Chapter 3 - Fringe Benefit Tax
Chapter 3 - Fringe Benefit Tax
Fringe Benefit Tax
Prior to the enactment of the comprehensive tax reform program popularly known as the National Internal Revenue Code (NIRC or the Tax Code), the only forms of employee income that were effectively taxed were those which were given in cash. This was because an income tax was automatically withheld and collected at source by the government. Additional compensation which was given in the forms of perks and other non-cash benefits were virtually untaxed, giving rise to inequity in the distribution of the tax burden. The provision of salaries in the form of untaxed perks became a popular means of tax avoidance. Hence, the Fringe Benefit Tax (FBT) was proposed to enhance the progressivity of the income tax and to broaden the tax base.
Definition of a Fringe Benefit and Fringe Benefit Tax
The term "compensation" under Section 2.78.1 (A) of RR 2-98, as amended, means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Tax Code. The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, allowances, commissions (i.e., transportation, representation, entertainment and the like), fees including director's fees if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax under Section 33 of the Tax Code; taxable pensions and retirement pay; and other income of a similar nature constitute compensation income.
Fringe benefit is defined under Section 2(f) of RR 8-2018 as any goods, service or other benefits furnished or granted by an employer in cash or in kind, other than the basic compensation, by an employer to an individual employee (except rank-and-file employee as defined in Sec. 3(m) of RR 8-2019). In short, it is a form of pay which may be in the form of property, services, cash or cash equivalent to supplement a stated pay for the performance of services. Under the Tax Code, fringe benefits subject to Fringe Benefit Tax (FBT) cover only those fringe benefits given or furnished to a managerial or supervisory employee. The regulations do not cover those benefits which are part of taxable compensation income because such incomes are subject to basic income tax or graduated tax rate and consequently to withholding tax on compensation income with RR No.2-98, as amended. The tax treatment of fringe benefits given to employees is as follows:
• Fringe benefits given to rank-and-file employees: Part of taxable compensation (yes), subject to basic tax and CWT on compensation (yes), subject to FBT (no).
• Fringe benefits given to supervisory/managerial employees: Part of taxable compensation (no), subject to basic tax and CWT on compensation (no), subject to FBT (yes).
*Taxable compensation income in the table refers to salaries/wages presented in the Income Tax Return of an individual taxpayer. In general, "taxable compensation" refers to all forms of compensation income which are subject to graduated tax rate or basic income tax.
*FBs given to supervisory and managerial employees are taxable, nonetheless, it is subject to fringe benefit tax, a final withholding tax (FWT), not the graduated tax rate for compensation income.
The Labor Code distinguishes a rank-and-file employee from a managerial employee. It provides that a managerial employee is one who is vested with powers of prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank-and-file employees. Section 3(m) of RR 8-2018 defines rank and file employee as an employee holding neither managerial nor supervisory position.
Nature of a Fringe Benefit Tax
Fringe Benefit Tax (FBT) is a monetary burden imposed by the sovereignty on 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, other than a rank-and-file employee.
The FBT is a final tax imposed on the employee withheld by the employer, computed at 35% (beginning January 1, 2018 upon the effectivity of TRAIN Law) on the grossed-up monetary value (GMV) of the fringe benefit granted by the employer to an employee who holds a managerial or supervisory position. Being a final tax, the FBT is collected or withheld at source by the employer, meaning, at the firm’s level rather than at the taxpayer’s level to facilitate tax administration. For one, valuation of benefits is easier at the firm’s level and the problem of allocating benefits among individuals is avoided. The Bureau of Internal Revenue (BIR) has also to contend with fewer corporate tax returns.
FBT is effective regardless of whether the employer is an individual, professional partnership or a corporation (regardless of whether the corporation is taxable or not), or a government or its instrumentalities. FBT shall be withheld and remitted by the employer to the BIR (thus, the employer is the one liable to pay the FBT) not later than the last day of the month following the close of the quarter during which withholding was made (TRAIN Law; RR 11-2018).
Items of Fringe Benefits subject to Tax
Unless exempt, the following items of fringe benefits received by a supervisory or managerial employee shall be subject to fringe benefit tax:
1. Housing
2. Expense account
3. Vehicle of any kind
4. Household personnel, such as maid, driver and others
5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted
6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs and similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.
