Northern CPAR: Taxation – Fringe Benefit Taxation

NATION’S FOREMOST CPA REVIEW INC.

4 Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
E-mail Address: ncpar@yahoo.com

REX B. BANGGAWAN, CPA, MBA

TAXATION
FRINGE BENEFIT TAXATION

FRINGE BENEFIT – means any good, service or other benefit furnished or granted in cash or
in kind by an employer to an individual employee (except rank and file employees).

Classification:
A. Given to rank and file employees
Taxable Fringe Benefits to Rank and File Employees:
1. Meals furnished or subsidized by employer (except OT meal which is subject a de
minimis benefit)
2. Rental value of quarters furnished an employee.
3. Premium on life insurance of an employee where the insured employee is directly or
indirectly the beneficiary – in essence a form of additional income for the
employee.
4. Fixed or variable transportation, representation and other allowance given an
employee. Advance or reimbursement-type allowance is exempt.
5. Performance bonus, relay station allowance, and danger exposure allowance.
6. Personnel economic relief allowance (PERA) granted to government employees.
7. Salaries and allowances during leaves of absences (vacation and sick leave).
8. Fees received by an employee (including director’s fees) for the performance of a
service for the employer.
9. Dismissal payments (this is different with separation pay).

Exempt Fringe Benefits to Rank and File Employees:

1. Meals, living quarters, de minimis entertainment, medical services, courtesy
discounts on purchases, sack or rice, etc given for the convenience of the employer
or for promoting the contentment, health, efficiency or goodwill of the employee.
2. Reimbursement-type traveling, representation and other allowance. Excess advances
retainable by the employee is taxable
3. Retirement and separation benefits exempt under the law

B. Given to managerial or supervisory employees

Benefits subject to final tax:
1. Housing Benefits
Exception:
1. Housing benefits provided to military officials of the Armed Forces of the
Philippines consisting of officials of the Philippine Army, Philippine Navy and
Philippine Air Force
2. Housing unit which is within or adjacent to the premises of a business or
factory. Adjacent means within 50 meters of the perimeter of the business
premises of the employer.
3. Temporary housing for an employee who stays in a housing unit for three months
or less.
2. Interest on loans at less than market rate or at 0% rate. The differential interest
from 12% (as fixed by regulation) shall be the taxable fringe benefit.
3. Membership fees, dues, and other expenses borne by the employer for the employee in
social and athletic clubs or other similar organizations – these are taxable
employee benefits of the employee in full.
4. Expense for foreign business travel
a. First class airplane ticket – 30% of the cost of ticket
b. Lodging cost in a hotel or similar establishment in excess of US$300 per day.
c. Traveling expense paid by the employer for the travel of the family members of
the employee

In connection with this, there must be a documentary evidence to support that the
foreign travel was for business meetings or convention; otherwise the entire cost of
the ticket including hotel accommodation and other expenses incidental thereto
shouldered by the employer shall be treated as taxable fringe benefits.
1. business meetings – to be supported by official communication from business
associates abroad indicating the purpose of the meeting
2. business conventions – to be supported by invitations or communications from the
host organization or entity abroad
Reasonable foreign travel expenses are exempt under fringe benefit tax; hence, inland
travel expenses such as for food, beverages and local transportation; cost of economy
and business class airplane ticket; and those within the limits as set out in 4 a and
b above.

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Northern CPAR: Taxation – Fringe Benefit Taxation
5. Household personnel
If shouldered by the employer the following personal expenses shall be taxable
fringe benefit:
a. Salaries of household help
b. Personal driver of the employee (if not for the convenience of the employer such
as doctor on call)
c. Similar expenses as payment for homeowners’ association duties, garbage dues,
etc.
6. Expense account
General Rule: expenses of the employees that are paid for the employer are taxable
fringe benefit:
a. expenses of a reimbursement type (direct payment by the employer is not
necessary since subsequent reimbursement for the expense of the employee, makes
him the indirect payer of the expense)
b. personal expenses (groceries etc.) even if receipted in the name of the employer

Exception:
a. Regular fixed entertainment and representation allowance – this is treated as
additional compensation to the employee
b. Expenses connected with the trade of the employer and is duly receipted in the
name of the employer- these are expenses of the employer

7. Holiday and vacation expense

If incurred by the employees and shouldered by the employer, this constitute
taxable fringe benefit.

