ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 42  October 2021 CPA Licensure Exam  Week No. 9

TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-1001: FRINGE BENEFIT TAX

1. Definition of Certain Terms
a. Fringe benefits
b. Rank and file employees
c. Managerial employee
d. Supervisory employees
2. Imposition of Fringe Benefit Tax
a. A final tax
b. Imposed on the grossed- Fringe benefits tax is imposed on the grossed-up monetary value of fringe benefit furnished or
up monetary value
c. Imposed regardless
of who the employer
d. Withheld by and paid
employer
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.
All employees who are holding neither managerial nor supervisory position.
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.
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.
Effective January 1, 2018 and onwards, a final tax of thirty-five percent (35%) (used to be
32%) is hereby imposed on the grossed-up monetary value of fringe benefit given to citizen or
resident alien or non- resident alien engaged in trade or business within the Philippines (except rank
and file employees).
granted to the employee (except rank and file employees) ,
Fringe benefit tax is imposed whether the employer is an individual, professional partnership or
corporation, regardless of whether the corporation is taxable or not, or the government or its
instrumentalities.
Fringe benefit tax shall be treated as a final tax on the employee, which shall be withheld and paid
by the employer.

The fringe benefits tax is payable by the employer which tax shall be paid in the same manner as
provided for under Section 57(A) of this Code.
e. Filing of return and On or before the 10th day of the month following the month in which the fringe benefits were
payment of fringe granted to the recipient (BIR Form No. 1603)
benefits tax
f. Return to be filed Separate return for the head office and for each branch or place of business/office or consolidated
return for the head office and all the branches/offices except in the case of large taxpayer where
only one consolidated return is required
f. Tax base and tax rate Monetary value of fringe benefit P xxx
Divided by 65%
Grossed-up monetary value xxx
Tax rate 35%
Fringe benefit tax P xxx
g. 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
h. Tax base and tax rate Monetary value of the fringe benefit P xxx
for special aliens and Divided by 65%
their Filipino counter- Grossed-up monetary value xxx
parts and employees in Tax rate 35%
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;

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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.

4. De Minimis Benefits
a. Meaning of de minimis De minimis benefits are facilities or privileges furnished or offered by an employer to his employees
benefits 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.

b. Examples of de minimis benefits

Item
1) Medical benefits given to the employees by
the employer
2) Employee achievement awards (e.g. for
length of service or safety achievement)
3) Benefits received by an employee by virtue
of a collective bargaining (CBA) and
productivity incentive schemes
4) Uniforms and clothing allowance given to
employees by the employer
5) Gifts given during Christmas and major
anniversary celebrations
6) Rice subsidy granted by an employer to his
employees
7) Laundry allowance
8) Medical cash allowance to dependents of
employees
9) Daily meal allowance for overtime work and
night/graveyard shift
10) Monetized unused vacation leave credits
of private employees
11) Monetized value of vacation and sick
leave credits paid to government officials
and employees
Note: All other benefits given by employers
which are not included in the above
enumeration
Ceiling
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
Must be in the form of a tangible personal property other than cash
or gift certificate 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
P10,000per employee per taxable year (total annual monetary
value received from both CBA and productivity incentive schemes
combined) RR No. 1-2015, January 5, 2015
View 1 – if the amount exceeded P10,000, the entire amount is
added to the P90,000 exempt benefit.
Vie2 2 – if the amount exceeded P10,000, the excess over P10,000
is added to the P90,000 exempt benefit.
Not exceeding P6,000 per annum (old P5,000) (RR No. 11-2018)
Not exceeding P5,000 per employee per annum
P2,000 (old P1,500) or one (1) sack of 50 kg. rice per month
amounting to not more than P2,000 (RR 11-2018)
Not exceeding P300 per month
Not exceeding P1,500 per semester or P250 per month (RR No. 18-
2018) (formerly P750 per semester or P125 per month)
Not exceeding 25% of the basic minimum wage on a per region basis
Not exceeding 10 days during the year.
None
Not considered as “de minimis” benefits and shall be subject to
income tax as well as withholding tax as compensation income.
*

5. Tax Accounting for the Fringe Benefit Furnished to the Employee and the Fringe Benefit Tax Due Thereon
Deductible fringe benefits and fringe benefits tax.
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, zonal value or FMV per current real property
tax declaration, 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.
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, the amortized excess amount shall be allowed as a deduction from employer’s gross income
as fringe benefit expense.