ILLUSTRATION 1: Covered Employees
Ana was hired by Earl to be the latter’s secretary and personal assistant. To enable her to perform her duties well, Earl provided a condo unit (adjacent to the office) which Ana could use as her temporary residence. Is the fair market value of the use of the condo by Ana a fringe benefit that is subject to fringe benefit tax imposed under Section 33 of the National Internal Revenue Code?
Answer: No.
Ana is neither a managerial nor a supervisory employee. Only fringe benefits granted to managerial or supervisory employees are subject to the fringe benefits tax.
Tax Exempt Fringe Benefits
The following fringe benefits shall not be subject to basic tax or fringe benefit tax:
1. Fringe benefits which are authorized and exempted from income tax under any special law such as:
◦ Contributions required under SSS law
◦ Contributions required under GSIS law
◦ Similar contributions under an existing law
◦ Premiums for group insurance of employees
2. If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer.
ILLUSTRATION 2
“Outstation Allowance (covers meals and trip-related expenses)” are granted to the managerial and supervisory employees of Philippine Gaming Management Corporation (PGMC) who will be away from the office site for at least 8 hours to visit lotto franchise holders for repairs and/or inspection of equipment leased by PGMC from Philippine Charity Sweepstakes Office (PCSO). Should the aforementioned allowance be subjected to tax?
Answer: No.
The allowance is required by the nature of or necessary to the trade or business of PGMC, hence, not subject to the fringe benefits tax prescribed in Section 33(A) of the Tax Code. Consequently, it is not subject to Income Tax and to withholding tax. By the same token, the aforesaid allowance which may be incurred or expected to be incurred by the managerial and supervisory employees in the performance of their duties cannot be considered as part of compensation subject to withholding tax even if the employees fail to account/liquidate the same considering that said expenses are pre-computed on a daily basis and are paid to employees while on assignment or duty (BIR Ruling No. 013-2002 dated April 5, 2002).
3. De minimis benefits (refer to page 157)
4. If the grant of benefits is for the convenience or advantage of the employer.
ILLUSTRATION 3:
CASE A, Use the same data in Illustration #1.
Question 1:
Is the fair market value of the use of the condo unit by Ana a "compensation income" that is subject to basic tax (graduated rate) under Section 24(A) of the Tax Code and consequently to creditable withholding tax on compensation income?
Answer: No.
The condo unit is provided for the convenience of the employer, hence does not constitute a taxable fringe benefit. Being his personal secretary, it is necessary for Ana to be accessible to Earl anytime.
Question 2:
Assuming Ana is a managerial or supervisory employee, is the fair market value of the use of the condo by Ana a "fringe benefit" subject to FBT?
Answer: No.
As explained in question #1, if the grant of benefits is for the convenience or advantage of the employer, irrespective of the employee’s rank, the benefit shall not be subject to fringe benefit tax and basic tax on compensation income.
CASE B:
Arthur Henderson and Marie Henderson filed their annual income tax with the BIR. Arthur is president of American International Underwriters for the Philippines, Inc., which is a domestic corporation engaged in the business of general non-life insurance, and represents a group of American insurance companies engaged in the business of general non-life insurance. The BIR demanded payment for alleged deficiency taxes. In their computation, the BIR included as part of taxable income:
• Arthur’s allowances for rental, residential expenses, subsistence, water, electricity and telephone expenses
• Entrance fee to the Makina Gun and Country Club which was paid by his employer for his account, and
• Travelling allowance of his wife
The taxpayer’s justifications are as follows:
• As to allowances for rental and utilities, Arthur did not receive money for the allowances. Instead, the apartment is furnished and paid for by his employer-corporation (the mother company of American International), for the employer corporation’s purposes. The spouses had no choice but to live in the expensive apartment, since the company used it to entertain guests, to accommodate officials, and to entertain customers.
• The entrance fee should not be considered income since it is an expense of his employer, and membership therein is merely incidental to his duties of increasing and sustaining the business of his employer.
• His wife merely accompanied him to New York on a business trip as his secretary, and at the employer-corporation’s request, for the wife to look at details of the plans of a building that his employer intended to construct. Such must not be considered taxable income.
Ruling:
The Supreme Court ruled that the claims are not part of taxable income because no part of the allowances in question redounded to their personal benefit, nor were such amounts retained by them. The bills were paid directly by the employer-corporation to the creditors. The rental allowances and subsistence allowances are to be considered not subject to income tax. The taxpayer held his executive position and social standing, demanded and compelled the couple to live in a more spacious and expensive quarters. Such “subsistence allowance” was a separate account from the account for salaries and wages of employees. The company did not charge amounts deductible from the salaries of the employees. These expenses are company expenses, not income by employees which are subject to tax (Collector vs Henderson).