8. Life and Health insurance and other non-life insurance premium or similar amounts
in excess of what the law allows
Exception:
a. contributions of the employer for the benefit of the employee pursuant to the
provision of existing laws, i.e.: SSS, GSIS, PhilHealth; etc
b. the cost of premium by the employer for the group insurance of its employees

9. Vehicle of any kind; and

The same rules in housing benefits apply herein.
Exception:
a. Aircraft or helicopter owned and maintained by the employer – are treated as for
business purpose only and hence, not subject to fringe benefit tax. (Note: it is
very impractical to provide managerial or supervisory personnel with aircraft or
helicopter for personal use due to the cost of maintaining them.)
b. Yatch, whether owned or leased by the employer is considered not for business
purpose (by nature for pleasure), and hence taxable fringe benefit. Note: Yatch
for purposes of determining the depreciation value is assumed to have a life of
20 years.

10. Educational assistance granted by employer to

1. the employee – generally, taxable as a fringe benefit
Exception:
a. the education or study involved is directly connected with the employer’s
trade, business or profession; and
b. there is written contract that the employee is under an obligation to remain
in the employ of the employer for a period of time mutually agreed upon
2. the dependents of employees – generally, taxable as a fringe benefit
Exception: When the assistance is granted through competitive scheme under a
scholarship program of the company

Benefits not subject to fringe benefit tax (Sec. 33 (C), NIRC):

1. Fringe benefits which are authorized and exempt form tax under special laws
2. Benefits given to rank and file employee, whether given on a Collective Bargaining
Agreement or not
3. Benefits given as required by the nature of, or necessary to the trade, business or
profession of the employer
4. Benefits given for the convenience or advantage of the employer
5. Contributions of the employer for the benefit of the employee to retirement, insurance
and hospitalization benefit plans; and
6. De minimis benefits promulgated by the Bureau of Internal Revenue

Tax Rates for Fringe Benefits:

The final tax rates that apply to the gross-up monetary amount of the taxable fringe
benefit with the corresponding gross-up percentage are as follows:

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Northern CPAR: Taxation – Fringe Benefit Taxation
If the employer paying the fringe benefit is a regular domestic or resident corporation:
Tax rate/Gross-up rate
Type of employee NIRC (until 2017) TRAIN (2018 onwards)
Resident or citizen 32%/68% 35%/65%
NRA-NETB 25%/75% 25%/75%
Special Alien 15%/85% 25%/75%(non-resident)&
35%/65%(resident)

Valuation of Taxable Fringe Benefits:

1. If granted in money or is directly paid by the employer, the value is the amount of
granted or paid for
2. If furnished by the taxpayer in property and ownership is transferred to the employee,
the value of the fringe benefit shall be the fair market value of the property
transferred.
3. If furnished by the taxpayer in property without transfer of ownership, the value of
the fringe benefit is equal to the depreciation value of the property.
- For this purpose, personal property is assumed a depreciable life of 5 years (20%)
while real property shall have a presumptive life of 20 years (5%)
- Furthermore, since the supervisory or managerial employee cannot reasonably be
expected to use the property all the time, it is assumed that usage is 50% for
business use and 50% for personal use.

Deductible Amount of Fringe Benefits:

General Rule: Deductible amount =taxable fringe benefits + fringe benefit tax
Exception Rule: Deductible amount = fringe benefit tax paid (If fringe benefit tax is
based on the depreciation value, zonal value or assessed value)

Filing of Return
The fringe benefit tax withheld by the employer shall be remitted to BIR within 10 days
after the end of each calendar quarter; however, for EFPS, 5 days later

ILLUSTRATIVE DRILL PROBLEMS:

Compute the monetary value, grossed-up monetary value and the fringe benefit tax for each
of the following cases:
Illustrative Cases Monetary FB Fringe
value expense benefit
tax
1. Northern Company reimbursed the P102,000 vacation
expense of its president, Mr. Asuncion.
2. Northwestern Company granted a P4,000,000 7% loan to
its VP for Marketing, Andrix Kay.
3. Alder, a sole proprietor, paid the P150,00 monthly
salary and P68,000 monthly rental of the condo unit of
its branch manager.
4. CD Realty Corporation sold a property to its VP for
Operations for P1,980,000. The residential house and lot
was purchased for P2,300,000 and had fair market value
per BIR of P2,500,000 and per Assessor’s office of
P2,600,000, respectively.
5. KKK, a business partnership, purchase a P400,000 car
of its manager, Mr. Ong. The car which is intended to be
used partly for business purposes costs P400,000 and was
registered in the name of Mr. Ong.
6. John is a doctor on call. He was granted by his
employer a car with a second hand value of P300,000 to
ensure his immediate availability during emergency
situations. The car has a book value of 250,000.
7. Ms. Sexy is an accounting staff at RE Audit Services.
Mr. Escala, the managing partner was so impressed by Ms.
Sexy that he allowed the company to pay for Ms. Sexy’s
P10,000 monthly rental.
8. HTM Corporation granted the use of its residential
unit it acquired in 2000 for P5,000,000 to a non-resident
alien director. The property has a zonal value of
P6,000,000 and assessed value of P5,500,000.
9. Joe, a resident citizen, was hired as the vice
president for risk management for the offshore banking
unit of Intercontinental Bank in the Philippines. In
2018, Joe was given car benefit of P1,200,000. 30% of
this will be deducted from Joe’s future monthly salary.

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Northern CPAR: Taxation – Fringe Benefit Taxation
CPA EXAM DRILL PROBLEMS: FRINGE BENEFITS

1. Which of the following is subject to fringe benefit tax?

a. Fringe benefit of the rank and file employees
b. Fringe benefit of the managerial employees
c. Compensation income of the rank and file employees
d. Compensation income of the managerial employees

2. The following concepts denote exemption from the fringe benefits tax, except
a. Convenience of the employer c. Welfare and benefits of the employee
b. Necessity to the business or trade d. De minimis benefits

3. As a rule, fringe benefit furnished or granted in cash or in kind by an employer to

an individual employee maybe subject to the fringe benefit tax, if given to
A. Rank and file employees B. Managerial employees C. Those holding
supervisory positions
a. Only A and B b. Only A and C c. Only B and C d. A, B and C

4. The fringe benefit tax is

A. Imposed on the employer B. Withheld at source C. Deductible by the employer

a. Only A and B b. Only A and C c. Only B and C d. A, B and C

5. With regard to the amount on which the fringe benefit tax rate is applied, which
statement is wrong? The tax benefit rate is applied on
a. The monetary value of the fringe benefit
a. The gross-up monetary value of the fringe benefit
b. The amount deductible by the employer from gross income
c. Both accounts of the fringe benefit and the fringe benefit tax

6. The following fringe benefits are not subject to fringe benefit tax, except
a. If required by the nature of or necessary to the trade, business or profession of
the employer
b. Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans
c. Benefits given to the rank and file employees
d. If given for the convenience or advantage of the employee

7. Basic rules on fringe benefits tax, except

a. Fringe benefit given to rank and file employees is not subject to fringe benefits
tax
b. Fringe benefit given to a supervisory or managerial employee is subject to fringe
benefits tax
c. De minimis benefit whether given to rank and file employee or to supervisory or
managerial employee is not subject to fringe benefit tax
d. The fringe benefit tax is a tax paid by the managerial or supervisory employee

8. Facilities or privileges furnished or offered by an employer to his employees that

are of relatively small value and are offered or furnished by the employer merely as a
means of promoting the health, goodwill, contentment, or efficiency of his employees.
a. Fringe benefit c. De minimis benefit
b. Fringe benefit tax d. grossed-up monetary

9. Which statement is wrong? The fringe benefit tax is

a. Imposed on the employer c. Imposed on the managerial or supervisory employee
b. Withheld at source d. Deductible by the employer

10. Which of the following is considered fringe benefits?

a. Housing privilege of AFP consisting of officials of the Philippine Army, Philippine
Navy and Philippine Air Force
b. Housing unit which is situated inside or adjacent to the premises of a business or
factory within a maximum of 50 meters from the perimeter of the business premises.
c. Temporary housing for an employee who stays in a housing unit for 3 months or less.
d. Housing benefits given by the government to its public managerial officers.

