CHAPTER 3

FRINGE BENEFITS TAX AND DE MINIMIS BENEFITS

Objectives:
Identify the nature of fringe benefit tax
Define the income tax of an estate and income of a trust

Fringe benefit tax

The term “compensation under section 2.78.1 of RR 2*98, as amended,

means all remuneration for services performed by an employee for his
employer ender an employer-employee relationship, unless specifically
excluded by the Code.

Fringe benefit is defined under section 2(f) of RR 8*2018 as any goods,

service or other benefits furnished or granted by an employer in cash or kind,
other than the basic compensation, by an employer to an individual employee.

Fringe benefit tax (FBT) is a monetary burden imposed by the

sovereignty on any good, service, or other benefit furnished or granted by an

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employer, in cash or in kind, in addition to basic salaries, to an individual
employee, other than a rank and file employee.

The FBT is a final tax on the employee withheld by the employer,

computed at 35% (beginning January 1, 2018 or upon the effectivity of TRAIN
Law) on the grossed-up monetary value (GUMV) of the fringe benefit granted
by the employer to an employee who holds a managerial or supervisory
position.

Tax exempt fringe benefits

1. Fringe benefits which are authorized and exempted from income tax
under any special law such as:

a. Contributions required under SSS law

b. Contributions required under GSIS law

c. Similar contributions under an existing law

d. Premiums for group insurance of employees

2. If the grant of fringe benefits to the employee is required by the nature

of, or necessary to the trade, business or profession of the employer.

3. De minimis benefits

4. If the grant of benefits is for the convenience or advantage of the

employer.

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 Table 3:2 Fringe Benefit Tax Base and Rate
CIT., RA, NRA-
Classification of taxpayers
NRAET NETB
Monetary value Pxx Pxx
Divide by gross monetary value factor 65% 75%
Grossed-up monetary value Pxx Pxx
x FBT rRate 35% 25%
Fringe benefit tax (FBT) Pxx Pxx

De minimis benefits

Facilities and Privileges such as entertainment, medical services, or

so called “courtesy” discounts on purchases, otherwise known as “De
minimis benefits” furnished or offered by an employer to his employees,
are not considered as compensation subject to income tax and
consequently to withholding tax, if such facilities or privileges are of
relatively small value and are offered or furnished by the employer merely
as means of promoting the health, goodwill contentment or efficiency of his
employees.

The following shall be considered de minimis benefits not subject to

income tax as well as withholding tax on compensation income of both
managerial and rank and file employees:

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a. Monetized unused vacation leave credits of private employees not
exceeding “10 days” during the year.

b. Monetized value of vacation and sick leave credits paid to government

officials and employees.

c. Medical cash allowance to dependents of employees not exceeding

P1,500 per semester or P250 a month

d. Rice subsidy of not more than P2,000 per month or 1 sack (50) kg rice
per month

e. Uniforms given to employees by the employer not exceeding P6,000

per annum (as amended by RR 8-2018).

f. Actual medical assistance given not exceeding P10,000 per annum

such as medical allowance to cover medical and healthcare needs,
annual medical/executive check-up, maternity assistance and routine
consultations.

g. Laundry allowance not exceeding P300 per month.

h. 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 annual monetary value not
exceeding P10,000 under an established written plan which does not
discriminate in favor of highly paid employees).

i. Gifts given during Christmas and major anniversary celebrations not

exceeding P5,000 per employee per annum.

j. Daily meal allowance for overtime work and night/graveyard shift not
exceeding 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
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 employees on night/graveyard shift.

k. Benefits received by an employee by virtue of a collective bargaining

agreement (CBA) and productivity incentives schemes provided that the
total annual monetary value received from the two (2) items above
combined, do not exceed P10,000 per employee per taxable year.

BIR Ruling No. 293-2015(CBA/CAN and Productivity Incentive Pay)

- If more than P10,000 – considered de minimis

- If more than P10,000 – the entire amount shall be included in the

“other benefits” with P90,000 ceiling

P90,000 Ceiling for 13th month pay/bonuses and “Other Benefits”

Section 32(B)(7)(E) of the tax coded in relation to PD 851 as

amended by RA10653 provides that 13 th month pay and other benefits
received by officials of public and private entities are exempt from income
tax and creditable withholding tax on compensation, provided, however,
that beginning January 1, 2018, the total exclusion shall not exceed
P90,000 (RA 10963 -Train Law).

Oher benefits under these regulations include:

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 a. Christmas bonus

b. Productivity incentive bonus

c. Loyalty awards

d. Gifts in cash or in kind and other benefits of similar nature

actually received by officials and employees of both government
and private offices.

Representation and Transportation Allowance

Representation and transportation allowances (RATA) granted

under section 34 of the General Appropriations Act to certain officials and
employees of the government are considered reimbursements for the
expenses incurred in the performance one’s duties rather than as
additional compensation.

