Northern CPAR: Taxation – Fringe Benefit Taxation
NORTHERN CPA REVIEW
th
4 Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail Address: ncpar@yahoo.com
REX B. BANGGAWAN, CPA, MBA
TAXATION
FRINGE BENEFIT TAXATION
FRINGE BENEFIT – means any good, service or other benefit furnished or granted in
cash or in kind by an employer to an individual employee (except rank and file
employees).
Classification:
A. Given to rank and file employees
Taxable Fringe Benefits to Rank and File Employees:
1. Meals furnished or subsidized by employer (except OT meal which is subject a de
minimis benefit)
2. Rental value of quarters furnished an employee.
3. Premium on life insurance of an employee where the insured employee is directly
or indirectly the beneficiary – in essence a form of additional income for the
employee.
4. Fixed or variable transportation, representation and other allowance given an
employee. Advance or reimbursement-type allowance is exempt.
5. Performance bonus, relay station allowance, and danger exposure allowance.
6. Personnel economic relief allowance (PERA) granted to government employees.
7. Salaries and allowances during leaves of absences (vacation and sick leave).
8. Fees received by an employee (including director’s fees) for the performance of a
service for the employer.
9. Dismissal payments (this is different with separation pay).
Exempt Fringe Benefits to Rank and File Employees:
1. Meals, living quarters, de minimis entertainment, medical services, courtesy
discounts on purchases, sack or rice, etc given for the convenience of the
employer or for promoting the contentment, health, efficiency or goodwill
of the employee.
2. Reimbursement-type traveling, representation and other allowance. Excess
advances retainable by the employee is taxable
3. Retirement and separation benefits exempt under the law
B. Given to managerial or supervisory employees
Benefits subject to final tax:
1. Housing Benefits
Exception:
1. Housing benefits provided to military officials of the Armed Forces of the
Philippines consisting of officials of the Philippine Army, Philippine Navy and
Philippine Air Force
2. Housing unit which is within or adjacent to the premises of a business or
factory. Adjacent means within 50 meters of the perimeter of the business
premises of the employer.
3. Temporary housing for an employee who stays in a housing unit for three
months or less.
2. Interest on loans at less than market rate or at 0% rate. The differential
interest from 12% (as fixed by regulation) shall be the taxable fringe benefit.
3. Membership fees, dues, and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations – these are
taxable employee benefits of the employee in full.
4. Expense for foreign business travel
a. First class airplane ticket – 30% of the cost of ticket
b. Lodging cost in a hotel or similar establishment in excess of US$300 per day.
c. Traveling expense paid by the employer for the travel of the family members of
the employee
In connection with this, there must be a documentary evidence to support that the
foreign travel was for business meetings or convention; otherwise the entire cost of
Driven for real excellence!
TAX by Rex B. Banggawan, CPA, MBA
1
TAX – 4th Batch – HQ06-1
Northern CPAR: Taxation – Fringe Benefit Taxation
the ticket including hotel accommodation and other expenses incidental thereto
shouldered by the employer shall be treated as taxable fringe benefits.
1. business meetings – to be supported by official communication from business
associates abroad indicating the purpose of the meeting
2. business conventions – to be supported by invitations or communications from the
host organization or entity abroad
Reasonable foreign travel expenses are exempt under fringe benefit tax; hence, inland
travel expenses such as for food, beverages and local transportation; cost of economy
and business class airplane ticket; and those within the limits as set out in 4 a and b
above.
5. Household personnel
If shouldered by the employer the following personal expenses shall be taxable
fringe benefit:
a. Salaries of household help
b. Personal driver of the employee (if not for the convenience of the employer such
as doctor on call)
c. Similar expenses as payment for homeowners association duties, garbage dues,
etc.