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6. Computation of Monetary Value

Basic rules a. In case of housing privilege and motor vehicle:
1) If there is no transfer of ownership, the monetary value of benefit is 50% of the value of benefit.
2) If there is transfer of ownership, the monetary value of the benefit is the same as the value of the benefit.
b. In case of other fringe benefits – The monetary value of the benefit same as the value of the benefit.

7. Monetary value of housing privilege

Value of FB
Monetary value of FB
a. Employer leases residential property for the use of the Rental paid 50% of the value of the
employee benefits
b. Employer owns residential property which was assigned to 5% of the FMV of the land 50% of the value of the
an officer for his use as residence and improvements benefits
c. Employer purchases residential property on the installment 5% of the acquisition cost 50% of the value of the
basis and allows the employee to use the same as his exclusive of interest benefits
residence
d. Employer purchases a residential property and transfers the Employer’s acquisition cost or Entire value of the benefit
ownership in the name of the employee FMV, whichever is higher
e. Employer purchases a residential property and transfers FMV xxx Entire value of the benefit
ownership to his employee for the latter’s residential use at Less: Payment by
a price less than the employer’s acquisition cost employee xxx
Value of benefit xxx
g. Exercises
a) During the year 2018, ABC Corporation paid for the monthly rental of a residential house of its branch manager,
Mr. J. de la Cruz, amounting to P68,0000.

Requirement 1 – Compute the following:

a. Value of the fringe benefit
b. Monetary value of the fringe benefit
c. Grossed-up monetary value of the fringe benefit
d. Fringe benefit tax

Requirement 2 - Prepare the necessary journal entries.

b) XYZ Corp. owns a condominium unit. During the year 2018, the said corporation furnished and granted the said property for
the residential use of its Assistant Vice President. The fair market value of the property per BIR amounts to P10,000,000
while its fair market value as shown in its current Real Property Declaration amounts to P8,000,000.

Requirement 1 – Compute the monthly fringe benefit tax.

Requirement 2 - Prepare the necessary journal entries.

c) Using the same data in illustration letter b) above and assuming that the acquisition cost of the residential property is
P7,000,000 and the remaining useful life is 15 years. Prepare the necessary journal entries.

d) In 2018, Taprolani Corporation purchased a residential house and lot for P2,300,000. The property was sold to the President
of the corporation for P1,980,000. The fair market value per BIR and per Assessor's Office were P2,500,000 and P2,607,000
respectively.

Question 1 - How much was fringe benefits tax, if any?

2 –Assuming that the property was sold to the President for P2,500,000, how much was the fringe benefits
tax?
e) A house and lot were owned by Bonafe Laundry Corporation. The ownership of the said house and lot was transferred to its
President, Mars Bonafe, in 2018. The following data were made available:
Cost P5,000,000
Fair market value per BIR 4,500,000
Fair market value per Assessor's Office 3,000,000

How much was the fringe benefits tax, if any?

f) SB Corporation bought a residential property in installment for the use of its President during the current year. The total
amount paid by the corporation was P5,500,000 (inclusive of P500,000 interest.) How much was the fringe benefits tax?

8. Monetary value of vehicles of any kind

Value of FB Monetary value of FB

a. Employer owns and maintains a fleet of motor Acquisition cost of all motor 50% of the value of the benefit
vehicles for the use of the business and vehicles not normally used for
employees business divided by 5 years

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b. Employer leases and maintains a fleet of motor Amount of rental payments for 50% of the value of the benefit
vehicles for the use of the business and the motor vehicle not normally used
employees for business purposes
c. Employer purchases the motor vehicle in the Acquisition cost Entire value of the benefit
name of the employee
d. 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. 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. 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. Use of yacht, whether owned and maintained or Depreciation of a yacht at an
leased by employer estimated useful life of 20 years
h. Exercises

1) In 2021, Mata Optical Shop, sole proprietorship, purchased a motor vehicle for the use of its Manager, Dr. Malachi Mata.
It was registered in Dr. Mata's name. The cost of the vehicle was P400,000. The vehicle was used partly for the benefit of the
company. How much is the fringe benefits tax?

2) Eyes Drop, maker of the best-selling ice cream, owns a fleet of motor vehicles for use of the business and its employees. One of
the motor vehicles costing P450,000 is not used for business purposes, but for the employees' personal needs during the current
year.
Question 1 - How much is the annual fringe benefits tax, if any?
2 – Assuming one of the motor vehicles costing P450,000 is used for business purposes, and not for the employees'
personal needs, how much is the fringe benefits tax, if any?

