FRINGE BENEFIT TAX part 2

De Minimis Benefits
What is De minimis Benefits Philippines?
- These are benefits given by the company to the employees besides their
regular compensation. These are subject to a law or governed by special
laws.
- What is the meaning of this term in taxation?. these terms are incentives or
privileges of relatively small value. Indeed, it is given by the employer to his
employees. It is mandated by law or additional compensation according to the
performance to be given to all employees.

It is to recognize their efforts and contributions to the company. It is a small

amount added to the compensation or salary of the employee.
 DE MINIMIS benefits NOT SUBJECT TO INCOME TAX
as well as Withholding tax on compensation income or both
managerial and rank and file employees:

1.Monetized unused “vacation leave”credits of private

employees not exceeding “10 days”during the year.

2. The convertible value of vacation and sick leave

credits paid to government officials and employees.
 3. Medical cash allowance to dependents of employees not
exceeding 1,500 per semester (6 months)250.00 per month.

4. Rice subsidy of 2 000.00 (replaced the amount of

1500.00) or one sack of 50 kg. Rice per month amount to not
over 2, 000.00
5. Uniform and clothing allowance not exceeding 6 000 per
year.
6. Actual medical assistance, e.g., a therapeutic benefit
to cover medical and healthcare needs, annual
medical/executive check-ups, maternity assistance,
and routine consultations, not exceeding 10 000
yearly.
7. Laundry allowance not exceeding 300 per month
Other De minimis Benefits Philippines
1. Employees’ achievement awards, e.g., for a length of service or
safety achievement, employees’ achievement awards must be as
tangible personal property other than cash or gift certificates. It has
an annual monetary value not exceeding 10,000 received by the
employee under an established written plan. This benefit does not
discriminate in favor of highly paid employees.
2. Any gifts received during Christmas and major anniversary
celebrations not exceeding 5 000 per employee once a year.
 3. Daily meal allowance for overtime work and night/graveyard
shift not exceeding 25% of the basic minimum wage on per region
basis

4. Last, benefits received by an employee by a collective

bargaining annual monetary value received from both this and
productivity incentive schemes combined do not exceed 10 ,000
per employee per taxable year.
BIR RULLING
● If not more than P10,000 - considered as de minimis
● If more than P10,000 - the entire amount shall be included in the “other
benefits” with P90,000 ceiling

- This ruling shall apply only to benefits under CBA and productivity incentive
schemes. CBA may also referred to as CNA ( collective negotiation
agreement)

The foregoing list of de minimis benefits are ALL INCLUSIVE. Meaning, all
other benefits given by employers which are not included in the enumerations
above shall NOT be considered de minimis benefits
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 the gross income under Section
32B(7)(e) of the Code as amended by RA 10963-TRAIN LAW.

- The excess of the de minimis benefits over their respective ceilings

prescribed under the regulation shall be considered as part of other
benefits subject to tax only on the excess over P90,000 ceiling.
- Any amount of de minimis benefits in excess of the threshold
can still be exempt as “other benefits,” such as;
● 13th month pay, but not to exceed P90,000.
● 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.
Business related expenses/ Allowance subject to
liquidation

Any amount paid specifically, either as advances or

reimbursements for travelling, representation and other
bona fide ordinary and necessary expenses incurred or
reasonably expected to be incurred by the employee in the
performance of his duties are not compensation subject to
withholding, if the following condition are satisfied:
● 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;

● The employee is required to account/liquidate for the

forgoing 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 Allowance (RATA) granted

under Sec. 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. However, the
excess of RATA, if not returned to the employer , constitutes
taxable compensation income of the employee
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
Benefits for the convenience or advantage of the
employer
Benefits or allowances which are intended for the
furtherance of the interest of the employer’s business or
to ensure its smooth operations are likewise exempt from
income tax. Referred as “CONVENIENCE OF THE
EMPLOYER RULE”
Examples;

