Subject: Taxation

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 NAVOTAS POLYTECHNIC COLLEGE
Bachelor of Science in Business Administration
Taxation
Atty. Christian Wilfred D. Morales, CPA1

Module 4: Fringe Benefits and Other Benefits

Intended Learning Outcomes (ILO)

At the end of this topic, the student must have understood the tax treatment in
dealing with the nature and taxability of fringe benefits and their correlation with
items in the gross income

Lecture Proper and Discussion

FRINGE BENEFITS

Fringe benefits means any good, service, or other benefit furnished or granted in
cash or in kind by an employer to an individual employee. Any employee,
whether managerial, supervisorial or rank-and-file employee, may be given fringe
benefits as there is no prohibition under the law. However, different tax treatment
applies depending upon who the recipient of the fringe benefit is.

Items of Fringe Benefit

Fringe benefits given by an employer to an employee may include:

(a) housing;

(b) expense account;

(c) vehicle of any kind;

(d) household personnel, such as maid, driver and others;

(e) interest on loan at less than market rate to the extent of the difference between
the market rate and actual rate granted;

(f) membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations;

(g) expenses for foreign travel;

1
Member of the Integrated Bar of the Philippines, Member of the Philippine Institute of Certified
Public Accountant, former Associate of Maceda, Valencia and Co., Maceda Valencia & Co. (MVCo.),
a member firm of Nexia International, former Senior Financial Specialist of Financial Management
Division (FMD), former Senior Internal Control Officer and Head of Financial Audit Section (FAS) of
Internal Audit Services, National Irrigation Adminstration (NIA), former Professor of Law and
Accounting at College of Business Administration, City of Malabon University (CMU), Attorney II at
BIR Legal Division, Law Practitioner

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(h) holiday and vacation expenses;

(i) educational assistance to the employee or his dependents; and

(j) life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.2

Fringe Benefits Tax

A final tax of thirty-five percent (35%) is imposed on the grossed-up monetary

value of fringe benefit furnished or granted to the employee by the employer,
whether an individual or a corporation unless the fringe benefit is required by the
nature of, or necessary to the trade, business or profession of the employer, or
when the fringe benefit is for the convenience or advantage of the employer.

The person liable to pay the fringe benefit tax is the employee for the reason that
the employee is the income earner. The employer merely deducts the said fringe
benefit tax from the grossed-up monetary value of the fringe benefit and remits
the same to the taxing authorities.3

Considering that Fringe Benefit Tax is a final tax, the fringe benefit received by
the employee need not be included in the gross income.

Fringe benefits received by rank-and-file employee are not subject to fringe benefit
tax but to net income tax. Thus, the fringe benefits received is part of the
compensation income of a rank-and-file employee. Only those fringe benefits
received by a managerial or supervisory employee is subject to Fringe Benefit
Tax.

For non-resident alien not engaged in trade or business occupying managerial or

supervisory position, a final tax of thirty-five percent (25%) is imposed on the
grossed-up monetary value of fringe benefit furnished or granted.

Grossed-up monetary value is determined by dividing the actual monetary value

of the fringe benefits by sixty-five percent (65%), or seventy-five (75%) in case of
non-resident alien not engaged in trade or business. Thus, the following sample
computation for formula illustration:

Resident Non-Resident Resident Non-Resident Alien Non-Resident

Citizen Citizen Alien Engaged Alien Not Engaged
Monetary Value 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00
Divided by: 65% 65% 65% 65% 75%
Grossed-Up Monetary Value 153,846.15 153,846.15 153,846.15 153,846.15 133,333.33
Fringe Benefit Tax Rate 35% 35% 35% 35% 25%
Fringe Benefit Tax 53,846.15 53,846.15 53,846.15 53,846.15 33,333.33

Fringe Benefits not Subject to Fringe Benefit Tax

2
Sec. 33(B) of the NIRC
3
Sec. 33(A) in relation to Sec. 57(A) of the NIRC

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The following fringe benefits given to a managerial or supervisory employees are
not subject to fringe benefit tax;