11. The grossed-up monetary value of fringe benefit subject to fringe benefit tax
received by a non-resident alien individual engaged in trade or business in the
Philippines is computed by dividing the monetary value of the fringe benefit by
a. 75% b. 25% c. 85% d. 15%

12. The following fringe benefits are not subject to fringe benefits tax, except:
a. Fringe benefits given to the rank and file employees, whether granted under a
collective bargaining agreement or not

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Northern CPAR: Taxation – Fringe Benefit Taxation
b. Contributions of the employer for the benefit of the employees to retirement,
insurance and hospitalization benefits plans
c. De minimis benefits, as defined in the rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the Commissioner.
d. Fringe benefits furnished or granted by the employer to its managerial and
supervisory employees.

13. The 2018 books of accounts of DBest Company showed the following:
Fringe benefit expense P1,550,000
Fringe benefit tax expense 363,125

Compute the gross-up monetary value of fringe benefit given to managers and
supervisors.
a. P488,235 b. P512,500 c. P705,500 d. P1,037,500

14. Compute the value of fringe benefit given to rank and file employees.
a. P512,500 b. P512,500 c. P705,500 d. P844,500

15. Compute the monetary value of fringe benefit given to managers and supervisors.
a. P512,500 b. P512,500 c. P705,500 d. P844,500

16. Compute the total deductible amount against gross income of DBest Company.
a. P1,037,500 b. P1,369,500 c. P1,882,000 c. P2,187,500

17. Mr. A is a mining engineer employed by B Co., a mining firm. The company’s mine
site in the forest of Mt. Manok. Mr. A was provided by the Company with living
quarters at the mine site. The fair rental value of the living quarters is P15,000 a
month. Determine the quarterly fringe benefit tax due.
a. P7,059 b. P21,176 c. P84,706 d. P 0

18. In 2018, ABC Corp. hired Ms. R. Escala as sales manager for cosmetics. In
accordance with her conditions for employment, she was given the following
compensation and fringe benefit:

Salary P200,000/month
Three handsome houseboys as P8,000 per
maids maid/month
A macho personal driver P10,000/month
Home owner’s association dues P1,200/year

The fringe benefit tax due is

a. P108,424 b. P192,565 c. P201,452 d. P220,338

19. In 2019, A Corporation allowed its Sales Manager to incur expenses subject to
reimbursement, as follows:

Home Electricity (paid and receipted under A Corrporation’s name) – P 20,000

Home Water (paid and receipted under the manager’s name but reimbursed by A
corporation) – 2,000
Grocery purchased (Pelizloy Mart) 10,000
Gasoline of company car 12,000
Representation and transportation – business trip 4,000

The amount subject to fringe benefits tax is

a. P49,231 b. P24,412 c. P19,231 d. P15. 754

20. As a means of promoting the health, goodwill and efficiency of his employees,
employer A gave rank and file employee B the following fringe benefits in 2018:
1. Monetized unused vacation leave of 15 days P 9,000
2. Rice subsidy 24,000
3. Uniform and clothing allowance 8,000
4. Achievement award for length of service in the form
5. of tangible personal property 75,000
6. Gifts given during Christmas and major anniversary celebrations 10,000
7. 13th month pay 38,000

The amount of taxable fringe benefit is

a. P25,000 b. P23,000 c. P18,000 d. P10,000

21. The employer’s deductions for the benefits given

a. P164,000 b. P144,000 c. P88,000 d. P84,000

Query: Assuming that the employee is a managerial or supervisory employee, compute the
following:

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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX – 4th Batch – HQ06-1
Northern CPAR: Taxation – Fringe Benefit Taxation
1. Taxable amount of fringe benefits = ________
2. Total employer’s deduction = ________

22. ABC Corporation paid for the following benefits of employees in the first quarter of
2019:

Types of Benefits 4 managers and supervisors 30 rank and file

Rice subsidy P 36,000 P 270, 000
SSS employer’s share 12,000 67, 500
SSS employee’s share 12,000 67, 500
(withheld)
Life insurance of officers 15,000 -
with their spouse as
beneficiary
Life insurance of officers 15,000 -
with ABC Corporation as
beneficiary

*Mandatory amounts were P9,000 and P62,000 for officers and rank and file, respectively.

