Page 1 of 5 | TAX Handouts No. 6.

20

INCOME TAXATION
REX B. BANGGAWAN, CPA, MBA

FRINGE BENEFIT TAX

REX B. BANGGAWAN, CPA MBA

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).

Nature of the Fringe Benefits Tax

1. Final tax
2. Imposed upon the fringe benefits of managerial or supervisory employee
3. Withheld at source; hence, paid by employers
4. Grossed-up tax
5. Quarterly tax

Exempt Fringe Benefits

1. Mandatory fringe benefits
2. De minimis benefits
3. Fringe benefits of rank and file employees
4. Those provided under convenience of the employer rule
5. Those that are necessary to the trade or business of the employer

Classification of fringe benefits

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

1. Housing Benefits
Exception:

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REX B. BANGGAWAN, CPA MBA

FRINGE BENEFIT TAX

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 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 4a 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

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REX B. BANGGAWAN, CPA MBA

FRINGE BENEFIT TAX

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. 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.

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):

1. Fringe benefits which are authorized and exempt from 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:

Type of employee Tax Rate Gross-up rate
Resident or citizen 35% 65%
NRA-NETB 25% 75%

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)

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REX B. BANGGAWAN, CPA MBA

FRINGE BENEFIT TAX

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:

Illustration 1: Basic application
Monetary FB Fringe
Independent Illustrative Cases value Expense benefit tax
1. Northern Company reimbursed the P130,000 vacation expense of its
president, Mr. Asuncion.
2. Alder, a sole proprietor, paid the P150,000 monthly salaries and
P52,000 monthly rental of the condo unit of his branch manager.
3. CD Realty Corporation sold a property to its VP for Operations for
P1,080,000. The residential house and lot was purchased for
P1,300,000 and had zonal value of P1,600,000.
4. KKK Cooperative, purchased a car for P400,000 for the use of its
manager, Mr. Ong. The car which is intended to be used partly for
business purposes was registered in the name of Mr. Ong.
5. 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. The car has a book value of P250,000.
6. Ms. Sexy is an accounting staff at RE Audit Services. Mr. Escala, the
managing partner was so impressed by Ms. Sexy that he allowed the
company to pay for Ms. Sexy’s P10,000 monthly residential rental.
7. HTM Corporation granted the use of its residential unit it acquired for
P6,000,000 to a non-resident alien director. The property has a zonal
value of P6,500,000 and assessment fair value of P5,500,000.
8. Joe, a managerial employee of an ROHQ of a multinational company,
was given car benefit of P1,200,000 of which 30% will be deducted
from his future salaries.
9. Northwestern Company granted a P4,000,000 7% loan to its VP for
Marketing, Andrix Kay.

Illustration 2
ABC Company paid its employees P5,000,000 fringe benefits out of which it paid P 560,000 fringe benefits tax.
Required: Determine the following
1. Total fringe benefit expense
2. Fringe benefits paid to rank and file employees
3. Fringe benefits paid to managerial and supervisory employees

Illustration 3
Mond, Inc. has a production facility that is very far from town. To minimize tardiness affecting its operations, it decided to
construct housing units within the compound of the facility for employees who wants to relocate. It also agreed to pay half
of the household rentals of employees who do not want to relocate. The following data relates to the quarter of grant:
Rank and file
Company officers employees
Value of housing unit P 1,200,000 P 2,000,000
Rental payments 812,500 400,000

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REX B. BANGGAWAN, CPA MBA

FRINGE BENEFIT TAX

Required: Compute the fringe benefits tax.

Illustration 4
DEL Industries paid or furnished the following benefits during the quarter:
Salaries and wages P 750,000
Rice allowance in excess of regulatory thresholds 60,000
Rental on the residence of the CEO 120,000
Life insurance premium on the DEL’s CEO 40,000
Contribution to SSS, PhilHealth or HDMF* 80,000
Groceries purchased as supplies for a field sales office 45,000
DEL Industries is the beneficiary on the life insurance of its CEO. The SSS, Philhealth and HDMF contributions were
P35,000 in excess of their mandatory amounts.
Required: Compute the fringe benefit tax and the total deductible fringe benefits expense.

Illustration 5
In August 2020, Naga Company purchased a car for P1,500,000 to be issued to its managerial employee.
Required: Compute the FBT for the third calendar quarter if
1. The car was intended for business and personal use of the employee
2. The car is intended for official use only
3. The car is allowed to be used for personal use of the employee but he will pay P5,000/month to Naga Company
4. Ownership of the car is given to the employee who is a travelling sales manager

Illustration 6
In 2018, ABC Corporation paid for the annual rental of a residential house used by its general manager amounting to
P136,000. The entry to record the benefit is
a. Fringe Benefit Expense P136,000
Fringe Benefit Tax Expense 73,230
Cash P209,230
b. Fringe Benefit Expense P136,000
Fringe Benefit Tax Expense 36,615
Cash P172,615
c. Fringe Benefit Expense P68,000
Fringe Benefit Tax Expense 36,615
Cash P104,615
d. Fringe Benefit Expense P68,000
Fringe Benefit Tax Expense 64,000
Cash P132,000

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