(a) the fringe benefit is required by the nature of, or necessary to the trade,
business or profession of the employer;

(b) the fringe benefit is for the convenience or advantage of the employer;

(c) fringe benefits which are authorized and exempted from tax under special
laws;

(d) contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans;

(e) benefits given to the rank-and-file employees, whether granted under a

collective bargaining agreement or not; and

(f) de minimis benefits

Sample 1: During 2021, Nem gave her employees the following fringe benefits:
salaries to rank-and-file employees in the amount of P1,000,000, salaries to
managerial employees in the amount of P1,800,000, de minimis benefits to rank-
and-file employees in the amount of P54,400, de minimis benefits to managerial
employees in the amount of P27,200, fringe benefits given to rank-and-file
P102,000, and fringe benefits given to managerial employees P170,000. How
much is the fringe benefits tax and how much is the allowable deduction from
Gross Income that Nem can claim?

Fringe Benefits given to Managerial Employees 170,000.00

Grossed Up Monetary Value Rate 65%
Grossed Up Monetary Value 261,538.46
Fringe Benefit Tax Rate 35%
Fringe Benefit Tax 91,538.46

Salaries to rank-and-file employees 1,000,000.00

Salaries to managerial employees 1,800,000.00
De minimis benefits to rank-and-file employees 54,400.00
De minimis benefits to managerial employees 27,200.00
Fringe benefits given to rank-and-file 102,000.00
Fringe benefits given to managerial employees 170,000.00
Fringe Benefit Tax 91,538.00
Total Allowable Deduction 3,245,138.00

General Valuation of Fringe Benefits

The following are the general rules in valuation of fringe benefits;

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(a) if the fringe benefit is granted in money, or is directly paid for by an employer,
then the value is the amount granted or paid for.

(b) if the fringe benefit is granted by the employer in property other than money
and ownership is transferred to the employee, the value of the fringe benefit shall
be equal to the fair market value of the property as determined by its zonal value.

(c) if the fringe benefit is granted by the employer in property other than money
but ownership is not transferred to the employee, the value of the fringe benefit is
equal to the depreciation value of the property.

Valuation of Specific Types Fringe Benefits

The taxable value of specific fringe benefits is the grossed-up monetary value
based on the following:

Housing Privilege

(a) if the employer leases a residential property for the use of his employee and
the said property is the usual place of residence of the employee, the value of the
benefit shall be the amount of rental paid thereon by the employer. The monetary
value of the benefit shall be 50% of the value of the benefit.

(b) if the employer owns a residential property and the same is assigned for the
use of his employees as his usual place of residence, the annual value of the
benefit shall be 5% of the market value or zonal value of land and improvement
whichever is higher. The monetary value shall be fifty percent (50%) of the value
of the benefit. The monetary value of the housing fringe benefit is equivalent to
the following: MV = [5% (FMV or ZV] x 50%

(c) if the employer purchases a residential property on installment basis and

allows his employee to use the same as his usual place of residence, the annual
value of the benefit shall be 5% of the acquisition cost, exclusive of interest. The
monetary value shall be 50% of the value of the benefit.

(d) if the employer purchases a residential property and transfers ownership

thereof in the name of the employee, the value of the benefit shall be the
employer’s acquisition cost or zonal value (FMV) whichever is higher. The
monetary value shall be the entire value.

(e) if the employer purchases a residential property and transfers ownership to his
employee for the latter’s residential use, at a price less than the employer’s
acquisition cost, the value of the benefit shall be the difference between the FMV
or ZV whichever is higher and the cost to the employee. The monetary value
shall be the entire value of the benefit.

(f) housing privilege of military officials of the AFP consisting of officials of the
Philippine Army, Philippine Navy and Philippine Air Force shall not be treated
as taxable fringe benefit in accordance with the existing doctrine that the State

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shall provide its soldiers with necessary quarters which are within or accessible
from the military camp so that they can be readily on call to meet the exigencies
of their military service.

