MEMORANDUM

DATE:

TO:

FROM:

15MARCH2015
MR.JAMESDOE
PayrollManager
BBIMarketingPhil.Inc.
ATTY.KARLLESLIESOCHAN
AttorneyI

RE:
TAXTREATMENTOFMONTHLYHOUSINGALLOWANCE

Pursuant to your instructions last 14 March2016,thefollowing are the taxtreatmentof

themonthlyhousingallowancebenefit:

1.MonthlyHousingAllowanceisaDEDUCTIONfromgrossincome.

Sec. 34 (A)(1)(a) allows as

deduction from gross income all the ordinary and
necessary expenses paid or incurred during the taxable year which are directly
attributable to the development, management, operation and/or conduct of the trade,
business. This includesa
reasonable
allowance forrentals
to employees as longasit
isfortheconvenienceandadvantageoftheemployer.

In BIR Ruling No. 05599,1 if the living quarters are furnished to an employee for the
convenience of the employer, the value thereof need not be included as part of
compensation income subject to withholding as it was for purposes of complying with
the state policies on the promotion of the health and welfare of workers (Articles 11,
Sections 15 and 18 of the 1987 Constitution) and the constitutional mandate
guaranteeing fullprotection to labor(Art.13, Sections3and14,ibid
.),thissituationfalls
withinthepurviewofSection33oftheTaxCodeof1997.

Such being the case, the costs and related expensesassociated withthe lease ofthe
condominium unit andresidentialhouse forthe benefit of theemployees are expenses
directly attributable to the development, management, operation and/or conduct ofthe
business pursuant to Section 34(A)(1) of the Tax Code, the same shall be deducted
fromthegrossincomeof[thecompany].2

Henderson v.Collector3 furtherheldthat

aslongasnopartof[anallowance]redounded
to theexecutivespersonal benefit,norwere such amountsretained by him, thesebills
paid directly by the employercorporation are
company expenses,
not income by
employees which are subject to tax. The same should also be supported by proper
evidence such as
receipts, records, and other
supporting papers to properly compute
the deduction.
Thefollowingmustalso besupportedbyreceiptsunderthenameofthe
employer/businessunderSec.2.33(B)ofRR.No.398.

BIRRulingNo.05599,April23,1999.

Ibid.
3
Hendersonv.Collector,G.R.No.L13049,February28,1961.
2

Expoundedrequirementsforthedeductionare:4
1.Expensemustbeordinaryandnecessary.
2.Musthavebeenpaidorincurredduringthetaxableyear.
3.Musthavebeenpaidorincurredincarryingonthetrade/business.
4.Mustbesupportedbyreceipts,recordsorotherpertinentpapers.

2.MonthlyHousingAllowanceisnotsubjecttoFringeBenefitTax.

Sec.33(B)(1) of the NIRC classifies

Housing and
Expense Accounts as a fringe
benefit. The term "fringebenefit" means any good, service or otherbenefitfurnishedor
granted in cash or in kind by an employer to an individualemployee (exceptrankand
file employees).It stipulates thatfringebenefitswhichare"requiredbythenatureof,or
necessary to the trade, business or profession of the employer, or when the fringe
benefits is for the convenience or advantage of the employer" are not subject to the
fringebenefittax.

Sec. 2.33(B) ofRR. No. 398furtherclarifiesHousingPrivilegesandExpenseAccounts

asthefollowing:

HOUSINGPRIVILEGE
MonetaryValue
(A) Iftheemployer
leasesaresidentialpropertyfortheuse 50% of the monthly
of his employee and the property is the usual place of rental paid as
residenceoftheemployee.
evidenced by the
leasecontract.
(B)Iftheemployerpurchasesaresidentialpropertyfor the (Acquisition Cost
useof hisemployee andthepropertyis the usualplaceof (AC)x5%)x50%
residenceoftheemployee.
(C) If the employer purchases a residential property and ACorFMV
,
transfers
ownershiptotheemployee.
whicheverishigher.

Iflessthan
employersAC:
FMVEmployees
AC
(D)Housingofmilitaryofficials

Exempt

(E)Housingsituatedinsideoradjacenttothepremisesofa Exempt
businessorfactory(withinfifty(50)meters)
(F) Temporary housing for employees who stays in a Exempt
housingunitnotmorethanthree(3)months.

CIRv.IsabelaCulturalCorporation,G.R.No.172231,February12,2007Zamorav.Collector,G.R.No.
L15290,May31,1963.

EXPENSEACCOUNT

SubjecttoFBT?

(A) When expenditures are

duly receipted for and in the NO
name of the employer and the expenditures do not
partakethenatureofapersonalexpenseattributabletothe
employee.
(B) Personal expenses of theemployee (like purchases of YES
groceries for the personal consumption of the employee
and his family members) paid for or reimbursed by the
employertotheemployee.
(C) Representation and transportation allowances which
are fixed in amounts and are regular received by the
employeesaspartoftheirmonthlycompensationincome.

NO
,but
consideredas
taxablecompensation
incomesubjecttothe
taximposedunderSec.
24.(Incomeofthe
employee)

*
Exemptifpartofthe
ordinaryand
necessarytrade,
businessor
professionalexpenses
assupportedby
receipts,recordsor
otherpertinentpapers.

Since the monthly housing allowance ranging from Php 5,000 toPhp 20,000 a month
given to employees who move tocondominiums withinonejeepneyride from Salcedo
Village is not within any of the expanded definitions of Housing Privileges, it shall
pertaintoanExpenseAccountunder(A)whichis
notsubjecttoFringeBenefitTax.

Assuch,andconsideringthatitisafringebenefitfortheconvenienceandadvantageof
the employer, it shall notbe included as part ofcompensation income of theemployee
subjectto withholding neither will it be subjectto the fringe benefitunderSec.33ofthe
TaxCodeof1997implementedbyRevenueRegulationsNo.398.5

3.AdditionalrequirementsforDEDUCTIBILITY.

Deductions may be allowed onlyifitis shown that the taxrequired tobedeductedand

withheldtherefromhasbeenpaidtotheBIRinaccordancewith:

1.Section34,Section58(onreturnsandpaymentoftaxeswithheldatsource)and
2.Section81(onfilingofreturnandpaymentoftaxeswithheld).

(Sgd.)Atty.KarlLeslieSoChan

Supra.
Note1.