BAM031 INCOME TAXATION P2 NOTES

CHAPTER 3: FRINGE BENEFIT TAX

Compensation

- All renumeration for services performed by an employee for his employer under an employer-
employee relationship, unless specifically excluded by the code.
Fringe Benefit
- Is a monetary burden imposed by the sovereignty on any goods, service or other benefits
furnished or granted by an employer in cash or in kind, in addition to basic salaries, other than the
basic compensation, by an employer to an individual employee.
- Form of pay which may be in the form of property, services, cash or cash equivalent to
supplement a stated pay for the performance of services.
- Fringe benefits subject to Fringe Benefit Tax cover only those fringe benefits given or furnished
to a managerial or supervisory employee.
Managerial/Supervisory Employee

- Subject to FBT (Fringe Benefit Tax)

- Vested with powers of prerogatives to lay down and execute management policies and/or to hire,
transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively
recommend such managerial actions.
- ALL employees NOT FALLING within this definition are considered RANK-AND-FILE
employee (not subject to FBT but instead subject to Basic Tax or CWT on compensation)

Nature of Fringe Benefit Tax

- FBT is a final tax imposed on the employee withheld by the employer. (Employer is the one
liable to pay FBT, not the employee)
- Computed as 35% on the Grossed-up Monetary Value (GUMV) of fringe benefit granted by
employer to an employee who holds a managerial or supervisory position
- FBT is collected or withheld at source by the employer, meaning, at firms' level rather than at the
taxpayer’s level to facilitate tax administration.
- FBT is effective regardless of whether the employer is an individual, professional partnership or a
corporation, or whether corporation is taxable or not.
- FBT shall be withheld and remitted by the employer to BIR not later than the last day of the
month.

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Items of FBT subject to Tax
1. Housing
2. Expense account
3. Vehicle of any kind
4. Household personnel, such as maid, driver and others
5. Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted
6. Membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs and similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of
what the law allows.
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 grant or fringe benefits are required by nature of, or necessary to the trade, business and
profession of the employer
3. De minimis benefits
4. If the grant or benefit is for the convenience or advantage of the employer.
Computation of Fringe Benefit Tax
- Generally, FBT rate is 35%, however, FBT rate for NRA-NETB is 25%
- Computation is done by:
1. Evaluating the value of the benefit granted or determining the monetary value
2. Determining the proportion or percentage (Gross Monetary Value Factor) of the benefit
which is subject to FBT
a. For CIT, RA, NRA-ETB - 65%
b. For NRA-NETB – 75%
3. Determining the GUMV of the fringe benefit by dividing the monetary value of the fringe
benefit by the gross monetary value factor; and
a. Monetary Value/Gross Monetary Value Factor = GUMV
4. Multiplying the GUMV by the FBT rate.
a. GUMV x FBT Rate = FBT
i. For CIT, RA, NRA-ETB – 35%
ii. For NRA-NETB – 25%

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Valuation of Fringe Benefits

- Granted in Money – value is the amount granted

- Granted in property and Ownership is transferred to employee – value is the fair market
value of the property
- Granted in property and Ownership is not transferred to employee – value is equal to the
depreciation value of the property.
Deductible Expense of the Employer (BOOKS OF EMPLOYER)

- If fringe benefit is given to rank-and-file employee/supervisory employee but is not subject to

fringe benefit tax, deduction to employer is the MONETARY VALUE of the fringe benefit.

Fringe Benefit Expense (Monetary Value) xx

Compensation Expense xx
Cash xx

- If fringe benefit is given to a supervisory employee and is subject to fringe benefit tax, deduction
is the GUMV of the fringe benefit.

Fringe Benefit Expense (Monetary Value) xx

Fringe Benefit Tax Expense (FBT) xx
Cash (GUMV) xx

De Minimis Benefits

- Are facilities and privileges such as entertainment, medical services, or so called “courtesy”
discounts on purchases, furnished or offered by an employer to his employees.
- These are NOT considered as compensation subject to income tax and consequently to
withholding tax if these are relatively small in value and merely as means of promoting the
health, goodwill, contentment or efficiency of employees.
- These benefits are EXEMPT from withholding tax on compensation and fringe benefits tax
regardless of the position of the employee who received such benefit.

