1. Matutina was hired by Dacs to be the latter’s secretary and personal assistant.

To enable her to
perform her duties well, Dacs provided a condo unit (adjacent to his) unit which Matutina could
use as her temporary residence. Is the fair market value of the use of the condo by Matutina a
“fringe benefits” that is subject to fringe benefit tax imposed under section 33 of the National
Internal Revenue Code?

► Answer: No.
Matutina is neither a managerial nor a supervisory employee. Only fringe benefits granted to
managerial and supervisory employees are subject to the fringe benefits tax.

Tax Exempt Fringe Benefits

The following fringe benefits shall not be subject to basic tax or fringe benefit tax:
A. Fringe benefits which are authorized and exempted from income tax under any special law such as:
 Contributions required under SSS law
 Contributions required under GSIS law / PHILHEALTH / PAG-IBIG/ UNION DUES
 Similar contributions under an existing law
 Premium for group insurance of employees

B. 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.

2. “Outstation Allowance (covers meals and trip-related expenses)” are granted to the managerial
and supervisory employees of Philippine Gaming Management Corporation (PGMC) who will
be away from the office site for at least 8 hours to visit lotto franchise holders for repairs and/or
inspection of equipment leased by PGMC from Philippines Charity Sweepstakes Office (PCSO).
Should the aforementioned 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
aforestate 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 account/liquidate the
same considering that said expenses are pre- computed on a daily basis and are paid to
employees while on an assignment or duty (BIR Ruling No. 013-2002 dated April 5, 2002).

C. De minimis benefits (refer to the discussion below)

E. If the grant of benefits is for the convenience or advantage of the employer.

ILLUSTRATION 3:
CASE A. Use the same data in illustration #1.

Question 1:
Is the fair market value of the use of the condo unit by Matutina a “compensation income” that
is subject to basic tax under Section 24A of the Tax Code and 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 his personal secretary, it is necessary for Matutina to be accessible to
Dacs anytime.

Question 2:
Assuming Matutina is a managerial or supervisory employee, is the fair market value of the use of the
condo by Ana a “fringe benefit” subject to FTB?

► Answer: No.
As explained in question #1, if the grant of benefits is for the convenience or advantage of the
employer, irrespective of the employee’s rank, the benefit shall not be subject to fringe benefit tax
and basic tax on compensation income.

FRINGE BENEFIT TAX BASE AND RATE

Classification of taxpayers CITIZEN, RA, NRAET NRA-NETB

Monetary value ₱xx ₱xx
Divide by gross monetary value 65% 75%
factor
Grossed-up monetary value x ₱xx ₱xx
FBT rate 35% 25%
Fringe benefit tax ₱xx ₱xx

ILLUSTRATION 4:
Determine the grossed-up monetary value and the fringe benefit tax of the following (if
applicable) for 2018 taxable year:
1. P39,000 grocery allowance for the personal consumption of an executive of
ABC Corporation.
2. P40,800 expenses paid by an executive of ABC Corporation duly received in the name
of ABC Corporation and is not in the nature of personal expense.
3. P40,800 expenses incurred by an executive of ABC Corporation in connection with
attending a business meeting or convention.
4. P40,800 grocery allowance for the personal consumption of one of ABC Corporation’s rank
and file employees.

► Answers: ➔ GUMV=P39k/65%=P60,000; FBT=P39k/65% x 35%=P21,000

 ➔ GUMV=P40,800**; FBT=P0
**The expenditure is not in the nature of personal expense of the company’s executive,
hence, it is not a fringe benefit taxable to the employee. It is an ordinary business expenditure
of ABC Corporation.
➔ GUMV=P40,800; FBT=P0; same explanation with #2
➔ GUMV=P40,800 same with monetary value FBT=P0**; subject to basic tax

Valuation of Fringe benefits

 If granted in money, the value is the amount granted.
 If 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 to a 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 composes 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.

Question 1: What should be the appropriate journal entry in the books of the employer?
► Answer:
Fringe benefit expense (monetary value) P975,000
Fringe benefit tax expense

525,000 (P975,000/65%)x35%
Cash (GUMV)***(P975,000/65%) P1, 500,000
***The P1,500,000 grossed-up monetary value is composed of P975,000 paid to the employee
and P525,000 paid/remitted to the BIR.

Question 2: Assume that the cash fringe benefit is not subject to fringe benefit tax, what should be
the appropriate journal entry of the employer?
► Answer:
Fringe benefit expense

P975,000 (Compensation expense)

Cash P975,000

4. DE MINIMIS BENEFITS
The following shall be considered de minimis benefit not subject to income tax as well as
withholding tax on compensation income of both managerial and rank and file employees:

a) Monetized unused vacation leave credits of private employees not exceeding “10 days”
during the year.
Payment of monetized unused “vacation” leave credits exceeding 10 days as well
as payment of “sick” leave, regardless of number of days shall be added to “other
benefits” with a P90,000 ceiling. Any amount exceeding the P90,000 ceiling
discussed below shall be subject to basic and CWT on compensation income.

b) Monetary value of vacation and sick leave credits paid to government officials
and employees.
Compared to employees in the private sector, payment of monetized unused
“vacation and sick” leave credits to government officials/employees regardless of
the number of days shall be exempt from tax on compensation income.

