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EXERCISE 41.

CROSSWORD PUZZLE
2

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EXERCISE 4 - 2
1

11

12

13

14

10

15

EXERCISE 4-3

1
.

a
.
b
.
c
.
d
.
e
.
f.
g
.

Interest on corporate
bonds
Salary

- Taxable

Tips

- Taxable

Winnings in lotto

- Not taxable (expressly exempt under


the law)
- Taxable (income from whatever source
derived)
- Taxable (income from whatever source
derived)
- Not taxable (de minimis benefit)

Winnings in jueteng
Money stolen from
mothers purse
Rice subsidy of P325 per
month

- Taxable

2
.

The value of the free meals and lodging is not taxable to Yaya. It is very
clear that the couple required her to stay in their house for their own
benefit. Hence, the matter falls squarely within the convenience-of-theemployer rule.

3
.

No. The equivalent value of the living quarter is not taxable to Kulas
under the convenience-of-the-employer rule. The purpose of the piggery
farm in providing Kulas a room inside the premises is for the
convenience of Habang Bata Pa Piggery Farm.
The rice allowance is considered as a de minimis benefit which is exempt
from income tax. Thus, it is neither subject to creditable withholding tax
nor to fringe benefit tax.

4
.
5

The free parking and courtesy discounts are subject to fringe benefit tax
considering that Kareen Leon is a managerial employee of UB
Corporation.
The rice subsidy of P1,000 a month fall under the de minimis
benefits which are exempt from income tax.
The excess of the laundry allowance in the amount of P450 (P750300) is part of gross compensation income if such excess is beyond the
P30,000 ceiling for other benefits.
The rental value of the residential property is subject to fringe
benefits tax which is subject to final tax. Therefore, not part of the gross
income.

6
.

The cost of the educational assistance extended by De la Salle University


to Prof. Ferdinand Romero is supposed to be treated as part of the
teachers gross compensation income considering that Prof. Romero is
neither classified as managerial nor supervisory employee; he is still
classified as a rank-and-file employee.
However, since there is a condition that he should remain in the
employ of the employer for at least ten years after graduation, the
expenditure shall be considered as granted for the convenience of the
employers trade or business.
Therefore, whether the granting of the benefit is extended through a
qualifying/competitive examination or not, it should not be part of the
gross compensation income of Prof. Romero.
The cost of the tuition fee is attributable to the operation and
conduct of business of the employer. Therefore, the same shall be
deducted from the gross income of the school.

EXERCISE 4 5

1.

2.

ANSWER: C
Fringe benefit expense
Fringe benefit tax expense
Deductible expense
ANSWER:

Fringe benefit expense


Divide by
Grossed-up monetary value
3.

ANSWER:

34,000
16,000
50,000

34,000
68%
50,000

The fringe benefit tax is imposed only if the fringe benefit is given
to managerial or to supervisory employees.
Accounting clerks, janitors and the security guards are rank-andfile employees. Only the companys general manager is a managerial or
supervisory employee. Therefore, the fringe benefit tax must have been
given to him.
4.

ANSWER:

The one sack of rice is not subject to fringe benefit tax on the first
P1,000 per employee per month; the excess maybe also be exempt if
forming part of the other benefits not exceeding P30,000.
A corporation, though exempt from tax, is not exempt from the payment
of fringe benefit tax.
The equivalent value of free lodging given to a driver of an obstetrician
falls under convenience of the employer rule which is not subject to
fringe benefit tax.
The employers share in the GSIS contribution is not subject to income
tax.
EXERCISE 4-6

1.

ANSWER: B
Fees in civic club
Life insurance premium
Monetary value
Divide by
Grossed-up monetary value
Rate of tax
Fringe benefit tax

2.

ANSWER: B
To rank and file employees:

5,000
15,400
20,400
68%
30,000
32%
9,600

Christmas bonus
Loan benefits [96,000 x (12%-8%)
Medical allowance
Uniform allowance
To the supervisor:
Christmas bonus
Fees in civic club
Life insurance premium
Uniform allowance
Fringe benefit expense
Fringe benefit tax expense
Total deductions
3.

ANSWER:

32,000
3,840
16,000
12,000
4,000
5,000
15,400
3,000

p.a.)
Supervisor:
Christmas bonus
Uniform allowance
Total de minimis benefits
ANSWER:

27,400
91,240
9,600
100,840

Rank and file:


Christmas bonus (max: P 5,000 / employee
p.a.)
Medical allowance (max: 125 per employee
p.m.)
Uniform allowance (max: 3,000 / employee

4.

63,840

32,000
12,000
12,000

4,000
3,000
63,000

EXERCISE 4-7

1.

ANSWER: C
As a general rule, free meals and lodging furnished by the
employer to the employees are taxable to the latter.
However,
allowances furnished for and as a necessary incident to the property
performance of his duties are not taxable because they fall under the
convenience of the employer rule.

2.

