestic travel is generally considered as reasonable and hence deductible. 374 chapter 11 ~ Fringe Benefit Tax substantiation requirement $e above rules apply ifthe expenses were supported by documentations proving the actual occurrences of the meeting or convention; otherwise, they shal ported by an official communication from business the purpose of the meeting . supported by an official invitation or communication from the host organization or entity abroad. snses for the family members ofthe employee shouldered by the employer are i ge beefs stration Inc, allowed its VP Finance, Mr. Lasuna, to attend a convention abroad with the 0 bring his wife. The expenses ofthe foreign travel were: Mrtasuna Mrs.lasuna — Total _ P ~ 70.900 P 70,000 P 140,000 91000 93,900 182,000 Foods & inland transportation__50.000 ___$0.000 __ 190.000 E2uu9 Zino 2 422.000 “The applicable exchange rate ls PS2SI; PS2 x $3505 days each to Mr ond Mrs Lasuna The monetary value shall be determined as follows: 770000%30% © P 21,000 770,000 x 100% 79.000 ($350-$300)xP52xS 13,000 Fully taxable 91,000 Mr. Lasuna Exempt de minimis ° Mrs. Lasuna fully taxable 50.000 Total monetary value Eason Holiday and Vacation Expenses Holiday and vacation expenses are taxable fringe benefits if shouldered by the ‘employer. The monetary value is the amount paid or shouldered by the employer. Educational Assistance to the Employee or his Dependents Educational assistance to the employee is generally taxable except when it is ‘incurred for the convenience or furtherance of the employer's business, such as: 37chapter 14 ~ Frnnge Benefit Tax 1. the education or study is directly connected with the employer, ‘business or profession; and ty 2. thore isa written contract (ie, employee bond) that the employee Guiigation to remain atthe employ of the employer for a period of yn agreed upon. Educational assistance granted to dependents of the employee 1s gene xcept when the assistance was provided through a competiuve sch scholarship program of the company. ey ty " Mlustration Cleopatra Marketing, a distributor of cosmetics, products, provides ea assistance tothe following eraployees under an employment bond. cating ‘Amount per Position ___Fieldofstudy ___semester_ VP forManagement Doctor m Business Administration P 50,000 VP for Marketing Master n Marketing Management Operanons manager BS Cosmetology Accounting supervisor BSCriminology Accounting sta BS Accountancy of the accounting supervisor is suby benefit taxa amounts in excess of what the law allows ‘These are taxable fringe benefits except the by law: ‘employer for the benef ing law such as contribut lowing insurance oF premiua the employee pursuant oe SSS, GSIS, Philealth at 2. Cost ot premium for group insurance of employees Mustration Queensdale Company made the i Siensdle Company made the fllowing insurance premium payments dart! 30,000 premium forthe life ins fe insurance of the Chief Executive Officer (CEO) ‘Queensale Company 38 the benefiary ofthe poly nn ‘ 376 chapter 11 ~ Fringe Benefit Tax fe insurance of the Company Chief Operating Officer nefiiary aes he personal ar ofthe company manager ance of employee: Health, and Pag 80,000 premium share in SSS, 10,000 fire insurance premium for the company building igdues of employees “The quarterly monetary value of fringe benefits shall be computed as follows: Life insurance premium of COO where his wife is the beneficiary * zomo ‘car insurance of company manager 5000 Quarterly monetary value ros f the CEO where che company self isthe Beneficiary is FRINGE BENEFIT TAX RATES: ‘The fringe benefit tax rates are as follows: Employees Year ___|- Residentsor citizens* | Non-resident aliens 1998 t 34% 1999 33 259% 7000102017 | ——-32% 2018 and thereafter | 35%, “includes resident cizens, non-resident iizens and resident aliens GROSSED-UP MONETARY VALUE ‘The basis of the fringe benefit tax isthe grossed-up monetary value of the fringe benefit. The grossed-up monetary value is the monetary value of benefits divided by the appropriate grossed-up rate for the employee. The grossed-up monetary ‘value is inclusive of the fringe benefit tax. The following are the grossed-up rate: T Eagles __[Reaienisorciizens® [non-resident afens = 66%, i a 3 73% 300% 217 | 68% 2018 and thereafter 6556, a7‘Chapter 11 ~ Fringe Benet Tax Mustration enue am employer grants fringe benefits with monetary value of P5Q 59, ‘etd lucen managerial employes The grosed-up monetary vale is computed as F5B.500/65% = The grossed, monetary leh posed monetary value shal ea 58,500/75% = 278,000. ILLUSTRATIONS: FRINGE BENEFIT TAX COMPUTATIONS, IMlustration 1: Resident citizen In the last quarter of 2019, Alexander, a Fillpino supervisory employee, was 13,000 worth of grocertes for personal use. im P 13,000 Monetary value 65% Divide by: Gross-up rate Grossed-up monetary value P 20,000 Multiply by: Pringe benefit tax ate aan Fringe benefctax 22.000 ‘Alternatively, the fringe benefit tax can be directly computed as P13,000x 35% 65%, IMlustration 2: Resident alien {An offshore banking unit (OBU) reimbursed the following personal expenses of iy ‘managerial employee during a calendar quarter: Golfclub membership dues - 100% in the name of the employer P 10,000 Groceries - 50% in the name of the employer 24,000 Home owners’ association dues 5.000 Total 239.000 ‘The fringe benefits tax shall be computed as: P39,000 x 35%/65% = P 21,000. ‘Note: Personal expences are taxable fringe benefits in fll even if they are receipted in falloria part inthe name ofthe employer. Mustration 2: Non-resident allen On january 2014, Cyberspace Company purchased a P3,000,000 car and designated for the personal use ofits non-resident alien executive. Monetary value (P3,000,000/5) x50% Quarterly monetary value (P300,000/4) 2..300.000 Pe 75,000 ‘The fringe benefits tax shall be computed as P75,000 x 25%/75% = P 25,000. Note: The fringe benefit tax continues to be payable for as long as the employee vses propery for personal use and/or business use. 378 payment of cash or transfer of proy “aa fer of property ich do not involve payment of cash or transfer of property ‘cash or in kind record fringe benefits paid for n cash or in kind in their books as cpense (monetary valve) ox expense Pj Cash/Tax basis of property given vox Fringe benefit tax payable mx tustration 1: Rental accommodation Plato Corporation paid P91,000 for the rental of a housing unit for the use ofits president, Fringe benefit tax pa Fringe benefictax= Benefits which do not involve payment of cash or properties ‘Taxpayers shall record fringe benefits without outflow of cash or properties in their books as Fringe benefit expense (monetary value) Fringe benefit tax payable x 379‘Chapter 11 - Fringe Benefit Tax ‘Mlustration 1: Free Usage of Assets Homer Realy ine designated a unit ofits condominium property forthe use present for finance as his family residence. The rental value of the anit for Mt talendar quarter would have been P260.000. = » 70000 Fringe benefit tox expense Fringe benefit tax payee P 7am Eaege beret tax = (P260,000x5S0%) x 3554/6596 Note that the employer is not allowed to claim fringe benefit expense. A dea, expense needs to be an actual outflow or depletion of resources. any the property is an lowable, fringe beneti ‘The rules of deductio: Interest free loans Petrodrill,an ofl exploration company, granted a P1,000,000 interest-free loan ty ant managerial employee. . ‘The following entry shall be made every quarter after the loan issue: Fringe benefictaxexpense Fringe benefits tax payable Fringe Dene tx (PF.000.00 x12%/4) x 2596/7556 P 10,000 P 10,000 Note also that the interest expense is not recognized as a fringe benefit expense because it is not an expense involving actual payment or transfer of properties. Exempt benefits paid for in cash or in kind ‘The taxpayer shall record exempt iringe benefits paid in cash or in kind as follows: Fringe benefit expense (monetary value) rox Cash/Property given wax Mlustration: Exempt fringe benefits ‘An employer 120,000 for the tuition fee of his supervisor who is taking 2 advancement course in furtherance of the employer Fringe benefit expense 120,000 Cash 7120000 chapter 11 ~ Frnge Benefit Tax gxempt benefits which do not involved transfer of cash or property t free use of property lential property nearby its processing of the production processes, The 780,000 expense (780K x 35%6/65%) 420,000 1,300,000 420,000 ‘The fringe benefits exponse shall be measured atthe actual cost ofthe property given ‘benefit tax shall be measured at the monetary value of je ~ P450,000 received), Hence, cash P 450000 Fringe benefits expense (P2M ~ PASOK) 1,550,000 Fringe benefits tax expense 11050,000 Fringe benefits taxpavable ease P40) 39/60 ‘Tax Treatinent of the Total Fringe Benefit ze benefit expense includ {fringe benefit expense ® « iad. The expense is measured at the actual cost or tax basts of consideration given as fringe benefits. 381Chapter 11 - Fringe Benefit T2x CHAPTER 11: SELF-TEST EXERCISES Draconis fate compenstion Income, Discus the general eategories atin, iscussthe two tax treatments Of Basu the exenefsre sueoe ring bento Diacst he S08 rule on hybrid PENS, exceptions tothe 50% rule What are he penis exempt fom henge benefits a, enumerate and discuss the characteristic of the fringe benefit tax. eaanete the procedures in compating the fringe benefit tax. 40. Discuss the general roles on monetary value 1 re ne fringe benef tax rates and grossed-up rates foreach ype of taxpayer Te BRLaSS the accounting entries to record the fringe Benet exPenSE and the fgg benefit tax expense ‘True or False 1 1 Rank and fle employees may be subject to fringe bene tax. 2. Fringe benefits ae always subject to fringe benefit tax, J The personal expenses of employees shouldered by the employer are fag benefits. Managerial or supervisory employees are subject to fringe benefit tax. ‘The tax base of the fringe benefit tax Is the grossed-up monetary value of te fringe benefit. 