6. Expense account
General Rule: expenses of the employees that are paid for the employer are taxable
fringe benefit:
a. expenses of a reimbursement type ( direct payment by the employer is not
necessary since subsequent reimbursement for the expense of the employee,
makes him the indirect payer of the expense)
b. personal expenses (groceries etc.) even if receipted in the name of the employer
Exception:
a. Regular fixed entertainment and representation allowance – this is treated as
additional compensation to the employee
b. Expenses connected with the trade of the employer and is duly receipted in the
name of the employer- these are expenses of the employer
7. Holiday and vacation expense
If incurred by the employees and shouldered by the employer, this constitute
taxable fringe benefit.
8. Life and Health insurance and other non-life insurance premium or similar
amounts in excess of what the law allows
Exception:
a. contributions of the employer for the benefit of the employee pursuant to the
provision of existing laws, i.e.: SSS, GSIS, PhilHealth; etc
b. the cost of premium by the employer for the group insurance of its employees
9. Vehicle of any kind; and
The same rules in housing benefits apply herein.
Exception:
a. Aircraft or helicopter owned and maintained by the employer – are treated as
for business purpose only and hence, not subject to fringe benefit tax. (Note: it
is very impractical to provide managerial or supervisory personnel with aircraft
or helicopter for personal use due to the cost of maintaining them.)
b. Yatch, whether owned or leased by the employer is considered not for business
purpose (by nature for pleasure), and hence taxable fringe benefit. Note: Yatch
for purposes of determining the depreciation value is assumed to have a life of
20 years.
10.
Educational assistance granted
by employer to
1.
the employee – generally, taxable as a fringe benefit
Exception:
a. the education or study involved is directly connected with the employer’s
trade, business or profession; and
b. there is written contract that the employee is under an obligation to remain
in the employ of the employer for a period of time mutually agreed upon
2.
the dependents of employees – generally, taxable as a fringe benefit
Exception: When the assistance is granted through competitive scheme under a
scholarship program of the company
Benefits not subject to fringe benefit tax (Sec. 33 (C), NIRC):
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TAX by Rex B. Banggawan, CPA, MBA
2
TAX – 4th Batch – HQ06-1
Northern CPAR: Taxation – Fringe Benefit Taxation
1. Fringe benefits which are authorized and exempt form tax under special laws
2. Benefits given to rank and file employee, whether given on a Collective Bargaining
Agreement or not
3. Benefits given as required by the nature of, or necessary to the trade, business or
profession of the employer
4. Benefits given for the convenience or advantage of the employer
5. Contributions of the employer for the benefit of the employee to retirement, insurance
and hospitalization benefit plans; and
6. De minimis benefits promulgated by the Bureau of Internal Revenue
Tax Rates for Fringe Benefits:
The final tax rates that apply to the gross-up monetary amount of the taxable fringe
benefit with the corresponding gross-up percentage are as follows:
If the employer paying the fringe benefit is a regular domestic or resident corporation:
Final Tax
Gross-up
rate
Effective January 1, 1998
34%
66%
Effective January 1, 1999
33%
67%
Effective January 1, 2000
32%
68%
If the taxpayer is subject to preferential rate:
1. Non-resident alien employed by regional area headquarters, offshore banking units of
multinational companies shall be taxed at 15% of the gross up amount of the benefits
(i.e.: benefits / (100%-15%))
2. NRA-NETB is subject to 25% of the gross up value of the benefits (i.e.: benefits /
(100%-25%))
Note to candidates:
The fringe benefit tax rates herein are complementary values of the final tax (regular
corporate income) tax and grossed-up value. It should be pointed out, however, that the
same is not a statutory formula and thus the rates will remain unaffected even if the
corporate income tax change unless specifically provided for by an amendatory law.
Valuation of Taxable Fringe Benefits:
1. If granted in money or is directly paid by the employer, the value is the amount of
granted or paid for
2. If furnished by the taxpayer in property and ownership is transferred to the employee,
the value of the fringe benefit shall be the fair market value of the property
transferred.
3. If furnished by the taxpayer in property without transfer of ownership, the value of
the fringe benefit is equal to the depreciation value of the property.
