TAXATION BAC103A

FRINGE BENEFITS
▪ Fringe Benefits – means any good, service or other benefit furnished or granted in cash or in kind other than the basic compensation, by an
employer to an employee, (except rank and file employee as defined herein) such as, but not limited to the following:

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 the 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. Education assistance to the employee or his/her dependents

10. Life or health insurance and other non – life insurance premium or similar amounts in excess of what the law allows.
EXEMPTED FRINGE BENEFITS GENERAL RULE
“Necessity of Business Rule”
Or zonal value
whichever is higher
Example for interest on loan

▪ A : employer lends 500k for 0% interest rate

▪ Monetary value= 500k (principal) * 12% = 60,000

▪ B : employer lends 800k for 5% interest rate

▪ Monetary value = 800k (principal) * (12%-5%)
▪ = 800k * 7%
▪ = 56k
Foreign Travel
Educational Assistance
Housing
*If employee is NRA-
NETB, use 25% tax rate
10,000*3 = 30,000 *
50% = 15,000

Lot = zonal 3.5M

higher vs. 2M fmv
House = 1.5M
Total = 3.5m +1.5m
=5M * 5% = 250k
*50% = 125k / 4 =
31,250

3.5M

3M -1.2M = 1.8M
2.4M FMV -450k (ambag) = 1950000 Monetary value
Divide by 65% = 3,000,000 Grossed up MV
3M * 35% = 1050000 Fringe benefit tax

Employer’s book
Cash 450k
Fringe benefit expense (2M-450k) 1.550M
Fringe benefit tax expense 1.050 M
Inventory 2M
Fringe benefit tax liability 1.050 M
Concept of Gross Income

▪ Income, in general, is the gain derived from capitol, labor, or both combined,
including profit gained through a sale or conversion capital assets.
RETURN on CAPITAL vs. RETURN of CAPITAL
Capital Items deemed with Infinite value: Life, Health and Reputation
▪ Gross Income means total income of a taxpayer subject to tax. It includes
gains, profits, and income derived from source whether legal or illegal. It
does not include income excluded by law, or which are exempt from income
tax.
▪ Taxable income – means all pertinent items of gross income specified by the
Tax code less deductions, if any, authorized for types of income by the tax
code or other special laws.
Concept of Gross Income

INCOME FROM WHATEVER SOURCE

“Other income unless excluded whether derived from legal or illegal
sources should be included in gross income.
Some examples:
1. Recovery of damages
-If compensation for loss of profits – taxable
-If compensation for damage to property, injury to person, or loss of life
– not taxable
Concept of Gross Income

INCOME FROM WHATEVER SOURCE

2. Recovery of bad debts previously deducted – taxable
3. Refund of tax
-If tax is paid is a deductible tax – taxable
-If tax paid is not deductible – not taxable
4. Fogiveness of indebtedness
-If part of business transaction or with services – taxable
-If the debtor is a shareholder – indirect dividends
-If the creditor merely desires to not be taxable as to income, benefit of debtor (May
be a gift subject to donor’s tax
Concept of Gross Income

INCOME FROM WHATEVER SOURCE

5. Income from illegal sources gambling, extortion, theft ,bribes,
embezzlement, smuggling, etc.
6. Tax Informer’s Reward
7. Many more…
Items of gross income

▪ 1. Compensation for services in whatever form paid, including but not limited to fees, salaries,
wages, commissions, and similar items.
▪ 2. Gross income derived from the conduct of trade or business or the exercise of a profession
▪ 3. Gains derived from dealings in property.
▪ 4. Interest income
▪ 5. Rents
▪ 6. Royalties
▪ 7. Dividends
▪ 8. Annuities
▪ 9. Prizes and winnings
▪ 10. Pensions
▪ 11. Partner’s distribute share from the income of a general professional partnership
Manufacturing, Merchandising or Mining
Income from long-term contracts
Farming
Taxation for individuals

▪ With business
▪ Self-employed
▪ Practice of profession
Taxation for individuals

▪ Tax Rates: “Options”

1. Graduated rates – Sec 24 (A) of the tax code, as amended
2. 8% tax of GSRONOI in express of 250,000
8% tax rate not applicable:
1. GSRONOI exceeds 3M VAT threshold
2. VAT- registered taxpayer
3. Taxpayer who is subject to other percentage taxes under title V of the tax
code, as amended, except those subject under section 116 of the same title.
4. Partners of general professional partnership (GPP) by virtue of their
distributive share from GPP
Pro-forma
Mixed income earner – individual

• Compensation income
• Business / practice of profession
▪ Tax Rates
1. On compensation – graduated rates – SEC 24 (A)
2. On business – “options”
o Graduated rates
o 8% flat rates
▪ NOTE: if the taxpayer chooses 8% flat rate, deduction of 250,000 is not
available for it is already incorporated on the 1st tier (compensation income)