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The following are considered DE MINIMIS BENEFITS not subject to income tax as well as
withholding tax on compensation income of both managerial and rand-and-file employees:
1. Monetized unused vacation leave credits of PRIVATE employees NOT EXCEEDING 10
DAYS DURING THE YEAR
a. Payment of monetized unused vacation leave exceeding 10 days and payment of sick
leave regardless of number of days shall be added to “OTHER BENEFITS” with a
P90,000 ceiling.
2. Monetized value of vacation and sick leave credits paid to government officials and employees
REGARDLESS OF THE NUMBER OF DAYS
3. Medical cash allowance to dependents of employees NOT EXCEEDING P1,500 PER
SEMESTER or P250 A MONTH
4. Rice subsidy of NOT MORE THAN P2,000 PER MONTH or 1 SACK (50KG.) RICE PER
MOTNH
5. Uniforms given to employees by the employer NOT EXCEEDING P6,000 PER ANNUM
6. Actual medical assistance given NOT EXCEEDING P10,000 PER ANNUM
7. Laundry allowance NOT EXCEEDING P300 PER MONTH
8. Employee achievement awards which must be in the FORM OF A TANGIBLE PERSONAL
PROPERTY OTHER THAN CASH OR GIFT CERTIFICATE with an ANNUAL
MONETARY VALUE NOT EXCEEDING P10,000 under an ESTABLISHED WRITTEN
PLAN which does not discriminate in favor of highly paid employees
9. Gifts given during Christmas and major anniversary celebrations NOT EXCEEDING P5,000
PER EMPLOYEE PER ANNUM
10. Daily meal allowance for overtime work and night/graveyard shifts NOT EXCEEDING 25%
OF THE BASIC MINIMUM WAGE ON A PER REGION BASIS provided such benefit is
given on account of overtime work or given to employees on night/graveyard shift
a. If not for overtime work or night/graveyard shift, should be subject to income tax
11. Benefits received by an employee by virtue of a Collective Bargaining Agreement (CBA) or
Collective Negotiation Agreement (CNA) and Productivity incentive schemes provided that the
total annual monetary value received from the TWO COMBINED DO NOT EXCEED P10,000
PER EMPLOYEE PER TAXABLE YEAR
a. If NOT MORE THAN P10,000 – considered as De Minimis
b. If MORE THAN P10,000 – entire amount is included in “other benefits” with P90,000
ceiling.
Excess of De minimis benefits over their respective ceilings
- The amount of de minimis benefits CONFORMING to the ceiling of de minimis benefits shall
NOT BE CONSIDERED in determining the P90,000 ceiling of “other benefits” excluded
from gross income.
- The EXCESS of de minimis benefits over their RESPECITVE CEILINGS PRESCRIBED
UNDER THIS REGULATION shall be CONSIDERED as part of “other benefits” subject to
tax only on the excess over the P90,000 ceiling.
- All other benefits not included in enumeration of de minimis benefits are not de minimis benefits
BUT should fall under the classification of “other benefits” and is therefore subject to the
P90,000 ceiling.
- The excess of the P90,000 ceiling of “other benefits” shall form part of an individual's gross
income and would be subject to income tax, and applicable creditable withholding taxes.

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P90,000 ceiling for 13th month pay/bonuses and “other benefits”
- 13th month pay and other benefits received by officials and employees of public/private entities
are EXEMPT from INCOME TAX AND CWT on compensation, provided, total exclusions shall
NOT EXCEED P90,000.
- The excess would form part of an individual's gross income and would be subject to income tax,
and applicable creditable withholding taxes.
- P90,000 exclusion shall ONLY apply to “13th MONTH PAY” and “OTHER BENEFITS” and
shall not apply to other compensation received by employee such as basic salary and other
allowances.
Other Benefits
1. Christmas Bonus
2. Productivity incentive Bonus
3. Loyalty awards
4. Gifts in cash or in kind and other benefits similar in nature actually received by employees.

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Fixed or Variable Allowances
- These are allowances in addition to regular compensation which are subject to income tax and
CWT on Compensation income.
- Examples of Fixed or Variable Allowances are;
o Transportation allowance
o Representation allowance
o Communication allowance
o Living away from home allowance (LAFHA)
- Reasonable amounts of reimbursements/advances for travelling and entertainment expenses
which are precomputed daily and are paid to an employee while he is on an assignment or duty
NEED NOT TO BE SUBJECT to the requirement of substantiation and to withholding.