- For this purpose, personal property is assumed a depreciable life of 5 years
(20%) while real property shall have a presumptive life of 20 years (5%)
- Furthermore, since the supervisory or managerial employee cannot reasonably be
expected to use the property all the time, it is assumed that usage is 50% for
business use and 50% for personal use.
Deductible Amount of Fringe Benefits:
General Rule: Deductible amount =taxable fringe benefits + fringe benefit tax
Exception Rule: Deductible amount = fringe benefit tax paid (If fringe benefit tax is
based on the depreciation value, zonal value or assessed value)
Filing of Return
The fringe benefit tax withheld by the employer shall be remitted to BIR within 10 days
after the end of each calendar quarter; however, for EFPS , 5 days later
ILLUSTRATIVE DRILL PROBLEMS:
Compute the monetary value, grossed-up monetary value and the fringe benefit tax for
each of the following cases:
Moneta
FB
Fringe
Illustrative Cases
ry
Expens
benefit
value
e
tax
1. Alder, a sole proprietor, paid the P150,00 monthly
salary and P68,000 monthly rental of the condo unit
of its branch manager.
2. DVD Corporations owns a condo unit (capital asset)
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TAX by Rex B. Banggawan, CPA, MBA
3
TAX – 4th Batch – HQ06-1
Northern CPAR: Taxation – Fringe Benefit Taxation
which it furnished and granted for the residential use
of its VP Finance during 2010. The fair market value
of the property per BIR (zonal value) amounts to
P10,000,00 while its current Real Property
Declaration amounts to P8,000,000.
3. CD Realty Corporation sold a property to its VP for
Operations for P1,980,000. The residential house and
lot was purchased for P2,300,000 and had fair market
value per BIR of P2,500,000 and per Assessor’s office
of P2,600,000, respectively.
4. Courier Company transferred its house and lot to its
president, Rhad S. Tete. The following information
relates to the property:
Cost
P
5,000,000
Zonal value
4,500,000
Assessed value
3,000,000
5. KKK, a business partnership, purchase an automobile
for he use of its manager, Mr. Ong. The vehicle which
is intended to be used partly for business purposes
costs P400,000 and was registered in the name of Mr.
Ong.
6. John is a doctor on call. He was granted by his
employer a car with a second hand value of P300,000
to ensure his immediate availability during
emergency situations.
7. Darrel Taxicab owns a fleet of motor vehicles
consisting of 20 taxis for business. One of the taxi;
however, is kept reserved for employees use. The
taxis were purchased at P300,000 each.
8. Northern Company reimbursed the P102,000 vacation
expense of its president, Mr. Asuncion.
9. Northwestern Company granted a P4,000,000 7%
loan to its VP for Marketing, Andrix Kay.
10.Mrs. Mara Butit, a Chief Accountant, availed of the
car plan of his employer, Baguio Coop, a non-profit
credit cooperative. Under the plan, Mrs. Butit
shouldered only 40% of the P800,000 cost of the car.
The car was registered in the name of Mrs. Butit.
11.Ms. Sexy is a cute accounting staff at MBA Audit
Services. Mr. Milan, the managing partner was so
impressed by Ms. Sexy that he allowed the company
to shoulder half of Ms. Sexy’s P10,000 monthly rental.
12.HTM Corporation granted the use of its residential
unit it acquired in 2000 for P5,000,000 to a nonresident alien director. The property has a zonal value
of P6,000,000 and assessed value of P5,500,000.
13.Joe, a resident citizen, was hired as the vice president
for risk management for the offshore banking unit of
Intercontinental Bank in the Philippines. During 2010,
Joe was given car benefit of P1,200,000. 30% of this
will be deducted from Joe’s future monthly salary.