(g) a housing unit which is situated inside or adjacent to the premises of a

business or factory shall not be considered as a taxable fringe benefit (considered
adjacent if the unit is located within the maximum fifty meters from the perimeter
of the business premises.

(h) temporary housing for an employee who stays in a housing unit for three
months or less shall not be considered a taxable fringe benefit.

Expense Account

(a) in general, expenses incurred by the employee but which are paid by his
employer shall be treated as taxable fringe benefits, except when the expenditures
are duly receipted for and in the name of the employer and the expenditures do
not partake the nature of a personal expense attributable to the employee.

(b) expenses paid for by the employee but reimbursed by his employer shall be
treated as taxable benefits except only when the expenditures are duly receipted
for and in the name of the employer and the expenditures do not partake the
nature of a personal expense attributable to the said employee.

(c) personal expenses of the employee (e.g., groceries for personal consumption)
paid for or reimbursed by the employer to the employee shall be treated as taxable
fringe benefits.

(d) Representation and transportation allowances which are fixed in amounts and
are regularly received by the employees as part of their monthly compensation
income shall not be treated as taxable fringe benefits but considered as taxable
compensation income.

Motor Vehicle

(a) if the employer purchases the motor vehicle in the name of the employee, the
value of the benefit is the acquisition cost thereof. The monetary value shall be
the entire value of the benefit, regardless, of whether the motor vehicle is used by
the employee partly for his personal purpose and partly for the benefit of his
employer.

(b) if the employer provides the employee with cash for the purchase of a motor
vehicle, the ownership of which is placed in the name of the employee, the value
of the benefit shall be the amount of cash received by the employee. The
monetary value of the fringe benefit shall be the entire value of the benefit
regardless of whether the motor vehicle is used by the employee partly for his
personal purpose and partly for the benefit of his employer, unless the same was
subjected to tax as compensation income

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(c) if the employer purchases the car on installment basis, the ownership of which
is placed in the name of the employee, the value of the benefit shall be the
acquisition cost exclusive of interest, divided by five (5) years. The monetary
value of the fringe benefit shall be the entire value regardless of whether the motor
vehicle is used by the employee partly for his personal purpose and partly for the
benefit of his employer.

(d) if the employer shoulders a portion of the amount of the purchase price of a
motor vehicle the ownership of which is placed in the name of the employee, the
value of the benefit shall be the amount shouldered by the employer. The
monetary value shall be the entire value of the benefit regardless of whether the
motor vehicle is used by the employee partly for his personal purpose and partly
for the benefit of his employer.

(e) f the employer owns and maintains a fleet of motor vehicles for the use of the
business and the employees, the value of the benefit shall be the acquisition cost
of all the motor vehicles not normally used for sales, freight, delivery service and
other non-personal used divided by five (5) years. The monetary value shall be
fifty percent (50%) of the value of benefit.

(f) if the employer leases and maintains a fleet of motor vehicles for the use of the
business and the employees, the value of the benefit shall be the amount of rental
payments for motor vehicles not normally used for sales, freight, delivery service
and other non-personal use. The monetary value of the fringe benefit shall be
fifty percent (50%) of the value of the benefit.

(g) the use of aircraft (including helicopters) owned and maintained by the
employer shall be treated as business use and not to be subject to Fringe Benefit
Tax.

(h) the use of yacht whether owned or maintained or leased by the employer shall
be treated as taxable fringe benefit. The value of the benefit shall be measured
based on the depreciation of the yacht at an estimated useful life of twenty (20)
years.

Household Expenses

Expenses of the employee which are borne by the employer for household
personnel, such as salaries of household help, personal driver of the employee, or
other similar personal expenses (e.g., association dues, etc.) shall be treated as
taxable fringe benefits.

Interest on Loan at Less than Market Rate

(a) if the employer lends money to his employee free of interest or at a rate lower
than twelve percent (12%), such interest forgone by the employer or the difference
of the interest assumed by the employee and the rate of twelve percent (12%) shall
be treated as a taxable fringe benefit.

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(b) the benchmark interest rate of twelve percent (12%) shall remain in effect until
revised by a subsequent regulation.