Computation of Fringe Benefit Tax
In general, fringe benefit tax rate is 35% (beginning January 1, 2018 upon the effectivity of TRAIN Law). However, FBT rate for nonresident alien not-engaged in trade or business is 25%. The computation of the fringe benefits tax is done by:
1. Evaluating the value of the benefit granted or determining the monetary value.
2. Determining the proportion or percentage (gross monetary factor) of the benefit which is subject to the FBT.
3. Determining the grossed-up monetary value of the fringe benefit by dividing the monetary value of the fringe benefit by the gross monetary value factor; and
4. Multiplying the grossed-up monetary value factor by the FBT rate.
FBT Rates
The rates of fringe benefit tax vary depending on how the employees are taxed. The reason is that the FBT tends to recover the income tax of the employee so the rate follows the income taxation of such employees as shown below:
For citizens, resident aliens, and non-resident aliens engaged in trade or business (CIT, RA, NRAET):
• Take the monetary value of the benefit
• Divide by 65% to get the grossed-up monetary value
• Multiply the grossed-up monetary value by 35% to compute the Fringe Benefit Tax (FBT)
For non-resident aliens not engaged in trade or business (NRA-NETB):
• Take the monetary value of the benefit
• Divide by 75% to get the grossed-up monetary value
• Multiply the grossed-up monetary value by 25% to compute the Fringe Benefit Tax (FBT)
ILLUSTRATION 4:
Determine the grossed-up monetary value and the fringe benefit tax of the following (if applicable) for the taxable year:
1. P39,000 grocery allowance for the personal consumption of an executive of ABC Corporation
2. P40,800 expenses paid by an executive of ABC Corporation duly receipted for in the name of ABC Corporation and is not in the nature of personal expense
3. P40,800 expenses incurred by an executive of ABC Corporation in connection with attending business meeting or convention
4. P40,800 grocery allowance for the personal consumption of one of ABC Corporation’s rank and file employees
Answers:
1. Grossed-up Monetary Value (GUMV) = P39,000 / 65% = P60,000; FBT = (P39,000 / 65%) x 35% = P21,000
2. GUMV = P40,800*; FBT = P0. *The expenditure is not in the nature of personal expense of the company’s executive, hence, it is not a fringe benefit taxable to the employee. It is an ordinary business expenditure of ABC Corporation.
3. GUMV = P40,800; FBT = P0; same explanation with item #2
4. GUMV = P40,800 (same with monetary value); FBT = P0*; subject to basic tax or graduated tax rate
The grossing up of fringe benefits was adopted in order to align the tax treatment of fringe benefits with salaries and wages. Compensation incomes presented in the income tax returns of individual taxpayers are at gross amounts, meaning, the income tax payable on them are included in the computation. The fringe benefits are therefore grossed-up so that the income tax is also considered as part of the total benefit. The grossed-up monetary value of the fringe benefit represents the entire income earned by the employee. This includes the net amount of money received or the net monetary value of any property received (known as "monetary value") and the amount of FBT received by the employee from the employer.
Valuation of fringe benefits
• If granted in money, the value is the amount granted.
• If granted in property and ownership is transferred to the employee, the value is the fair market value of the property.
• If granted in property but ownership is not transferred to the employee, the value is equal to the depreciation value of the property.
Deductible expense of the employer
If the fringe benefit is given to a rank-and-file employee, or to a supervisory or managerial employee but is not subject to fringe benefit tax, the deduction for the employer is the monetary value of the fringe benefit. On the other hand, if the fringe benefit is given to a supervisory or managerial employee and is subject to fringe benefit tax, the deduction is the grossed-up monetary value of the fringe benefit which composes of the fringe benefit expense and the fringe benefit tax.
ILLUSTRATION 5:
Assume an employer furnished cash fringe benefit subject to fringe benefit tax amounting to P975,000
Question 1:
What should be the appropriate journal entry in the books of the employer?
Answer:
Fringe benefit expense (monetary value) - P975,000
Fringe benefit tax expense [(P975,000/65%) x 35%] - P525,000
Cash (GUMV) [(P975,000/65%)] - P1,500,000
The P1,500,000 grossed-up monetary value is composed of P975,000 paid to the employee and P525,000 paid/remitted to the BIR.