1. Work related mobile phone allowance and

transportation allowance particularly to employees of
call centers which are operated on a 24-hour basis
where employees are required to be available always
for assignment and consultation.
2. Grant of housing privilege to employees working at distant or
remote fasciitis even if the dwelling is distanced from the facility in
compliance to labor safety standards
3. Car incentives to employed on-call medical doctors
4.Scholarship grants to employees under contract to remain in
service for a specified period upon completion of the study
5. Housing privilege of military officials of the AFP located inside or
near the military camps.
These types of employer spending are regarded as business
expenses and are not considered as employee reward
because they are not intended for the free personal
consumption or disposal of the employees but as
implements of the employer’s business to ensure the
employer’s convenience.
However, if the expense is unreasonably excessive
making it depart from the nature of a reasonable business
expense such as when it is deliberately granted to include
a benefit for the employee, the portion of the expenses
representing provision or privilege to the employee is
considered a taxable fringe benefit. These type of
expense are regarded as “hybrid expenses” because
they are partially business expenses and partially
employee benefits.
Tax on Fringe Benefits/De Minimis and Excess of the Ceiling in the De Minimis Benefits
Illustration 1: De minimis limits

Alexander , a private employee who paid a P600 daily rate, receives the
following benefits during the year 2019:

Monetized unused vacation leave credits 9 days

Monetized unused sick leave credits 9 days
Medical assistance P 7,000.00
Rice subsidy (2,500.00 per month) P30,000.00
Clothing allowance P 9,000.00
Laundry allowance P 6,000.00

*Determine the taxable amount of de-minimis benefits

Solution:
Actual Limit Excess
Monetized unused VL P5,400. P6,000 P 0
Monetized unused SL P5,400. 0 5,400
Medical assistance P 7,000.00 10,000. 0
Rice subsidy (2,500.00 per month) P30,000.00 24,000. 6,000
Clothing allowance P 9,000.00 6,000. 3,000
Laundry allowance P 6,000.00 3,600. 2,400.
Taxable de minimis as öther benefits”’ P16,800
Private Employees

1. The actual value of the monetized unused VL was computed

as P600 x 9 while the limit was P600 x 10.
2. The 10 day rule applies only to vacation leaves . Monetization
of sick leaves of private employees is taxable.
3. The rice subsidy and laundry allowance were likewise
annualized by multiplying their monthly limit by 12. The de
minimis benefits within the limits are exempt from income tax
Illustration 2
Giovanni , a government rank and file employee, received the following
benefits;

Monetized unused vacation leave credits (10 days) P6,000

Monetized unused sick leave credits (15 days) 9,000
Uniform allowance 5,000
Laundry allowance 4,800

*Determine the amount to be included in other benefits

Solution
Actual Limit Excess
Monetized unused VL P6,000 exempt P 0
Monetized unused SL 9,000 exempt P 0
Uniform allowance 5,000 6,000. P 0
Laundry allowance 4,800 3,600. 1,200.
Taxable de minimis as öther benefit”s 1,200.00

It is clear under RR5-2011 that the vacation leave and sick leave of
government employees are not subject to the 10-day limit rule
Illustration 3
Professor Radvic was one of the Hall of Fame awardees of Youbee
University. He was granted P25,000 cash as loyalty award for his 30
years of service . He was also given P10,000 Christmas gift and an
additional P10,000 gift during the institution’s Founding Day
Anniversary. Besides, he was also given free lunch meals with a
total value of P15,000 during the same year.

Required : Compute the total taxable de-minimis benefit as “other

benefits”
Solution
Actual Limit Excess
Loyalty or service award P25,000 P 0 P25,000.
Christmas and anniversary gift P20,000 5,000 15,000.
Meals P15,000 0 15,000.
Total taxable de minimis as öther benefits P55,000
Note:

1. The limit on loyalty or service awards applies only if it

is given in kind
2. Only meals for overtime or graveyard shifts are
considered de minimis. Other meals benefits are no
longer considered de minimis.
End of Slides