ReSA

The Review School of

Accountancy
Tel. No. 735-9807 & 734-3989

TAXATION TAMAYO/GARCIA
TX 901: INCOME TAX (FRINGE BENEFITS AND FRINGE BENEFIT TAX)

1. Definition of Certain Terms

a. Fringe benefits Any good, service or other benefit furnished or granted by an employer in cash or in kind, in
addition to basic salaries to an individual employee (except rank and file employee) such as
but not limited to the items enumerated below.
b. Rank and file employees All employees who are holding neither managerial nor supervisory position.
c. Managerial employee One who is vested with powers or prerogatives to lay down and execute management policies
and/or to hire, transfer, suspend, lay–off, recall, discharge, assign or discipline employees.
d. Supervisory employees Those who, in the interest of the employer, effectively recommend such managerial actions if
the exercise of such authority is not merely routinary or clerical in nature but requires the use
of independent judgment.

2. Imposition of Fringe Benefit Tax

a. A final tax Fringe benefit tax is a final tax.
b. Imposed on the grossed- Fringe benefit tax is imposed on the grossed-up monetary value of fringe benefits furnished
up monetary value granted or paid by employer to employees except rank and file employees.
c. Imposed regardless Fringe benefit tax is imposed whether the employer is an individual, professional partnership
of who the employer or corporation, regardless of whether the corporation is taxable or not, or the government or
its instrumentalities.
d. Withheld by employer Fringe benefit tax shall be treated as a final tax on the employee, which shall be withheld and
paid by the employer on a calendar quarterly basis.
e. Tax base and tax rate Monetary value of fringe benefit P xxx
Divided by 68%
Grossed-up monetary value xxx
Tax rate 32%
Fringe benefit tax P xxx
f. Tax base and tax rate for Monetary value of the fringe benefit P xxx
NRA-NETB Divided by 75%
Grossed-up monetary value xxx
Tax rate 25%
Fringe benefits tax P xxx
g. Tax base and tax rate Monetary value of the fringe benefit P xxx
for special aliens and Divided by 85%
their Filipino counter- Grossed-up monetary value xxx
parts and employees in Tax rate 15%
Special Economic Zone Fringe benefits tax P xxx

3. Examples of Fringe Benefits

a. Fringe benefits subject a. Housing;
to final tax 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 (12% benchmark rate);
f. Membership fees, dues and other expenses borne by the employer for the employee in
social and athletic clubs and similar organizations;
g. Expenses for foreign travel;
h. Holiday and vacation expenses;
i. Educational assistance to the employee or his dependents;
j. Life or health insurance and other non-life insurance premiums or similar amounts in excess
of what the law allows.
b. Fringe benefits not a. Fringe benefits which are authorized and exempted from income tax under the Tax Code
subject to fringe or under any special law;
benefit tax b. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans;
c. Benefits given to rank and file, whether granted under a collective bargaining agreement
or not;
d. De minimis benefits;
e. Benefits granted to employee which are required by the nature of, or necessary to the
trade, business or profession of the employer; or
f. Benefits granted for the convenience or advantage of the employer.

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4. De Minimis Benefits
a. Meaning of de minimis De minimis benefits are facilities or privileges furnished or offered by an employer to his
benefits employees that are of relatively small value and are offered or furnished by the
employer merely as a means of promoting the health, goodwill, contentment, or
efficiency of his employees.
b. Examples of de minimis benefits (as amended by RR No. 5-2011)
Item Ceiling
1) Medical benefits given to the employees by Actual medical assistance, e.g. medical allowance to cover medical
the employer and healthcare needs, annual medical/executive check-up,
maternity assistance, and routine consultations, not exceeding
P10,000 per annum
2) Employee achievement awards (e.g. for Must be in the form of a tangible personal property other than cash
length of service or safety achievement) or gift certificate 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
3) Gifts given during Christmas and major Not exceeding P5,000 per employee per annum per employee
anniversary celebrations
4) Uniforms and clothing allowance given to Not exceeding P4,000 per annum (old P3,000) (R.R. No. 5-2008
employees by the employer published in Manila Bulletin April 25, 2008)
5) Rice subsidy granted by an employer to his P1,500 (old P1,000) or one (1) sack of 50 kg. rice per month
employees amounting to not more than P1,500 ( R.R. 5-2008 published in
Manila Bulletin April 25, 2008)
6) Laundry allowance Not exceeding P300 per month
7) Medical cash allowance to dependents of Not exceeding P750 per semester or P125 per month.
employees
8) Daily meal allowance for overtime work and Not exceeding 25% of the basic minimum wage on a per
night/graveyard shift region basis
9) Monetized unused vacation and sick leave Not exceeding 10 days during the year.
credits
Note: All other benefits given by employers Not considered as “de minimis” benefits and shall be subject to
which are not included in the above income tax as well as withholding tax as compensation income.
enumeration
*