Question 2:
Assume that the cash fringe benefit is not subject to fringe benefit tax, what should be the appropriate journal entry of the employer?
Answer:
Fringe benefit expense (or simply compensation expense) - P975,000
Cash - P975,000
DE MINIMIS BENEFITS
Facilities and Privileges such as entertainment, medical services, or so called "courtesy" discounts on purchases, otherwise known as "De Minimis Benefits," furnished or offered by an employer to his employees, are not considered as compensation subject to income tax and consequently to withholding tax, if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as means of promoting the health, goodwill, contentment or efficiency of his employees [Section 2.78.1 (A)(3) of RR 2-98 as amended by RR 10-2008, RR 5-2011, RR 8-2012 and RR 1-2015]. These benefits are exempt from withholding tax on compensation and fringe benefits tax (FBT), regardless of the position of the employee who received such benefit(s).
The following shall be considered de minimis benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees:
1. Monetized unused vacation leave credits of private employees not exceeding "10 days" during the year.
◦ Payment of monetized unused "vacation" leave credits exceeding 10 days as well as payment of "sick" leave credits regardless of number of days shall be added to "other benefits" with a P90,000 ceiling. Any amount exceeding the P90,000 ceiling discussed in page 156 shall be subject to basic and creditable withholding tax on compensation income (RR 8-2018).
2. Monetized value of vacation and sick leave credits paid to government officials and employees.
◦ NOTE: Compared to employees in the private sector, payment of monetized unused "vacation" and "sick" leave credits to government officials/employees regardless of the number of days shall be exempt from tax on compensation income.
3. Medical cash allowance to dependents of employees not exceeding P1,500 per semester or P250 a month.
4. Rice subsidy of not more than P2,000 per month or 1 sack (50kg.) rice per month.
5. Uniforms given to employees by the employer not exceeding P6,000 per annum (RR 8-2018).
6. Actual medical assistance given not exceeding P10,000 per annum such as medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance and routine consultations.
7. Laundry allowance not exceeding P300 per month.
8. Employee achievement awards (e.g. for length of service or safety achievement), which 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 under an established written plan which does not discriminate in favor of highly paid employees.
TABLE 3-3: VACATION AND SICK LEAVE CREDITS – TEXT VERSION OF FLOWCHART
START: MONETIZED UNUSED LEAVE CREDITS
→ Classify as either VACATION LEAVE or SICK LEAVE
FOR VACATION LEAVE:
→ Who is the recipient?
• If private employee:
→ Number of days monetized?
◦ ≤ 10 days: TREATED AS DE MINIMIS (NOT SUBJECT TO TAX)
10 days: ADD TO "OTHER BENEFITS" WITH P90,000 CEILING
→ If total "other benefits" ≤ P90,000: NOT SUBJECT TO TAX
→ If total "other benefits" > P90,000: EXCESS AMOUNT SUBJECT TO BASIC INCOME TAX
• If government official/employee:
→ Regardless of number of days: EXEMPT FROM TAX ON COMPENSATION INCOME
FOR SICK LEAVE:
→ Who is the recipient?
• If private or government employee:
→ Regardless of number of days monetized: ADD TO "OTHER BENEFITS" WITH P90,000 CEILING
→ If total "other benefits" ≤ P90,000: NOT SUBJECT TO TAX
→ If total "other benefits" > P90,000: EXCESS AMOUNT SUBJECT TO BASIC INCOME TAX
ADDITIONAL NOTE:
All amounts subject to basic income tax are also subject to creditable withholding tax on compensation income.
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9. GIFTS given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum (RR 8-2012, RR 1-2015).
◦ Up to P5,000: de minimis
◦ In excess of P5,000: included in "other benefits" subject to the P90,000 ceiling.
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum wage on a per region basis provided such benefit is given on account of overtime work or if given to employees on night/graveyard shift.
◦ The grant of meal allowance for overtime work or night shift shall be subject to income tax if not furnished within the premises of the employer. However, meal allowance furnished within the employer’s premises is not subject to income tax.
◦ Note: Compared to employees in the private sector, payment of monetized unused "meal" leave credits to government officials/employees regardless of the number of days shall be exempt from tax on compensation income.
11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and Productivity incentive schemes provided that the total annual monetary value received from the two (2) items above combined, do not exceed P10,000 per employee per taxable year (RR 1-2015).