(c) This regulation shall apply to installment payments or loans with interest rate
lower than 12%.

Membership Fees, Dues, And Other Expenses Borne by the Employer for his Employee, in
Social and Athletic Clubs or Other Similar Organizations

These expenditures shall be treated as taxable fringe benefits of the employee in

full.

Expenses for Foreign Travel

(a) Reasonable business expenses which are paid for by the employer for foreign
travel of his employee for the purpose of attending business meetings or
conventions shall not be treated as taxable fringe benefits. In this instance, inland
travel expenses (such as food, beverages and local transportation) except lodging
cost in a hotel (or similar establishments) amounting to an average of Three
Hundred Dollars ($300.00) or less per day shall not be subject to a Fringe Benefit
Tax. The expenses should be supported by documents proving the actual
occurrences of the meetings or conventions

(b) The cost of economy and business class airplane ticket shall not be subject to a
fringe benefits tax. However, thirty percent (30%) of the cost of first-class ticket
shall be subject to Fringe Benefit Tax.

(c) In the absence of documentary evidence showing that the employee’s travel
abroad was in connection with business meetings or conventions, the entire cost
of the ticket, including cost of hotel accommodations and other expenses incident
thereto shouldered by the employer shall be treated as taxable fringe benefits.
The business meetings shall be evidenced by official communications from
business associates abroad indicating the purpose of the meetings. Business
conventions shall be evidenced by official invitations/communications from the
host organization or entity abroad. Otherwise, the entire cost thereof shouldered
by the employer shall be treated as taxable fringe benefits of the employee.

(d) Traveling expenses which are paid by the employer for the travel of the family
members of the employee shall be treated as taxable fringe benefits of the
employee.

Holiday and Vacation Expenses

Holiday and vacation expenses of the employee borne by his employer shall be
treated as taxable fringe benefits.

Educational Assistance to the Employee or his Dependents

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(a) The cost of the educational assistance to the employee borne by the employer
shall, in general, be treated as taxable fringe benefits. However, a scholarship
grant to the employee by the employer shall not be taxable fringe benefit if the
education or study involved is directly connected with the employer’s trade,
business or profession, and there is a written contract between them that the
employee is under obligation to remain in the employ of the employer for period
of time that they have mutually agreed upon, thus the expenditure shall be treated
as incurred for the convenience and furtherance of the employer’s trade or
business.

(b) The cost of educational assistance extended to the dependents of an employee

shall be taxable fringe benefits unless the assistance was provided through a
competitive scheme under the scholarship program of the company.

Life or Health Insurance and Other Non-life Insurance Premiums or Similar Amounts in
Excess of What the Law Allows

The cost of life or health insurance and other non-life insurance premium borne
by the employer for his employee shall be treated as taxable fringe benefit, except
contributions of the employer for the benefit of the employee pursuant to
provisions of existing law such as SSS, GSIS and other similar contributions and
the cost of premiums borne by the employer for the group insurance of his
employees.

Sample 2: During 2021, Nem paid the monthly rental of the residential house of
her branch manager amounting to P204,000. How much is the fringe benefits tax
and how much is the allowable deduction from Gross Income that Nem can
claim?

Monthly Rate (P204,000 x 50%) 102,000.00

Grossed Up Monetary Value Rate 65%
Grossed Up Monetary Value 156,923.08
Fringe Benefit Tax Rate 35%
Fringe Benefit Tax 54,923.08

Monthly Rate 204,000.00

Fringe Benefit Tax 54,923.08
Total Allowable Deduction 258,923.08

Sample 3: During 2021, Nem purchased a motor vehicle amounting to

P1,400,000 for her branch manager. The motor vehicle was registered in the
name of the branch manager. It was agreed that the motor vehicle shall be used
partly for the benefit of the company. How much is the fringe benefits tax and
how much is the allowable deduction from Gross Income that Nem can claim?