5. Tax Accounting for the Fringe Benefit Furnished to the Employee and the Fringe Benefit Tax Due Thereon
Deductible fringe benefits and fringe benefits tax.
Basis of fringe benefits tax Amount deductible from employer’s gross income
1) General rule Taxable fringe benefits and the fringe benefit tax
2) Depreciation value Actual fringe benefit tax paid
3) Zonal value per BIR Commissioner Actual fringe benefit tax paid
4) FMV per current real property tax declaration Actual fringe benefit tax paid
Notes: 1) In cases where the basis of fringe benefit tax is the depreciation value, zonal value or FMV per current real property
tax declaration, the value of fringe benefit is not deductible because it is presumed to have been tacked on or actually
claimed as depreciation expense by the employer.
2) If the zonal value per BIR or the FMV per current real property tax declaration of the property is greater than its cost
subject to depreciation, the amortized excess amount shall be allowed as a deduction from employer’s gross income
as fringe benefit expense.

6. Computation of Monetary Value

Basic rules a. In case of housing privilege and motor vehicle:
1) If there is no transfer of ownership, the monetary value of benefit is 50% of the value of benefit.
2) If there is transfer of ownership, the monetary value of the benefit is the same as the value of the
benefit.
b. In case of other fringe benefits – The monetary value of the benefit is the same as the value of
the benefit.

7. Monetary value of housing privilege

Monetary value of the
Value of the benefit benefit
a. Employer leases residential property for the use of the Rental paid 50% of the value of the
employee benefits
b. Employer owns residential property which was 5% of the FMV of the land 50% of the value of the
assigned to an officer for his use as residence and improvements benefits
c. Employer purchases residential property on the 5% of the acquisition cost 50% of the value of the
installment basis and allows the employee to use the exclusive of interest benefits
same as his residence
d. Employer purchases a residential property and transfers Employer’s acquisition cost or Entire value of the
the ownership in the name of the employee FMV, whichever is higher benefit
e. Employer purchases a residential property and transfers FMV xxx Entire value of the
ownership to his employee for the latter’s residential Less: Payment by benefit
use at a price less than the employer’s acquisition cost employee xxx

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Value of benefit xxx

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g. Exercises
a) During the year 2011, ABC Corporation paid for the monthly rental of a residential house of its branch manager,
Mr. J. de la Cruz, amounting to P68,0000. Prepare the necessary journal entries.
b) XYZ Corp. owns a condominium unit. During the year 2011, the said corporation furnished and granted the said
property for the residential use of its Assistant Vice President. The fair market value of the property per BIR amounts to
P10,000,000 while its fair market value as shown in its current Real Property Declaration amounts to P8,000,000.
Prepare the necessary journal entries.
c) Using the same data in illustration no. 2) above and assuming that the acquisition cost of the residential property is
P7,000,000 and the remaining useful life is 15 years. Prepare the necessary journal entries.
d) In 2011, Taprolani Corporation purchased a residential house and lot for P2,300,000. The property was sold to the
President of the corporation for P1,980,000. The fair market value per BIR and per Assessor's Office were P2,500,000
and P2,607,000 respectively.
How much was fringe benefits tax, if any?
e) A house and lot were owned by Bonafe Laundry Corporation. The ownership of the said house and lot was transferred
to its President, Mars Bonafe, in 2011. The following data were made available:
Cost P5,000,000
Fair market value per BIR 4,500,000
Fair market value per Assessor's Office 3,000,000
How much was the fringe benefits tax, if any?

f) SB Corporation bought a residential property in installment for the use of its President. The total amount paid by the
corporation was P5,500,000 (inclusive of P500,000 interest.)

How much was the fringe benefits tax?

8. Monetary value of vehicles of any kind

Monetary value of the
Value of the benefit benefit
a. Employer owns and maintains a fleet of motor Acquisition cost of all motor 50% of the value of the
vehicles for the use of the business and vehicles not normally used for benefit
employees business divided by 5 years
b. Employer leases and maintains a fleet of motor Amount of rental payments for 50% of the value of the
vehicles for the use of the business and the motor vehicle not normally used benefit
employees for business purposes
c. Employer purchases the motor vehicle in the Acquisition cost Entire value of the benefit
name of the employee
d. Employer provides the employee with cash for the Amount of cash received by the Entire value of the benefit
purchase of a motor vehicle in the name of the employee
employee
e. Employer shoulders a portion of the amount of Amount shouldered by the Entire value of the benefit
the purchase price of a motor vehicle in the name employer
of the employee
f. Employer purchases the car on installment in the Acquisition cost exclusive of Entire value of the benefit
name of the employee interest divided by 5 years
g. Use of yacht, whether owned and maintained or Depreciation of a yacht at an
leased by employer estimated useful life of 20 years
h. Exercises
1) In 2011, Mata Optical Shop, sole proprietorship, purchased a motor vehicle for the use of its Manager, Dr. Malachi Mata.
It was registered in Dr. Mata's name. The cost of the vehicle was P400,000. The vehicle was used partly for the benefit of
the company. How much is the fringe benefits tax?
2) Eyes Drop, maker of the best-selling ice cream, owns a fleet of motor vehicles for use of the business and its employees.
One of the motor vehicles costing P450,000 is not used for business purposes, but for the employees' personal needs.
How much is the annual fringe benefits tax?