6. The fringe benefit tax is a creditable withholding tax presumed to have ben withheld at source by the employer from the fringe benefits of supervisory employees. fringe benefit subject tothe fringe benefit tax is the excess of thee minimis benefits over P90,000, 8. Half ofthe benefits that are necessary to the trade of the employer's businesst subject to fringe benefit tax 9. Benefits in te form of properties transferred to the name of the employee at subject to fringe benefit tax in ful, 40. Benefits proved bythe enployer for his covenience are exam om Hap eft tax, ‘True or False 2 1, The annual depreciation value ofa real property is presumed to be 10% of value ofthe propery ‘The monetary value of benefits given in cash isthe cash pald. 2 3. The monetary value of nef gen in kind is 100% ofthe vaio he eet ven 382 gnapter 11 ~ Fringe Beneft Tax 4 1 15. “the monetary valve of fringe benefits inthe form of free usage of property is 50% The rytal or deprecation value ofthe property ofan yee benefits ae employee expense by nature that re paid by the employer. ‘fhe annual depreclation value of a movable property is 20% ofthe value of the one Pypen tile over property Is transferred, the monetary value is the fair value of the propery given. Prepimhe employer leases a house and lot as the usual residence of the ‘ar managerial employee, the monetary value ofthe Benefit 50% of ayments Eucationa assistance tothe employee i exempt fom fringe benefit ax if there is Bivtrplayee bond and the study is related to the trade oF business of the tpayer fart incuding helicopters are conskered fr busines use and not subject to fringe benefit tax ‘The monetary value of benef from loans at less than market rate shall be the ference bexween 12% and the actual ate charged tg costs on foreign ravel sa tarable fringe benefit regards of moun. ‘kets in foreign travelisataable tinge bent ily members of the employee shouldered by the employer ge Benet ful fin employee expense recelpted In the name of the employer is considered a thsiness expense ofthe employe. Multiple Choice - Theory 1 L 2 2 4 Which is not part of de minimis benefits? 4 Clothing allowance , Monetized unused vacation leave credits , Actual medical benefits13® 4. month pay ‘The de minimis benefits not exceeding their thresholds are a. exempt from income tax. ‘subject to regular tax. subject to fringe benefittae deductions from gross income. Select the answer which more accurately completes the statement. The taxable fringe benefit ofa supervsory emplayee is subject to fringe benefit tx 'b. subject to regular income tax as compensation income. © the total of 13 month pay and ather benefits not exceeding P90,000. 4. the total of 13% month pay and other befits exceeding 90,000 Who is subject to the fringe benefit tax? 4. Anemployer of rank and file employees Managerial or supervisory employees © _Ancmployer of managerial or supervisory employees 4. Rankand file employees 383,Chapter 11 - Fringe Benefit Tax spervisory employees Fringe benefits of mi ina supervisory employees ‘Compensation income of manager 6. Thefringe benefit taxby nature is a a. taxon passive income of managerial or supervisory employees. b finaltax tax to the employer of managerial or supervisory employees. tax toll employee on thetr fringe benefits. isa correct statement? fringe benefit taxis a tax upon the expense ‘The personal expenses of any employees pald fringe benefits tax. penses of rank and file employee ecopoyer. employer are subeay by the empoyer benefit tax vores 42. The personal expenses of managerial or supervisory employee shouldered ty the employer are subject to fringe benefit tax. 18, Asarule, hybrid expenses are presumed @ 50% fringe benefit. ¢ 50% de minimis benefits b. 100% fringe benefit. d. 100% legitimate b 4. Forthe furtherance ofthe employer's business 10, What percentage ofthe depreciation value is considered fringe benefit in the re usage of employer's real properties? 50% 4.100% use of real properties, what percentage red fringe benefit? When fringe benefit is in the form of free use of personal properties, wht Dercentage ofthe depreciation value of the property is considered fringe benefit! a 5% 509% 11 - Fringe Benefit Tax onepter insferred ttle over property to the employee. What percentage of ‘considered for purposes ofthe fringe benefit tax? €-50% 45% gor purposes of comps Fe ube properties what ae B 50% annual value of benefits involving the free use of entage ofthe value of property is used? or purposes of computing the annual value of benefts involving the free use of 15, fet wable properties, what percentage ofthe value of property used? “50% 4.100% Fringe benefit tax? syabie by the employer 4. Imposed upon the monetary value of benefits rrect with respect tothe fringe benefit tax? monthly and quarterly. ‘ax upon the compensation income of employee. xx upon the fringe benefit of any employee. yees do not need to file ncome tax returns to report the fringe benefit. eof benefits realized by the managerial or supervisory employee is alue, .grossed-up monetary value, b fairvalue. annual depreciation value, 4. Which isnotan exempt housing benefit? ‘Housing within SO meters from the perimeter of the employer's business ect to fringe benefttax? ‘expenses receipted in the name of the employee paid by the Employee personal expense receipted in the name of the employer paid by the employer Expenses of employees considered in furtherance of the employer's business. Personal expense receipted im the name of the employee reimbursed by the employer eo 385