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Business related expenses/Allowances subject to liquidation

- Any amount paid specifically which are ordinary and necessary expenses incurred or reasonably
expected to be incurred by employee in the performance of his duties are NOT
COMPENSATION SUBJECT TO WITHHOLDING if the following conditions are
satisfied:
o It is for ordinary and necessary travelling and representation, or entertainment expenses
paid or incurred by the employee in the pursuit of the trade, business or profession;
and
o The employee is required to account/liquidate for the foregoing expenses in
accordance with the specific requirements of substantiation for each category of expenses
pursuant to Sec. 34 of the tax code.
Representation and Transportation Allowance (RATA)
- Granted under certain officials and employees of the government, are considered reimbursements
for the expenses incurred in the performance of one’s duties rather than as additional
compensation.
- If excess of RATA is not returned to employer, it constitutes taxable compensation income for
the employee.
- It shall likewise apply to “reasonable amounts of reimbursements or advances for travelling and
representation of private employees which are PRE-COMPUTED on a DAILY BASIS and
which are paid to any employee WHILE ON ASSIGNMENT OR DUTY”. Such allowance
shall not be considered compensation subject to withholding tax.
- Transporation and representation allowances which are FIX IN AMOUNTS AND ARE
REGULARLY RECEIVED BY THE EMPLOYEES as PART OF THEIR MONTHLY
COMPENSATION are subject to basic tax.
Communication Allowance
- Not subject from FBT and tax on compensation IF that allowance is deemed required by nature
and deemed necessary to business and rebounds to the convenience and benefit.
Non-Taxable Housing Benefits
The following shall NOT BE CONSIDERED TAXABLE FRINGE BENEFITS
1. Housing unit inside or adjacent (WITHIN 50 METERS) from the perimeter of the business
premises.
a. Must be 50 meters within the business premises and employees must be required to be
on-call due to the nature of the employers' operation.
2. Temporary housing for a stay in the housing unit for 3MONTHS OR LESS
3. Housing privilege of military officials of the Armed Forces of the Philippines
Other Fringe Benefits
1. Expense Account – may be taxable as fringe benefits or treated as compensation income
depending on the nature of the expense account provided to employees.

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 a. Taxable as fringe benefits
i. Expense accounts paid for or reimbursed by employer (personal expenses) are
taxable fringe benefits.
ii. If expenses were receipted in the name of the employer and do not partake the
nature of “personal expenses”, such expense account should not be taxable as
fringe benefits
b. Not treated as taxable fringe benefits
i. Representation and transportation allowances given regularly on monthly basis
are NOT taxable fringe benefits but taxable as COMPENSATION INCOME
subject to basic tax
2. Expenses for foreign travel
- Expenses in connection with attending business meeting or convention such as food,
beverages and transportation during foreign travel (except lodging cost in a hotel) at an
average of $300 per day are NOT TO BE SUBJECT TO FRINGE BENEFIT TAX
- Economy and business class airplane ticket shall NOT BE SUBJECT TO FRINGE
BENEFIT TAX
- 30% of the cost of first-class airplane ticket shall be SUBJECT TO FRINGE
BENEFIT TAX
- Absences of documentary evidence shall treat expenses as taxable fringe benefit.
3. Educational assistance to the employee or his dependents
- In general, cost of educational assistance is treated as taxable fringe benefit EXCEPT:
o 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
o When given to employee’s dependents through a COMPETITIVE SCHEME
under scholarship program of the company
4. Membership dues or fees of employees borne by employer in social and athletic clubs or other
similar organizations
5. Life and health insurance and other non-life insurance premiums are treated as TAXABLE
BENEFITS
6. The following shall NOT be treated as taxable fringe benefits:
a. Fringe benefits which are authorized and exempted from income tax
b. The fringe benefit is required by the nature of or necessary to the trade, business or
profession of the employer
c. Fringe benefit is for the convenience or advantage of the employer
d. Contributions of employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans
e. Benefits given to Rank-and-File employees
f. Non-taxable housing benefits
g. Other non-taxable benefits
Use of Aircraft and Helicopters
- Use of aircraft and helicopters owned and maintained by the employer is NOT A TAXABLE
FRINGE BENEFIT.

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