CPA EXAM DRILL PROBLEMS: FRINGE BENEFITS
1. The 2010 books of accounts of DBest Company showed the following:
Fringe benefit expense
P1,550,0
00
Fringe benefit tax expense
332,000
Compute the gross-up monetary value of fringe benefit given to managers and
supervisors.
a. P488,235
b. P512,500
c. P705,500
d. P1,037,500
2. Compute the value of fringe benefit given to rank and file employees.
a. P512,500
b. P512,500
c. P705,500
d. P844,500
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TAX by Rex B. Banggawan, CPA, MBA
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TAX – 4th Batch – HQ06-1
Northern CPAR: Taxation – Fringe Benefit Taxation
3. Compute the monetary value of fringe benefit given to managers and supervisors.
a. P512,500
b. P512,500
c. P705,500
d. P844,500
4. Compute the total deductible amount against gross income of DBest Company.
a. P1,037,500 b. P1,369,500
c. P1,882,000
c. P2,187,500
5. Which of the following is subject to fringe benefit tax?
a. Fringe benefit of the rank and file employeesc. Compensation income of the rank
and file employees
b. Fringe benefit of the managerial employees d. Compensation income of the
managerial employees
6. The following concepts denote exemption from the fringe benefits tax, except
a. Convenience of the employer
c. Welfare and benefits of the employee
b. Necessity to the business or trade
d. De minimis benefits
7. As a rule, fringe benefit furnished or granted in cash or in kind by an employer to an
individual employee maybe subject to the fringe benefit tax, if given to
A. Rank and file employees
B. Managerial employees
C. Those holding
supervisory positions
a. Only A and B
B and C
b. Only A and C
8. The fringe benefit tax is
A. Imposed on the employer B. Withheld at source
employer
a. Only A and B
B and C
b. Only A and C
c. Only B and C
d. A,
C. Deductible by the
c. Only B and C
d. A,
9. With regard to the amount on which the fringe benefit tax rate is applied, which
statement is wrong? The tax benefit rate is applied on
a. The monetary value of the fringe benefit
b. The gross-up monetary value of the fringe benefit
c. The amount deductible by the employer from gross income
d. Both accounts of the fringe benefit and the fringe benefit tax
10.The following fringe benefits are not subject to fringe benefit tax, except
a. If required by the nature of or necessary to the trade, business or profession of the
employer
b. Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans
c. Benefits given to the rank and file employees
d. If given for the convenience or advantage of the employee
11.Basic rules on fringe benefits tax, except
a. Fringe benefit given to rank and file employees is not subject to fringe benefits tax
b. Fringe benefit given to a supervisory or managerial employee is subject to fringe
benefits tax
c. De minimis benefit whether given to rank and file employee or to supervisory or
managerial employee is not subject to fringe benefit tax
d. The fringe benefit tax is a tax paid by the managerial or supervisory employee
12.Facilities or privileges furnished or offered by an employer to his 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.
a. Fringe benefit
c. De minimis benefit
b. Fringe benefit tax
d. grossed-up monetary
13.Which statement is wrong? The fringe benefit tax is
a. Imposed on the employer
c. Imposed on the managerial or supervisory
employee
b. Withheld at source
d. Deductible by the employer
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TAX by Rex B. Banggawan, CPA, MBA
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TAX – 4th Batch – HQ06-1
Northern CPAR: Taxation – Fringe Benefit Taxation
14.Which of the following is considered fringe benefits?
a. Housing privilege of AFP consisting of officials of the Philippine Army, Philippine
Navy and Philippine Air Force
b. Housing unit which is situated inside or adjacent to the premises of a business or
factory within a maximum of 50 meters from the perimeter of the business
premises.
c. Temporary housing for an employee who stays in a housing unit for 3 months or
less.
d. Housing benefits given by the government to its public managerial officers.
15.The grossed-up monetary value of fringe benefit subject to fringe benefit tax received
by a non-resident alien individual engaged in trade or business in the Philippines is
computed by dividing the monetary value of the fringe benefit by
a. 75%
b. 25%
c. 85%
d. 15%
16.The following fringe benefits are not subject to fringe benefits tax, except:
a. Fringe benefits given to the rank and file employees, whether granted under a
collective bargaining agreement or not
b. Contributions of the employer for the benefit of the employees to retirement,
insurance and hospitalization benefits plans
c. De minimis benefits, as defined in the rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the Commissioner.
d. Fringe benefits furnished or granted by the employer to its managerial and
supervisory employees.