◦ BIR RULING No. 293-2015 (CBA/Productivity Incentive Pay): If not more than P10,000 – considered as de minimis
◦ If more than P10,000 – the entire amount shall be included in "other benefits" subject to the P90,000 ceiling.
◦ NOTE: This ruling shall apply only to benefits received under CBA and productivity incentive schemes. This ruling shall not apply to benefits received by employees not covered by CBA or productivity incentive schemes.
NOTE: The foregoing list of de minimis benefits is ALL-INCLUSIVE. Meaning, all other benefits given by employers which are not included in the enumeration above shall not be considered de minimis benefits (RR 8-2012; RR 1-2015).
EXCESS of de minimis benefits over their respective ceilings
The amount of de minimis benefits conforming to the ceiling of the de minimis benefits shall not be considered in determining the P90,000 ceiling of "other benefits". On the other hand, the excess of de minimis benefits over their respective ceilings prescribed under this regulation shall be considered part of "other benefits" subject to tax only on the excess over the P90,000 ceiling (refer to Table 3-4).
P90,000 Ceiling for 13th month pay and Other Benefits
Section 32(B)(7)(e) of the Tax Code, as amended by TRAIN Law, provides that the 13th month pay and other benefits received by officials and employees of public and private entities shall be exempt from income tax, provided that the total exclusion shall not exceed P90,000.
"Other benefits" include, but are not limited to:
• Christmas bonus
• Productivity incentive bonus
• Loyalty awards
• Gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices.
However, the following shall not be included in the computation of the P90,000 ceiling:
1. De minimis benefits as defined under RR 8-2012 and RR 1-2015.
2. Benefits received by an employee by virtue of a CBA and productivity incentive schemes provided the total annual monetary value received from the two (2) items combined do not exceed P10,000 per employee per taxable year.
3. Benefits received by government officials and employees under specific laws, e.g., benefits received by persons with disability under RA 9442.
Further, RR 3-2015 emphasized that this exclusion from the P90,000 ceiling shall apply only to benefits received by rank-and-file employees. For managerial and supervisory employees, all benefits mentioned above shall form part of the P90,000 ceiling.
Additionally, this exclusion from the P90,000 ceiling is not applicable to:
1. Self-employed individuals; and
2. Income generated from business.
Note: Some text was adjusted for clarity while retaining core content from the original source.
TABLE 3-4: TAX TREATMENT OF FRINGE BENEFITS, DE MINIMIS BENEFITS, AND 13TH MONTH PAY
(Text version of flowchart content)
Benefits are categorized into three types: Taxable Fringe Benefits, De Minimis Benefits (and similar exemptions), and 13th Month Pay and Other Benefits.
• Taxable Fringe Benefits: For rank-and-file employees – subject to graduated tax. For managerial/supervisory employees – subject to FBT.
• De Minimis Benefits: If within ceiling – exempt. If in excess of ceiling – subject to tax as part of compensation.
• 13th Month Pay and Other Benefits: If ≤ P90,000 – exempt. If in excess of P90,000 – excess amount subject to tax.
Fixed or Variable allowances
In general, fixed or variable allowances received by a public officer or employee or officer/employee of a private entity, in addition to regular compensation, fixed for his position or office, are compensation subject to income tax and consequently to withholding tax on compensation income [Section 2.78.1 (A) of RR 2-98 as amended]. Examples include transportation allowance, representation allowance, communication allowance, and the like.
Reasonable amounts of reimbursements/advances for travelling and entertainment expenses which are pre-computed on a daily basis and are paid to an employee while on assignment or duty need not be subject to the requirement of substantiation and to withholding tax.
Business related expenses/Allowances subject to liquidation
Any amount paid specifically, either as advances or reimbursements for travelling, representation and other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties, is not compensation income subject to withholding tax, provided:
• It is for ordinary and necessary expenses in the pursuit of the trade, business or profession of the employer; and
• The employee is required to account/liquidate for the foregoing expenses pursuant to the employer’s policy.
Representation and Transportation Allowance
Representation and Transportation Allowances (RATA) granted under Section 34 of the General Appropriations Act to certain officials and employees of the government are considered reimbursements for expenses incurred in the performance of their official duties and are not subject to income tax and withholding tax on compensation income.
Under several rulings issued by the BIR, reimbursements or advances for travelling and entertainment expenses which are pre-computed on a daily basis and are paid to an employee while on assignment or duty need not be subject to the requirement of substantiation and to withholding tax on compensation income.
