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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.

TX-
901

500 ( R. medical allowance to cover medical the employer and healthcare needs. whichever is higher benefit e.R. Computation of Monetary Value Basic rules a. 2008) 5) Rice subsidy granted by an employer to his P1.000 per employee per annum per employee anniversary celebrations 4) Uniforms and clothing allowance given to Not exceeding P4. 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. Examples of de minimis benefits (as amended by RR No. 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.ReSA: The Review School of Accountancy Page 2 of 6 4. the monetary value of benefit is 50% of the value of benefit. 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. 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. Monetary value of housing privilege Monetary value of the Value of the benefit benefit a. In case of housing privilege and motor vehicle: 1) If there is no transfer of ownership. 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 TX- _____________________________________________________________________________________________________________________________________ Taxation: Income Tax . 6. 7.000 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. goodwill. b.000) (R. not exceeding P10.g.R.500 (old P1.g. 5-2011) Item Ceiling 1) Medical benefits given to the employees by Actual medical assistance. and routine consultations. rice per month employees amounting to not more than P1. enumeration * 5. the monetary value of the benefit is the same as the value of the benefit. 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. 2) If there is transfer of ownership. 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.000 per annum 2) Employee achievement awards (e. the amortized excess amount shall be allowed as a deduction from employer’s gross income as fringe benefit expense. maternity assistance. In case of other fringe benefits – The monetary value of the benefit is the same as the value of the benefit. 5-2008 employees by the employer published in Manila Bulletin April 25.000) or one (1) sack of 50 kg. 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. 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. e. annual medical/executive check-up. No.Fringe Benefits and Fringe Benefit Tax (BATCH 22) 901 . 5-2008 published in Manila Bulletin April 25. 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. Tax Accounting for the Fringe Benefit Furnished to the Employee and the Fringe Benefit Tax Due Thereon Deductible fringe benefits and fringe benefits tax. contentment. 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. 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. zonal value or FMV per current real property tax declaration. Employer leases residential property for the use of the Rental paid 50% of the value of the employee benefits b.000 per annum (old P3. b. or efficiency of his employees.

ReSA: The Review School of Accountancy Page 3 of 6 Value of benefit xxx TX- _____________________________________________________________________________________________________________________________________ Taxation: Income Tax .Fringe Benefits and Fringe Benefit Tax (BATCH 22) 901 .

500. if any? f) SB Corporation bought a residential property in installment for the use of its President.607. Membership fees. de la Cruz.000 and the remaining useful life is 15 years. Mr. The ownership of the said house and lot was transferred to its President. d) In 2011. Prepare the necessary journal entries. ABC Corporation paid for the monthly rental of a residential house of its branch manager. How much was fringe benefits tax. owns a condominium unit. b) XYZ Corp.000 while its fair market value as shown in its current Real Property Declaration amounts to P8. Monetary value of vehicles of any kind Monetary value of the Value of the benefit benefit a. the said corporation furnished and granted the said property for the residential use of its Assistant Vice President. dues and other expenses borne by the employer for the employee in social and athletic clubs TX- _____________________________________________________________________________________________________________________________________ Taxation: Income Tax . The cost of the vehicle was P400. sole proprietorship.000.000.000 and P2. Taprolani Corporation purchased a residential house and lot for P2. whether owned and maintained or Depreciation of a yacht at an leased by employer estimated useful life of 20 years h. Exercises a) During the year 2011. 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.000 respectively. driver and others employer c. 2) above and assuming that the acquisition cost of the residential property is P7. 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. During the year 2011. One of the motor vehicles costing P450.ReSA: The Review School of Accountancy Page 4 of 6 g.500. Employer purchases the motor vehicle in the Acquisition cost Entire value of the benefit name of the employee d. Household personnel. J. 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.980.000 Fair market value per BIR 4. Use of yacht.000. purchased a motor vehicle for the use of its Manager. It was registered in Dr.0000. Mata Optical Shop.000. The fair market value per BIR and per Assessor's Office were P2.) How much was the fringe benefits tax? 8. Mata's name.000 is not used for business purposes.500. The total amount paid by the corporation was P5.000.000. The vehicle was used partly for the benefit of the company. in 2011. How much is the annual fringe benefits tax? 9. Dr. The fair market value of the property per BIR amounts to P10. but for the employees' personal needs. amounting to P68. if any? e) A house and lot were owned by Bonafe Laundry Corporation.000 How much was the fringe benefits tax.000. such as maid. maker of the best-selling ice cream.300. owns a fleet of motor vehicles for use of the business and its employees. Expense account Amount given or paid by Entire value of the benefit b. The following data were made available: Cost P5. Malachi Mata. Exercises 1) In 2011.000 interest. 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. 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.Fringe Benefits and Fringe Benefit Tax (BATCH 22) 901 . Prepare the necessary journal entries.000 Fair market value per Assessor's Office 3. How much is the fringe benefits tax? 2) Eyes Drop. 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. c) Using the same data in illustration no.000. Prepare the necessary journal entries. The property was sold to the President of the corporation for P1.000 (inclusive of P500. Other fringe benefits Monetary value of the Value of the benefit benefit a. Mars Bonafe.000.