17.Mr. A is a mining engineer employed by B Co., a mining firm. The company’s mine is
in Mountain. Trail. Mr. A was provided by the Company with living quarters at the
mine site. The fair rental value of the living quarters is P15,000 a month. Determine
the quarterly fringe benefit tax due.
a. P7,059
b. P21,176
c. P84,706
d. P 0
18.In 2010, ABC Corp. hired Ms. R. Escala as sales manager for cosmetics. In accordance
with her conditions for employment, she was given the following compensation and
fringe benefit:
Salary
Three handsome houseboys as
maids
A macho personal driver
Home owner’s association dues
P200,000/month
P8,000 per
maid/month
P10,000/month
P1,200/year
The fringe benefit tax due is
a. P108,424
b. P102,212
c. P192,565
d. P198,776
19.In 2007, A Corporation allowed its Sales Manager to incur expenses subject to
reimbursement, as follows:
Electricity (Bill Moto Electic Coop.) – 70% in the name of A Corporation
Water (Baguio Water & Air District) – 70% in the name of A Corporation
Grocery (Pelizloy Mart)
10,000
Gasoline of company car
12,000
Representation and transportation – business trip
4,000
The amount subject to fringe benefits tax is
a. P48,000
b. P25,400
c. P15,400
P 20,000
2,000
d. P16,600
20.As a means of promoting the health, goodwill and efficiency of his employees,
employer A gave rank and file employee B the following fringe benefits in 2009:
1. Monetized unused vacation leave of 15 days
P 9,000
2. Rice subsidy
24,000
3. Uniform and clothing allowance
8,000
4. Achievement award for length of service in the form of tangible personal
15,000
5. Gifts given during Christmas and major anniversary celebrations
10,000
6. 13th month pay
18,000
The amount of taxable fringe benefit is
a. P30,000
b. P25,000
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c. P23,000
TAX by Rex B. Banggawan, CPA, MBA
d. P11,000
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TAX – 4th Batch – HQ06-1
Northern CPAR: Taxation – Fringe Benefit Taxation
21.The employer’s deductions for the benefits given
a. P23,000
b. P18,000
c. P66,000
d. P84,000
22.The following data belong to Nasty Corp. for the year 2010
a. Educational assistance to supervisors and their children P 75,000
b. Employer’s contribution for the benefit of the employees to
retirement, insurance and hospitalization benefit plans
70,000
c. Year’s rental for an apartment paid by the Nasty for the use of its controller
60,000
Compute the total deductible fringe benefit tax expense.
a. P54,091
b. P105,606
c. P94,471
d. P63,529
23.ABC, Inc. established in the Philippines provided its employees cash and non-cash
fringe benefits in 2009 as follow:
Total amount of fringe benefits
P1,000,000
60% of said amount was given to rank and file employees
40% of said amount was given to corporate officers as follow:
a. To resident citizens
45%
b. To non-resident aliens not engaged in business in the Philippines 35%
c. To special aliens and Filipino employees
20%
Compute the total fringe benefit tax expense of ABC, Inc.
a. P238,824
b. P212,864
c. P242,891
d. P145,490
24.Compute the total deductible fringe benefit expense.
a. P1,238,824
b. P1,212,864
c. P1,242,891
P1,145,490
d.
25.A Company made the following payments in the 3rd quarter of 2009:
Fringe benefits:
To the supermarket in payment of groceries for the company’s manager and family –
P16,500
To a university in payment of the tuition fee of the manager – P24,750
Salary of the manager, net of P50,000 withholding tax – P350,000
Determine the fringe benefit tax due.
a. P19,412
b. P20,100
c. P7,765
d. P184,118
---- End of Handouts ---
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TAX by Rex B. Banggawan, CPA, MBA
7
TAX – 4th Batch – HQ06-1