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 Acquisition Cost 1,400,000.00
Grossed Up Monetary Value Rate 65%
Grossed Up Monetary Value 2,153,846.15
Fringe Benefit Tax Rate 35%
Fringe Benefit Tax 753,846.15

Although the problem states that the vehicle will be partly used for the benefit of
the company, the entire amount shall be subject to Fringe Benefit Tax because it
was registered under the name of the employee.

DE MINIMIS AND OTHER BENEFITS

De minimis benefits are facilities and privileges of relative small value and
provided by an employer to an employee merely as a means to promote their
health, good will, contentment, or efficiency. De minimis benefits, whoever the
recipient maybe, are not subject to income tax or Fringe Benefit Tax.

The following are considered de minimis benefits:4

(a) Monetized unused vacation leave credits of private employees not exceeding
ten (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
employee per semester of P250 per month;

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

(e) Uniform and clothing allowance not exceeding P6,000 per annum;

(f) Actual medical assistance, e.g., a therapeutic benefit to cover medical and
healthcare needs, annual medial/executive check-up, maternity assistance, and
routine consultations, not exceeding 10,000 per annum;

(g) Laundry allowance not exceeding P300 per month;

(h) Employees’ achievement awards, which must be in the form of tangible

personal property other than cash or gift certificates, with an annual monetary
value not exceeding P10,000 received by the employee 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;

4
Revenue Regulation 11-2018

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(j) Daily meal allowance for overtime work and night/graveyard shift not
exceeding 25% of the basic minimum wage; and

(k) Benefits received by an employee by virtue of a Collective Bargaining

Agreement (CBA) and productivity incentive schemes, provided the total annual
monetary value received from both CBA and productivity incentive schemes
combined do not exceed P10,000 per employee per taxable year.

All other benefits given by employers which are not included in the above
enumeration shall not be considered as de minimis and shall be subject to income
tax.

Tax Treatment of De Minimis Given Beyond the Prescribed Amount

The benefits given in excess of the maximum amount allowed as de minimis

benefits shall be included as part of “other benefits” which is subject to the
P90,000.00 ceiling.5 Any amount in excess of the P90,000.00 ceiling shall be
included in the gross income and subject to normal income tax or fringe benefit
tax depending on whether the recipient is a rank-and-file employee or a
supervisory or managerial employee.

Sample 4: In 2021, Nem, a rank-and-file employee of Goodhouse Industries Inc.,

received an annual clothing allowance amounting to P10,000. Her 13th month pay
is P80,000. No other benefits were received for the entire year. How much is the
“Other Benefits” to be included in the gross income?

Item Exempt Excess Other Bonus

Clothing Allowance 10,000.00 6,000.00 4,000.00
13th Month Pay 80,000.00
Total De Minimis and Benefits 84,000.00
Limit (90,000.00)
Amount to be Included in the Gross Income -

The excess of the Clothing Allowance of P4,000 and the 13th Month Pay of
P80,000 is still exempt because it does not exceed the threshold of P90,000.

Sample 5: In 2021, Nem, a rank-and-file employee of Goodhouse Industries Inc.,

received an annual clothing allowance amounting to P10,000. Her 13th month pay
is P90,000. No other benefits were received for the entire year. How much is the
fringe benefit to be included in the gross income?

5
Sec. 32(B)(7)(e)(iv) of the NIRC

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 Item Exempt Excess Other Bonus
Clothing Allowance 10,000.00 6,000.00 4,000.00
13th Month Pay 100,000.00
Total De Minimis and Benefits 104,000.00
Limit (90,000.00)
Amount to be Included in the Gross Income 14,000.00

The excess of the Clothing Allowance of P4,000 and the 13th Month Pay of
P100,000 over the P90,000 limit is included in the gross income and subject to
normal income tax.