3) 70% of the cost of first class airplane ticket shall not be subject to fringe benefit tax. Expenses for foreign travel f.470 Question 1 . Rita Ube to Dayag Rezzort. was granted a loan by the bank. How much is the monetary value of fringe benefits given to managers and supervisors? 3 . 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). How much is the monetary value of the fringe benefit? 3. How much is the value of the fringe benefits given to rank and file? 4 .000. Exercises 1) In 2011. 24 (A) . insurance premiums or 2) Contributions under GSIS law. g. The amount of the loan was P2. 3) Temporary housing for an employee who stays in a housing unit for 3 months or less.000 vacation expenses of its President. Ms. How much is the total amount of deductions? TX- _____________________________________________________________________________________________________________________________________ Taxation: Income Tax . Vehicle of any kind Use of aircraft and helicopters owned and maintained by the employer (treated as business expense) c. d. Life or health insurance The following shall not be treated as taxable fringe benefits: and other non-life 1) Contributions under SSS law. Exercises 1) The books of accounts of Jones Company showed the following: Fringe benefits expense P750. How much is the grossed-up monetary value of the fringe benefits given to managers and supervisors? 2 . Holiday and vacation expenses g. 2) Expenses by employees reimbursed by employer. f. an executive of the ReSA Bank. Fringe benefits that are not subject to fringe benefits tax a. Question 1 .000 at 8% interest per annum. Philippine Navy and Philippine Air Force.ReSA: The Review School of Accountancy Page 5 of 6 and similar organizations e. e. 2) The cost of economy and business class airplane ticket shall not be subject to fringe benefit tax. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. 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) Not treated as taxable fringe benefits but taxable as compensation income under Sec. How much is the monthly fringe benefit tax? 10. How much is the value of the fringe benefit? 2. The loan was payable in four (4) months. Educational assistance to the employee or his dependents h. How much is grossed-up monetary value of the fringe benefit? 4– How much is the fringe benefit tax? 5. 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). of what the law allows 4) Premiums for group insurance of employees. 2) when given to employee’s dependents through a competitive scheme under scholarship program of the company. similar amounts in excess 3) Similar contributions under existing laws. What entries will have to be made to record the fringe benefits expense and the fringe benefits tax expense? 2) Bruce Lee.000 Fringe benefits tax expense 76. 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.Representation and transportation allowance given regularly on a monthly basis. ReSA Corporation paid the P50. b.Fringe Benefits and Fringe Benefit Tax (BATCH 22) 901 . 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.

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 Laundry allowance (P400 x 12) 4.500 x 12) 18. jb TX- _____________________________________________________________________________________________________________________________________ Taxation: Income Tax .500 union dues P206. P2.000 Dividend from regional operating headquarters of a multinational corporation in the Philippines 10.000 Christmas gift 10. net of P10.000 13th month pay 18.000 Rice subsidy (P1.400 SSS contributions.000 Philhealth contributions and P1.000 withholding tax.000 Monetized unused vacation leave credits (12 days) 6.ReSA: The Review School of Accountancy Page 6 of 6 2) A resident rank-and-file employee has three (3) qualified dependent children at the beginning of the year.000 Interest income from a long term deposit which was pre-terminated (remaining maturity is 4 years) 40.000 Uniform and clothing allowance 5.000 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. P2.Fringe Benefits and Fringe Benefit Tax (BATCH 22) 901 .000 Actual medical benefits 15. The following date are made available for the year 2011: Salary.