Compute the fringe benefits tax.

a. P20,845 b. P19,742 c. PP16,154 d. P 15,845

23. The following data belong to Nasty Corp. for the year 2010
a. Educational assistance to supervisors and their children P 75,000
b. Employer’s contribution for the benefit of the employees to
retirement, insurance and hospitalization benefit plans 70,000
c. Year’s rental for an apartment paid by the Nasty for the use
of its controller 60,000

Compute the total deductible fringe benefit tax expense.

a. P49,412 b. P151,692 c. P56,538 d. P63,529

24. ABC, Inc. established in the Philippines provided its employees cash and non-cash
fringe benefits in 2009 as follow:

Total amount of fringe benefits P1,000,000

60% of said amount was given to rank and file employees
40% of said amount was given to corporate officers as follow:
a. To resident citizens 45%
b. To non-resident aliens not engaged in business in the Philippines 35%
c. To special aliens and Filipino employees 20%

Compute the total fringe benefit tax expense of ABC, Inc.

a. P238,824 b. P212,864 c. P242,891 d. P145,490

25. Compute the total deductible fringe benefit expense.

a. P1,238,824 b. P1,212,864 c. P1,242,891 d. P1,145,490

26. A Company made the following payments in the 3rd quarter of 2018:

Fringe benefits:
To the supermarket in payment of groceries for the company’s
manager and family – P16,500
To a university in payment of the tuition fee of the manager – P24,750
Salary of the manager, net of P50,000 withholding tax – P350,000

Determine the fringe benefit tax due.

a. P19,412 b. P20,100 c. P22,212 d. P184,118

27. Celebas, Inc owns a residential property, it acquired for P2,000,000. It

transferred ownership thereto to its managerial employee for P1,200,000 when its fair
value was P3,000,000. What is the monetary value of the benefit?
a. P3,000,000 c. P1,800,000
b. P2,000,000 d. P800,000

28. Kalibo Corporation designated two condominium units for the use of its supervisory
employees with fair value and terms of residence as follows:
Agreed Residence time Property value
Unit No. 1 1 year P4,000,000
Unit No.2 3 months 3,000,000

Compute the quarterly monetary values for the above.

a. P4,000,000 c. P100,000

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Northern CPAR: Taxation – Fringe Benefit Taxation
B. p175,000 D. P25,000

29. Tapas Corporation has a production facility 10 kilometers away from town. To promote
the goodwill of its employees, it decided to construct housing units within the compound
of the facility. It also agreed to pay half of the household rentals of employees, who do
not want to transfer their families to the housing unit. The following data relates to
the quarter of grant.
Company officers Rank and file employees
Value of housing unit P 1,000,000 P3,000,000
Rental payments 500,000 800,000

Compute the monetary value of benefits subject to fringe benefit tax.

a. P4,650,000 b. P 1,500,000 c. P500,000 d. P250,000

30. In July 2018, Naga purchased a P1,200,000 car for the use of its managerial employee.
Compute the fringe benefit tax to paid respectively for the calendar quarters ending
September and December 2018.
a. P564,706; P56,471 c. P56,471; P56,471
b. P112,941; P56,471 d. P16,154; P16,154

31. Maasin Carbon Plant acquired a P1,000,000-motor vehicle for the use of its field
engineer, a plant supervisor, assigned to a very remote facility from town. Compute the
monetary value of benefits subject to tax.
a. P1,000,000 c. P100,000
b. P200,000 d. P0

32. During the last calendar quarter of 2016. Naval Company granted a Filipino
supervisory employee the following benefits:
Salaries P 120,000
Performance bonus 20,000
13th month pay 40,000
Excess de minimis 12,000
Cash price of car given to supervisory employee 300,000

Compute the fringe benefit tax.

a. P160,941 b. P151,529 c. P146,824 P141,176

33. Catbalogan paid the P27,200 monthly rental of the residence of its managerial
employee from January to May of 2018. Compute the fringe benefit for the first quarter
and second quarter of 2018.
a. P19,200; P12,800 b. P21,969; P14,646 c. P6,400; P6,400 d. 6,400; P4,267

---- End of Handouts ---

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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX – 4th Batch – HQ06-1