9. Other fringe benefits

Value of the FB Monetary value of the FB

a. Expense account Amount given or paid by Entire value of the benefit
b. Household personnel, such as maid, driver and others employer
c. 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. Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs and
similar organizations
e. Expenses for foreign travel
f. Holiday and vacation expenses
g. Educational assistance to the employee or his dependents
h. Life or health insurance and other non-life insurance premiums or
similar amounts in excess of what the law allows.
Exercises
1) In 2021, ReSA Corporation paid the P50,000 vacation expenses of its President, Ms. Rita Ube to Dayag Rezzort.
Question 1 - How much is the value of the fringe benefit?
2- How much is the monetary value of the fringe benefit?
3- How much is grossed-up monetary value of the fringe benefit?
4– How much is the fringe benefit tax?
5- What entries will have to be made to record the fringe benefits expense and the fringe benefits tax expense?

2) In 2021, Bruce Lee, an executive of the ReSA Bank, was granted a loan by the bank. The amount of the loan was P2,000,000 at
8% interest per annum. The loan was payable in four (4) months. How much is the monthly fringe benefit tax?

10. Fringe benefits that are not subject to fringe benefits tax

a. 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, Philippine Navy and Philippine Air Force;
2)
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);
3) Temporary housing for an employee who stays in a housing unit for 3 months or less.

b. Vehicle of any kind

Use of aircraft and helicopters owned and maintained by the employer (treated as business expense)

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c. 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) Expenses by employees reimbursed by employer.
2) Not treated as taxable fringe benefits but taxable as compensation income under Sec. 24 (A) - Representation and
transportation allowance given regularly on a monthly basis.
d. Expenses for foreign travel of employee paid for by employer
1) Expenses in connection with attending business meeting or convention (except lodging cost in a hotel) at an average of $300
per day are considered reasonable expenses and shall not be subject to fringe benefit tax (with documentary evidence).
2) The cost of economy and business class airplane ticket shall not be subject to fringe benefit tax.
3) 70% of the cost of first-class airplane ticket shall not be subject to fringe benefit tax.

e. Educational assistance
Cost of educational assistance is not treated as taxable fringe benefit:
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;
2) when given to employee’s dependents through a competitive scheme under scholarship program of the company.

f. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows
The following shall not be treated as taxable fringe benefits:
1) Contributions under SSS law;
2) Contributions under GSIS law;
3) Similar contributions under existing laws;
4) Premiums for group insurance of employees.

g. Exercises
1) The books of accounts of Jones Company showed the following:
Fringe benefits expense P750,000
Fringe benefits tax expense 76,470

Question 1 - How much is the grossed-up monetary value of the fringe benefits given to managers and supervisors?
2 - How much is the monetary value of fringe benefits given to managers and supervisors?
3 - How much is the value of the fringe benefits given to rank and file?
4 - How much is the total amount of deductions?

2) A resident rank-and-file private employee has two (2) qualified dependent children at the beginning of the year. He also
supports his father-in-law who is PWD and his uncle who is a senior citizen. The following date are made available for the year
2021:

Salary, net of P117,500 withholding tax, P6,975 SSS contributions,

P5,250 Philhealth contributions and P1,500 union dues P482,500
13th month pay 50,000
14th month pay 50,000
Rice subsidy (P1,500 x 12) 18,000
Uniform and clothing allowance 5,000
Monetized unused vacation leave credits (12 days) 6,000
Actual medical benefits 15,000
Christmas gift 10,000
Laundry allowance (P400 x 12) 4,800
Employee achievement award (amount of cash given) 10,000
Monetary gift given on account of birth of a child during the year 5,000
Benefits received by virtue of a collective bargaining (CBA) and productivity incentive schemes 14,000
Separation pay from a previous employer (terminated due to redundancy) 150,000
Interest income from a long-term deposit which was pre-terminated (remaining maturity is 4 years) 40,000
Dividend from regional operating headquarters of a multinational corporation in the Philippines 10,000
Philippine Lotto winnings 100,000
Gain from sale of shares of stock listed and traded in the local stock exchange 20,000
Prize in a literary contest he joined 70,000

Compute the following:

a) Tax-exempt de minimis benefits
b) De minimis benefits to be included in other benefits
c) Total exclusions/exemptions (including de minimis benefits)
d) Total final withholding taxes
e) Taxable compensation income

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Summary of the tax treatment of compensation for services

If the benefit is either (1) furnished for the convenience of the employer or (2) necessary to the trade or business
of the employer, it is not income, not compensation, not fringe benefits and not taxable. Hence, the table above
is not applicable.

END

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