INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

2nd Sem
Department of Accountancy 2020-2021
INCOME TAXATION

MODULE 7 – FRINGE BENEFITS AND DE MINIMIS BENEFITS

CLASSIFICATION OF EMPLOYEES
1. Other than rank and file employees (Managerial employees) are ones who are vested with
powers or prerogatives to lay down and execute management policies and/or hire, suspend, lay-
off, recall, discharge, assign or discipline employees
2. Supervisory employees are those who, in the interest of the employer, effectively recommend
such managerial actions or the exercise of such authority is not merely routinary or clerical in
nature but requires the use of independent judgment
3. Rank-and-File employees are employees who are holding neither managerial nor supervisory
position
FRINGE BENEFITS
Fringe benefits 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).
General Rule: Fringe benefits given to persons holding managerial positions are subject to FBT
Exceptions: The following benefits are EXEMPT from fringe benefit tax
1. Convenience of the employer
2. Advantage of the employer
3. Necessary in trade
4. Required by the nature of the trade
5. Authorized and exempted from tax under special laws
6. Benefits given to rank-and-file employees
7. Contributions of employer to retirement, insurance and hospitalization benefit plans
8. De minimis benefits
TREATMENT OF FRINGE BENEFITS
Class of employee Holding Managerial Position Rank and File
Fringe benefits when received Fringe benefits Additional Compensation
Tax implication (subject to) Fringe benefits tax Withholding tax on Compensation
Classification of tax Final tax Creditable withholding tax
Nature Not part of gross income Gross income (compensation)
COMPUTATION
Types of Taxpayers who received the fringe RC, NRC, RA, NRAE, NRANETB
benefit Special Aliens
Fringe benefit xxx xxx
Multiply by 100% or 50%* 100% or 50%*
Monetary value of fringe benefit Xxx Xxx
Divide by gross-up rate 65% 75%
Gross-up monetary value of fringe benefit Xxx Xxx
Multiply by FBT rate 35% 25%
Fringe benefit tax xxx xxx
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.
- Personal property- depreciable life of 5 years (20%)
- Real property - depreciable life of 20 years (5%)

NOTE: If the employer and employee both benefitted, 50% is subject to FBT.

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INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
2nd Sem
Department of Accountancy 2020-2021
INCOME TAXATION

Benefits given to managerial/supervisory employees subject to FBT (final tax)

1. Housing Benefits
Illustration:
Free use Rental Title given in name of Manager
Cost of House is Php 5M Monthly is Php 20,000.00 GSP – Php 3 M
ZV - Php 5 M
AV - Php 2M

Annual FBT
Quarterly:
Exceptions:
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. Expense account
Expenses of the employees that are paid for the employer are taxable fringe benefit:
a. expenses of reimbursement type including utilities
b. Credit card payments paid by employer
c. personal expenses (groceries etc.) even if receipted in the name of the employer

Illustration:
Electricity bill
Internet
Groceries
Credit card payments
Rate (100% or 50%)
Monetary value of fringe benefit
Divide by
GUMV
FBT (Qtr)

3. Vehicle of any kind; and

The rules in housing benefits apply herein.
Illustration:
Free use Rental Car given in name of Manager
Acquisition cost is Php 5M Monthly is Php 20,000.00 Value is Php 5M

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INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
2nd Sem
Department of Accountancy 2020-2021
INCOME TAXATION

Annual FBT
Quarterly:

Exceptions:
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.
b. Yacht, whether owned or leased by the employer is considered not for business purpose (by
nature for pleasure), and hence taxable fringe benefit. Note: Yacht for purposes of
determining the depreciation value is assumed to have a life of 20 years.