9. Other fringe benefits

Monetary value of the
Value of the benefit benefit
a. Expense account Amount given or paid by Entire value of the benefit
b. Household personnel, such as maid, driver and others employer
c. Interest on loan at less than market rate to the extent of
the difference between the market rate and actual rate
granted (12% benchmark rate)
d. Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs

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and similar organizations

e. Expenses for foreign travel
f. Holiday and vacation expenses
g. Educational assistance to the employee or his dependents
h. Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law
allows.

Exercises
1) In 2011, ReSA Corporation paid the P50,000 vacation expenses of its President, Ms. Rita Ube to Dayag Rezzort.
Question 1 - How much is the value of the fringe benefit?
2- How much is the monetary value of the fringe benefit?
3- How much is grossed-up monetary value of the fringe benefit?
4– How much is the fringe benefit tax?
5- What entries will have to be made to record the fringe benefits expense and the fringe benefits tax expense?
2) Bruce Lee, an executive of the ReSA Bank, was granted a loan by the bank. The amount of the loan was P2,000,000 at 8%
interest per annum. The loan was payable in four (4) months. How much is the monthly fringe benefit tax?

10. Fringe benefits that are not subject to fringe benefits tax
a. Housing privilege The following housing benefits are not considered as taxable fringe benefits:
1) Housing privilege of military officials of AFP consisting of officials of Philippine Army,
Philippine Navy and Philippine Air Force;
2) Housing unit which is situated inside or adjacent to the premises of a business or factory
(within the maximum of 50 meters from the perimeter of the business premises);
3) Temporary housing for an employee who stays in a housing unit for 3 months or less.
b. Vehicle of any kind Use of aircraft and helicopters owned and maintained by the employer (treated as business
expense)
c. Expenses accounts 1) These are not taxable as fringe benefits when receipted in the name of the employer and
do not partake the nature of personal expense attributable to employee:
1) Expenses incurred by employees but paid by employer;
2) Expenses by employees reimbursed by employer.
2) Not treated as taxable fringe benefits but taxable as compensation income under Sec. 24
(A) - Representation and transportation allowance given regularly on a monthly basis.
d. Expenses for foreign 1) Expenses in connection with attending business meeting or convention (except lodging cost
travel of employee in a hotel) at an average of $300 per day are considered reasonable expenses and shall not
paid for by employer be subject to fringe benefit tax (with documentary evidence).
2) The cost of economy and business class airplane ticket shall not be subject to fringe benefit
tax.
3) 70% of the cost of first class airplane ticket shall not be subject to fringe benefit tax.
e. Educational Cost of educational assistance is not treated as taxable fringe benefit:
assistance 1) 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;
2) when given to employee’s dependents through a competitive scheme under scholarship
program of the company.
f. Life or health insurance The following shall not be treated as taxable fringe benefits:
and other non-life 1) Contributions under SSS law;
insurance premiums or 2) Contributions under GSIS law;
similar amounts in excess 3) Similar contributions under existing laws;
of what the law allows 4) Premiums for group insurance of employees.
g. Exercises

1) The books of accounts of Jones Company showed the following:

Fringe benefits expense P750,000
Fringe benefits tax expense 76,470

Question 1 - How much is the grossed-up monetary value of the fringe benefits given to managers and supervisors?
2 - How much is the monetary value of fringe benefits given to managers and supervisors?
3 - How much is the value of the fringe benefits given to rank and file?
4 - How much is the total amount of deductions?

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2) A resident rank-and-file employee has three (3) qualified dependent children at the beginning of the year. The following
date are made available for the year 2011:

Salary, net of P10,000 withholding tax, P2,400 SSS contributions,

P2,000 Philhealth contributions and P1,500 union dues P206,000
13th month pay 18,000
Rice subsidy (P1,500 x 12) 18,000
Uniform and clothing allowance 5,000
Monetized unused vacation leave credits (12 days) 6,000
Actual medical benefits 15,000
Christmas gift 10,000
Laundry allowance (P400 x 12) 4,800
Monetary gift given on account of birth of a child during the year 5,000
Separation pay from a previous employer (terminated due to redundancy) 150,000
Interest income from a long term deposit which was pre-terminated
(remaining maturity is 4 years) 40,000
Dividend from regional operating headquarters of a multinational
corporation in the Philippines 10,000

Compute the following:

a) Tax-exempt de minimis benefits
b) Total exclusions/exemptions (including de minimis benefits)
c) Total final withholding taxes
d) Taxable compensation income

-=END=-

THOT: Your attitude determines your altitude.

jb

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