ANSWER: C
Tonys gross income is P9,500 because his employers residence is
not the place of business where the employer conduct a significant
portion of his business.
On the other hand, Berts gross income should not include the
monthly value of his free meals and living quarters because the
provision enables Cristy to avail of the services of Bert at her
convenience (RAMO 1-87).

3.

ANSWER: D
The free meals are given by the employer to provide sanitary meals
to its employees, while the free lodging are provided because they do
not want the workers to find difficulty in looking for boarding houses.
These benefits are obviously furnished for the benefit of the employees
and not to the advantage of the employer.
It is therefore, apparent that the allowances furnished are in the
form of fringe benefits. However, since they are given to ordinary
workers which fall within the classification of rank-and-file employees,
the benefits are taxable to them and are includible in the computation
of their respective gross income.

4.

ANSWER: D
The grossed-up monetary value includes the monetary value of the
fringe benefit received by the employee from his employer and the
amount of fringe benefits tax due thereon which was paid by the
employer.

5.

ANSWER: D
The use of aircraft owned and maintained by the employer shall be
treated as business use and not subject to fringe benefits tax.

6.

ANSWER: D
Jaguar is a rank-and-file employee. All fringe benefits given by his
employer are not subject to fringe benefits tax.
The free meals and lodging given to Col. General is specifically
exempt from fringe benefits tax. Moreover, it is also furnished for the
convenience of the employer (the Philippine Government) so that the
military officer shall be readily available when his services are
required. The uniform allowance falls under de minimis benefits which
are exempt from the fringe benefits tax.

7.

ANSWER: B
De minimis benefits are of relatively small value that they are
exempt from the payment of fringe benefits tax and ordinary income
tax.

8.

ANSWER: B
Fringe benefits given to rank and file employees are exempt from
fringe benefits tax. However, there are benefits which are subject to
regular income tax depending upon the nature of benefits the

employees have received from their employer.


9.

ANSWER: D
A residential property owned by the employer and assigned to an
employer for use as his residence is subject to fringe benefits tax based
on the 5% of the fair market value of the land and improvements.

10 ANSWER: D
.
Unlike other individual taxpayers, nonresident aliens not engaged
in trade or business are subject to fringe benefits tax at a rate of 25% of
the grossed-up monetary value.
EXERCISE 4-8
1.

ANSWER: C
Purchase of groceries
Divide by
Grossed-up monetary value
Rate of tax
Fringe benefit tax

10,500
68%
15,441
32%
4,941

The medical benefits is a de minimis benefit up to the ceiling of


P10,000, the excess of P7,500 is hereby presumed to be included as
part of Other Benefits.
2.

ANSWER: A
Monthly salary
Free meals and living quarters (P1,500 +
1,000)
Monthly gross compensation income

3.

4,000
2,500
6,500

ANSWER: B
Salary

4.

4,000

ANSWER: D
Cost of first class ticket
Rate subject to fringe benefit tax
Fringe benefit
Exchange value in Philippine currency
Fringe benefit subject to fringe benefit
tax
Divide by
Grossed-up monetary value
Rate

2,500
30%
750
43
32,250

68%
47,426.47
32%

5.

Fringe benefit tax


ANSWER: D

15,176.47

Monetary value (P800,000/5) x 50%


Divide by
Grossed-up monetary value
Rate of tax
Fringe benefit tax
6.

80,000
68%
117,647
32%
37,647

ANSWER: B
Monetary value (P10,000 x 50%)
Divide by
Grossed-up monetary value
Rate of tax
Fringe benefit tax

7.

5,000
68%
7,352
32%
2,353

ANSWER: C
Interest at benchmark rate (P100,000 x
12% x 8/12)
Less: Interest at special rate (P100,000 x
9% x 8/12)
Interest foregone/value of benefit
Divide by
Grossed-up monetary value
Rate of tax
Fringe benefit tax

8.

8,000
6,000
2,000
68%
2,941.18
32%
941.18

ANSWER: A
Total expenses incurred
Divide by
Grossed-up monetary value
Rate of tax
Fringe benefit tax

9.

ANSWER: D
Salary of driver and housemaid (P4,000
+ 2,000)
Membership fees and dues (P75,000/12)
Monetary value of benefit
Divide by
Grossed-up monetary value
Rate of tax
Fringe benefit tax

10.

16,000
68%
23,529
32%
7,529

ANSWER: A

6,00
0
6,250
12,250
68%
18,015
32%
5,765

Fair market value (higher)


Divide by
Grossed-up monetary value
Rate of tax
Fringe benefit tax
11.

ANSWER: D
Monetary value (3,400 x 50%)
Divide by
Grossed-up monetary value
Rate
Fringe benefit tax on rental
Add: Monthly rental
Fringe benefit to clerk
Deductible expense

12.

ANSWER:

2,500,00
0
68
%
3,676,4
71
32
%
1,176,4
71
1,70
0
68%
2,500
32%
800
3,400
3,000
7,200

Fringe benefit to supervisory employees


Divide by
Grossed-up monetary value
Rate
Fringe benefit tax

170,000
68%
250,000
32%
80,000