Sample 6: Nem, Human Resource Director of Goodhouse Industries Inc.,

provided the following data: Annual Salaries in the amount of P1,440,000,
Allowances subject to Liquidation in the amount of P50,000, Allowances not
subject to Liquidation in the amount of P60,000, Monthly Rice Allowance in the
amount of P3,000, Christmas Bonus in the amount of P30,000, 13th Month Pay
and mid-year bonus in the amount of P240,000, Productivity Incentive Pay
covered by a CBA in the amount of P25,000, Monetized unused vacation leave
for 12 days in the amount of P66,000, monetized unused sick leave for 5 days in
the amount of P27,500, Medical Cash Allowance to dependents in the amount of
P3,000, actual medical benefits in the amount of P10,000. Determine the amount
of exempt de minimis, de minimis subject to tax, fringe benefit tax and total
taxable compensation income.

Rice Allowance 24,000.00

Christmas Bonus 5,000.00
Monetized Unused Vacation Leave 55,000.00
Medical Cash Allowance to Dependents 3,000.00
Actual Medical Benefits 10,000.00
Amount Exempt De Minimis 97,000.00

Item Amount Exempt Excess

Rice Allowance 36,000.00 24,000.00 12,000.00
Christmas Bonus 30,000.00 5,000.00 25,000.00
13th Month Pay 240,000.00 90,000.00 150,000.00
Productivity Incentive Pay 25,000.00 25,000.00
Monetized Unused Vacation Leave 66,000.00 55,000.00 11,000.00
Monetized Unused Sick Leave 27,500.00 - 27,500.00
Medical Cash Allowance to Dependents 3,000.00 3,000.00 -
Actual Medical Benefits 10,000.00 10,000.00 -
Amount Subject to Basic Tax 437,500.00 187,000.00 250,500.00

Productivity Incentive Pay of not more than P10,000 is considered as exempt de

minimis. Additionally, allowances subject to liquidation is a non-taxable income
of Nem. The same is part of operating expense of Goodhouse Industries Inc.

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 Allowance not Subject to Liquidation 60,000.00
Grossed-Up Monetary Value Rate 65%
Grossed-Up Monetary Value 92,307.69
Fringe Benefits Tax Rate 35%
Fringe Benefits Tax 32,307.69

Allowances not Subject to Liquidation are considered as taxable fringe benefit.

Thus, no longer included in the computation of taxable income since Fringe
Benefit Tax is a final tax.

Salaries 1,440,000.00
13th Month Pay and Other Benefits 250,500.00
Taxable Compensation Income 1,690,500.00

-o0o-

Suggested Teaching Activities (TAs)

Refer to our Google Classroom for the Suggested Teaching Activities

Assessment Tasks / Output (ATOs)

Refer to our Google Classroom for the Assessment Task/Output

Readings and Other References

1. Taxation Law, Volume 1, Raegan L. Capuno (2020)

2. Taxation Law, Volume 2, Raegan L. Capuno (2020)
3. CPA Reviewer in Taxation, Enrico D. Tabag (2021)
4. CPA Reviewer in Taxation, Omar Erasmo G. Ampongan (2021)
5. Republic Act No. 8424 or the Tax Reform Act of 1997
6. Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion
Law
7. Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for
Enterprises (CREATE) Act
8. Republic Act No. 11469 or the The Bayanihan to Heal as One Act
9. Republic Act No. 11494 or the The Bayanihan to Recover as One Act
10. RR No. 8-2018 - Implements the amended provisions on Income Tax
pursuant to RA No. 10963 (TRAIN Law)
11. RR No. 2-2021 - Amends certain provisions of RR No. 2-98, as amended,
to implement the amendments introduced by RA No. 11534 (Corporate
Recovery and Tax Incentives for Enterprises Act or CREATE Act) to the
NIRC of 1997, as amended, relative to the Final Tax on certain passive
income
12. RR No. 3-2021 - Prescribes the Rules and Regulations to implement
Section 3 of RA No. 11534 (Corporate Recovery and Tax Incentives for

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 Enterprises Act or CREATE Act), amending Section 20 of the NIRC of
1997
13. RR No. 5-2021 - Implements the new Income Tax rates on the regular
income of corporations, on certain passive incomes, including additional
allowable deductions from Gross Income of persons engaged in business
or practice of profession pursuant to RA No. 11534 (Corporate Recovery
and Tax Incentives for Enterprises Act or CREATE Act), which further
amended the NIRC of 1997.

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