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 (50kg.) rice per month.

e) Uniforms given to employees by the employer not exceeding P6,000 per annum
(as amended by RR 8-2012)

f) Actual medical assistance given not exceeding P10,000 per annum such as medical
allowance to cover medical and health care needs, annual medical/executive check-
up, maternity assistance and routine consultations.

g) Laundry allowance not exceeding P300 per month. (300 * 12) =3,600

h) Employees achievement awards (e.g. for length of service or safety achievement

which must be in the form of tangible personal property other than cash or gift
certificate with and 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 benefits is given on
account of overtime work or if given to employees on night/graveyard shift.
Otherwise, grant of meal allowance should be subject to income tax (RR 05-
2011) but if furnished (as well as lodging) for the “advantage or convenience of
the employer” then it is exempt.

k) Benefits received by an employee by virtue of a collective bargaining agreement (CBA)

and Productivity incentive schemes provided that the total annual monetary value
received from the two (2) items above combined, do not exceed P10,000.00 per
employee per taxable year. (RR 1-2015 dated January 5, 2015)
P90,000 Ceiling for 13th month pay/bonuses and “Other Benefits”

Section 32(B)(7)(E) of the Tax Code in relation to PD 851 as amended by RA10653 provides
that 13th month pay and other benefits received by officials and employees 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).
Otherwise, the excess would form part of an individual’s gross income and would be subject to

income tax and applicable creditable withholding taxes. “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:
❖ Self-employed individuals; and
❖ Income generated from business

Note: Shall not apply to other compensation received by an employee under an employee-employer
relationship such as basic salary and other allowances.

EXCESS OF DE MINIMIS BENEFITS OVER THEIR RESPECTIVE CEILINGS

The amount or 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 the gross
income under Section 32B(7)(e) of the Code as amended by RA10963-TRAIN Law (previously
P82,000 under RA10653; RR 3-2015). On the other hand, the excess of the de minimis benefits
over their respective 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 given by employers which are not included in the enumeration of de
minimis benefits shall not be considered 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
benefits over the P90,000 limit would form part of an individual’s gross income and would be
subject to income tax and application creditable withholding taxes.

Fixed or Variable Allowances

Generally speaking, fixed or variable allowances received by a public officer or employee or

employee of a private entity in addition to the regular compensation fixed for his position or office
are subject to income tax and consequently creditable withholding tax on compensation income.
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.

Business related expenses/ Allowances subject to liquidation

Any amount paid specifically, either as advances or reimbursement for traveling, representation and
other bona fide ordinary and necessary expenses incurred of his duties are not compensation subject
to withholding, if the following conditions are satisfied:

 It is for ordinary and necessary traveling and representation or entertainment expenses paid
or incurred by the employee in the pursuit of the trade, business are profession; and
 The employees are 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

Representation and transportation allowances (RATA) granted under Section 34 of the

General Act to certain officials of employees of the government are considered reimbursement
for the expenses incurred in the performance of one's duties rather than as additional
compensation. However the excess RATA, if not returned to the employer constitutes taxable
compensation income of the employee.
Under several rulings issued by the BIR, the foregoing rule shall likewise apply to
reasonable amounts of reimbursements or advances for travelling and representation or private
employees which are pre- computed on a daily basis and which are paid to any employee while
on assignment or duty. Such allowance should not be considered compensation subject to
withholding tax. On the other hand, transportation and representation allowances which are
fixed in amounts and are regularly received by the employees as part of their monthly
compensation are subject to basic tax.

Communication Allowance

Communication allowance granted to employees are not subject to 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.

SPECIAL RULES IN COMPUTING THE MONETARY VALUE OF HOUSING BENEFITS

Monthly Monetary Value

● Employer leases a residential property for the
use of the employee
● Employer owns a residential property for the
use of the employee
● Employer purchases residential property in
installment for use employee
● Employer purchases residential property and
transfers ownership to employee
Monthly rental paid x 50%
The higher between FMV in the Real property
declaration OR the zonal value x 5% x 50%**
Acquisition cost, exclusive of interest x 5% x
50%**
Acquisition cost or zonal value as determined by
CIR whichever is higher.
 ● Employer purchases residential property and The higher between FMV in the real property
transfers ownership to employee on a lesser declaration or Zonal as determined by CIR less
amount cost to the employee
**Annual Benefit=FMV or Zonal whichever is higher x 5%
Monetary value of the benefit=FMV or Zonal whichever is higher x 5% x 50%
***Annual benefit=acquisition cost exclusive of interest x 5%
Monetary value of the benefit=acquisition cost exclusive of interest x 5% x 50%
RULES IN COMPUTING THE MONETARY VALUE OF MOTOR VEHICLES