4. 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
c. Similar expenses as payment for homeowner’s association duties, garbage dues, etc.
Illustration:
Monetary value of fringe benefit (Monthly salaries (Php 20,000.00)
Divide by
GUMV
FBT (Qtr)

5. 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.
Illustration:
Principal amount in loan is Php 1 Million. Interest rate given to Manager is 2%.
Monetary value of fringe benefit
Divide by
GUMV
FBT (Qtr)

6. Membership fees, dues, and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations
Illustration:
Monthly membership dues - Php 5,000.00
Monetary value of fringe benefit
Divide by
GUMV
FBT (Qtr)

7. Expense for foreign business travel

a. First class airplane ticket – 30% of the cost of ticket
b. Economy/business class - exempted
c. Lodging cost in a hotel or similar establishment in excess of US$300 per day.
d. Traveling expense paid by the employer for the travel of the family members of the employee
Illustration:
Nicanor, as SVP for Finance, attended a convention in the U.S. ABC Corp paid for the first
class ticket amounting to Php 50,000.00 and gave him a per diem of Php 10,000.00 daily for
five days.
Monetary value of fringe benefit
Divide by
GUMV

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INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
2nd Sem
Department of Accountancy 2020-2021
INCOME TAXATION

FBT (Qtr)

8. Holiday and vacation expense

If incurred by the employees and shouldered by the employer, this constitute taxable fringe
benefit.
Illustration:
Nicanor, as SVP for Finance, went to Disneyland for a vacation. ABC Corp paid for the
economy ticket amounting to Php 50,000.00 and gave him a per diem of Php 10,000.00 daily.
He stayed there for five days.
Monetary value of fringe benefit
Divide by
GUMV
FBT (Qtr)

9. 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

10. 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

NOTE: If above benefits are given to Rank and File employees, the benefits are treated as ADDITIONAL
COMPENSATION subject to withholding tax on compensation
DEDUCTIBLE AMOUNT OF FRINGE BENEFITS
General Rule: Deductible amount is grossed up monetary value (taxable fringe benefits and fringe
benefit tax)
Exception: Deductible amount is fringe benefit tax paid if fringe benefit tax is based on the depreciation
value, zonal value or assessed value
DEADLINE OF FILING OF RETURN (BIR FORM 1603)
The fringe benefit tax withheld by the employer shall be remitted to BIR before the last day of the month
following the close of the taxable quarter
DE MINIMIS BENEFITS
In general, de minimis benefits are limited to 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.
1. Monetized unused vacation leave credits of private employees – not exceeding 10 days during the
year
2. Monetized unused vacation and sick leave credits paid to government officials and employees
3. Medical cash allowance to dependents of employees – not exceeding P1,500 per employee per
semester, or P250 per month

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INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
2nd Sem
Department of Accountancy 2020-2021
INCOME TAXATION

4. Rice subsidy – P2,000 or 1 sack of 50-kg rice per month amounting to not more than P2,000.
5. Uniform and clothing allowance – not exceeding P6,000 per annum
6. Actual Medical Assistance, e.g. medical allowance to cover medical and healthcare needs, annual
medical/executive check-up, maternity assistance, and routine consultations – not exceeding
P10,000 per annum
7. Laundry allowance – not exceeding P300 per month
8. Employee achievement award, e.g. for length of service or safety achievement, which must be in the
form of tangible property other than cash or gift certificates, 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.
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee
per annum (i.e. Christmas gift and anniversary gifts)
10. Daily meal allowance for overtime work and night or graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis (i.e. overtime meal)
11. Productivity incentive bonus and benefits under CBA up to P10,000
NOTES:
1. De minimis benefits are exempted from:
a. Income tax
b. Withholding tax
c. Fringe benefits tax
2. The above enumeration is an EXCLUSIVE LIST
3. The treatment of De minimis benefit is the same regardless of position
4. The excess de minimis benefits can be carried over to the “Other Benefits” in 13th month pay and
other benefits threshold of Php 90,000.00
END

References:
1. Republic Act No. 8424 – National Internal Revenue Code of 1997 (NIRC)
2. Republic Act No. 10963 – Tax Reform for Acceleration and Inclusion Act (TRAIN)

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