Communication allowance

Communication allowance (phone allowance) granted to employees

are not subject from fringe benefit tax and tax on compensation on the
basis that communication allowance is deemed required by the nature of
the job of the employees and deemed necessary to business and
redounds to the convenience and benefit.

Non-taxable housing benefits

The following housing benefits shall not be considered taxable fringe

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benefits (Section 33 – tax code)

1. Housing unit inside or adjacent (within 50 meters) from the perimeter of

the business premises.

2. Temporary housing for a stay in the housing unit for three months or
less.

3. Housing privilege of military officials of the Armed Forces of the

Philippines.

Other fringe benefit

a. Expense account

b. Expenses for foreign travel

c. Educational assistance to the employer or his dependents

d. Membership dues or fees of employees borne by employer in social

and athletic clubs or other similar organizations

e. Life or health insurance and other non-life insurance premiums treated

as taxable benefits.

Use of aircraft and helicopters

The use of aircraft and helicopters owned and maintained by the

employer is not a taxable fringe benefit but treated as business expense of
the employer.

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Co-ownership, Estates and Trusts

There is co-ownership when two or more heirs or beneficiaries

inherit an undivided property from a decedent, or when a donor makes a
gift of an undivided property in favor of two or more donees. Inheritance is
subject to “Estate Tax” while donation is subject to “Donor’s Tax”.

Income tax of an estate

Income tax of an estate refers to the tax on income received by the

estate during the period of administration or settlement, An “estate” is a
mass of all property, rights, and obligations of a deceased person which
are not extinguished by his death, including those which have accrued
thereto since the opening of succession.

A transfer tax is a tax on gratuitous transfer or property either

through gift/donation (subject to donor’s tax) or through inheritance (subject
to estate tax). A transfer tax is not an income tax because there is no
taxable income realized from the passage of property to the heirs upon the
death of the decedent.

Administrative or Settlement Period refers to the period when title to

the properties left by a decedent is not yet finally transferred to the
heirs/beneficiaries. At this period, the executor named by the deceased in
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his “last will or testament”, if any, or the administrator appointed by the
court, as the case may be, is temporarily in-charge of the administration of
the estate until such time that the estate is finally distributed to the rightful
heirs.

Deductions from estate’ gross income

Deductions from the estate’s gross income are the same items of
deductions (business expenses) allowed for individual taxpayers under
Section 34 of the tax code. However, in addition to the usual allowable
business expenses, the amount of income of the estate for the taxable
year which is property paid or credited during such year to any legatee,
heir, or beneficiary should be deducted (also known as special deduction)
in the determination of the estate’s taxable income.

Taxation of Trust’s

Trust is a right on property, real or personal, held by one party for the
benefit of another. It may be arranged inter-vivos or created by will under
which title to a property is passed to another for conservation or investment
with the income therefrom and ultimately the corpus (principal) to be
distributed in accordance with the directions of the creator as expressed in
the governing instrument.

Parties to a Trust:

Trustor – person who establishes a trust.

Trustee – one in whom confidence is reposed as regards property

for the benefit of another person.
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 Beneficiary – person whose benefit trust is created.

Fiduciary – any person or corporation that holds in trust an estate of

another person or persons. A fiduciary may exist only if a legal trust
is created.

Classification of trust

1. Ordinary trust – the income and corpus of the trust do not revert to the
grantor. The trust income is accumulated and held for distribution to the
beneficiaries.

2. Revocable trust (Section 63-NIRC) – a trust where at any time, the

power to revest in the grantor, title to any part of the corpus of the trust
is vested:

a. In the grantor either alone or in conjunction with any person not

having a substantial adverse interest in the disposition of such part
of the corpus of the income therefrom; or

b. In any person not having a substantial adverse in the disposition of

such part of the corpus or the income therefrom.

3. Employee’s trust – income tax shall not apply to employee’s trust which
forms part of pension, stock bonus, or profit-sharing plan of an employer
for the benefit of some or all of his employees.

Filing of income tax returns

The following persons acting in any fiduciary capacity shall file the
income tax return for an estate or trust (Section 65-NIRC)
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- Guradians

- Trustees

- Executors/administrators

- Receivers

- Conservators

- All other persons or corporations acting in any fiduciary capacity

The return may be filed in

- Authorized agent banks

- Revenue district officer

- Collection agent

- Duly authorized city or municipal treasurer in which the taxpayer has

his legal residence or principal place of business.

For further discussion please refer to the link provided: Fringe Benefit Tax

https://www.youtube.com/watch?v=i2RIxPd8-cc
For further discussion please refer to the link provided: De Minimis Benefit
https://www.youtube.com/watch?v=FxcB_83tjww
For further discussion please refer to the link provided: Principles of Estate Tax
https://www.youtube.com/watch?v=qYqX3FupbQs

Reference Book:

Income Taxation
(with special topics and properly filled BIR
forms)
By: Enrico D. Tabag, 2020 Edition

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