Monetary Value
a. Employer owns and maintains a fleet of motor Acquisition cost of vehicles not normally used for
vehicles for the use of business and employees. business divided by 5 years x 50%
b. Employer leases/maintains a fleet of motor Amount of rental payments not normally used for
vehicles for the use of business and employees. business purposes x 50%
c. Employer purchases vehicle in the name of the Acquisition cost
employee
d. Employer provides employee with cash for the Cash received
purchase of the vehicle, and ownership is placed
in the name of the employee
e. Employer purchases the vehicle on installment Acquisition cost exclusive of interest divided by
and owners 5 years
f. Employer shoulders a portion of the amount of Amount shouldered by employer
the purchase price of the vehicle and ownership is
placed in the name of the employee

ILLUSTRATION 6: (SPECIAL RULES IN COMPUTING MONETARY VALUE) CASE A:

In 2018, a domestic corporation paid for the monthly rental of a residential house of its branch
manager, Mr. Juan Dela Cruz, amounting to P156,000. (Assume there is no transfer of ownership)
Question 1: What is the monetary value of the benefit?
Question 2: What is 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 benefit?

► Answer:
Question 1: P78,000
Question 2: P120,000
Question 3: P42,000
Question 4: P198,000

Solution:
Rental payment P156,000
X 50%
Monetary value P 78,000
Divided by 65%
GUMV P120,000
X fringe benefit tax rate 35%
Monthly fringe benefit tax expense P 42,000
Add: rentals paid 156,000
Total deductible expense P198,000
Non-taxable Housing Benefits

The following housing benefits shall not be considered taxable fringe benefits (Sec 33-tax code):
1. Housing unit inside or adjacent (within 50 meters) from the perimeter of the
business premises. A housing unit which is situated “inside or adjacent” to the
premises of a business shall not be considered as a taxble 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 (50) meters from the perimeter of the business premises and
employees are required to be on-call due to the nature of the employers’ operation
(BIR Ruling no. DA-635-04, December 15, 2004 issued to Foreign Holiday
Philippines, Inc. and BIR Ruling NO. DA-241-04, May, 2004 issued to Sohbi
Koghei (Phils.), Inc.

2. Temporary housing for a stay in the housing unit for three (3 months) or less.

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

Other Fringe Benefits

Under this category, the value of the benefit representing the amount given or paid by the
employer should also be the "monetary" value of the benefit.

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.
 Taxable as fringe benefits
Expense accounts paid for or reimbursed by employer (such as personal expenses like
groceries) are taxable fringe benefits. However, if the expenses were received in the
name of the employer and do not partake in the nature of "personal expenses attributable
to employees, such expense accounts should not be taxable as fringe benefits. It should
neither be included in determination of the individual taxpayers' taxable compensation
income.
 Not treated as taxable fringe benefits
Representation and transportation allowance given regularly (Page 163) on a monthly
basis are not taxable fringe benefits but as compensation income subject to basic tax
under Sec 24(A) 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
he subject to fringe benefit tax The cost of economy and business class airplane ticket shall
not be subject to fringe benefit tax. However of the cost of first class airplane ticket shall be
subject to fringe benefit tax in the absence of documentary evidence showing that the
employees 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 expenses of family members of employees paid for by the employer shall
be treated 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;
 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.
 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 or 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 under the
Tax Code or under any special law.
b. The fringe benefit is required by the nature of or necessary to the trade, business
or profession of the employer.
c. When the fringe benefit is for the convenience or advantage of the employer
d. Contributions of the 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 discussed in this chapter.

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.

Filing of Returns

The tax return shall be filed and the tax paid/remitted not later than the last day of the month
following the close of the quarter during which withholding was made (TRAIN Law; RR 11-2018)

Lara is a resident citizen employed by Chris Sports, Incorporated. He received the following from
his employer during 2018:
Basic Compensation Income 900,000
13th month pay 75,000
3,000 monthly transportation allowance 36,000
Productivity incentive pay 10,000
Christmas Bonus 25,000
Uniform allowance 15,000
Actual medical allowance 10,000
Rice subsidy 24,000
Required: Determine Lara’s taxable net income
MONETIZED UNUSED SICK LEAVE CREDITS (9 DAYS * 600 PHP) 5400
RICE SUBSIDY 6000
CLOTHING ALLOWANCE 3000
LAUNDRY ALLOWANCE 2400
TOTAL TAXABLE AMOUNT – DE MINIMIS 16800 PHP