Communication Allowance
Communication allowance (phone allowance) granted to employees is not subject to fringe benefit tax and tax on compensation income on the basis that communication allowance is necessary to the trade or business of the employer and redounds to the benefit of the employer.
SPECIAL RULES IN COMPUTING THE MONETARY VALUE OF FRINGE BENEFITS
TABLE 3-5: MONETARY VALUE OF HOUSING BENEFITS
• Employer leases residential property for employee use: Monetary Value = Rental paid x 50%
• Employer owns residential property for employee use: Monetary Value = Higher of Fair Market Value (FMV) in Real Property Declaration or Zonal Value x 50%
• Employer purchases residential property and transfers ownership to employee: Monetary Value = Higher of FMV or Zonal Value (no discount applied)
TABLE 3-6: MONETARY VALUE OF MOTOR VEHICLE BENEFITS
1. Employer owns and maintains fleet of motor vehicles: Monetary Value = Acquisition Cost / 5 years (useful life) x 50%
2. Employer leases motor vehicles for employee use: Monetary Value = Rental Payments x 50%
3. Employer provides cash for employee to purchase vehicle: Monetary Value = Cash Amount Given x 50%
4. Employer shoulders portion of vehicle acquisition/lease cost: Monetary Value = Amount Paid by Employer x 50%
ILLUSTRATION 6
CASE A: Employer leases residential house for branch manager use
In 2023, XYZ Corp. leased a residential house for its branch manager, Ms. Santos, at P120,000 per year.
• Question 1: What is the monetary value of the fringe benefit?
◦ Answer: P120,000 x 50% = P60,000
• Question 2: What is the grossed-up monetary value (GUMV)?
◦ Answer: P60,000 / 65% = P92,307.69
• Question 3: What is the fringe benefit tax due?
◦ Answer: P92,307.69 x 35% = P32,307.69
CASE B: Employer provides company-owned vehicle to executive
ABC Corp. purchased a vehicle for P800,000 (net of VAT) and assigned it to its VP for Operations. The vehicle is used 60% for business, 40% for personal use.
• Monetary Value: P800,000 x 40% = P320,000
• GUMV: P320,000 / 65% = P492,307.69
• FBT Due: P492,307.69 x 35% = P172,307.69
NOTE: Although the monetary value of the benefit is 50% only of the rental payment, the total deductible amount of the employer is the total of the actual rental payment and the applicable fringe benefit tax. The entire amount of the benefit is considered total compensation expense incurred by the employer. Therefore, the special rules in computing the monetary value of the benefit should be taken into consideration only for purposes of computing the fringe benefit tax.
CASE B
A domestic corporation owns a condominium unit. In 2023, the 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 assessment is P10,000,000, while its zonal value is P8,000,000. Determine the following:
1. Monthly Monetary Value of the benefit?
2. Grossed-up Monetary Value of the benefit?
3. Fringe Benefit Tax?
Answers:
1. Monthly Monetary Value: P10,000,000 (FMV) or P8,000,000 (Zonal) whichever is higher x 5% x 50% = P20,000
2. Grossed-up Monetary Value: P20,000 / 65% = P30,769
3. Fringe Benefit Tax: P30,769 x 35% = P10,769
CASE C
Using the same data in Case B and assuming that the property is used for both business and residential purposes (50% for each), determine the following:
1. Monthly Monetary Value of the benefit?
2. Grossed-up Monetary Value of the benefit?
3. Fringe Benefit Tax?
Answers:
1. Monthly Monetary Value: (P10,000,000 x 50%) x 5% = P25,000
2. Grossed-up Monetary Value: P25,000 / 65% = P38,462
3. Fringe Benefit Tax: P38,462 x 35% = P13,462
CASE D
A domestic corporation purchased a motor vehicle for P2,000,000 for the use of its Marketing Director. The vehicle is used 60% for business and 40% for personal use. Determine the following:
1. Monetary Value of the benefit?
2. Grossed-up Monetary Value?
3. Fringe Benefit Tax?
Answers:
1. Monetary Value: P2,000,000 x 40% = P800,000
2. Grossed-up Monetary Value: P800,000 / 65% = P1,230,769
3. Fringe Benefit Tax: P1,230,769 x 35% = P430,769
NON-TAXABLE HOUSING BENEFITS
The following housing benefits shall not be considered taxable fringe benefits:
1. Housing unit inside or adjacent to business premises: A housing unit located within or adjacent to the employer’s business premises is not taxable as a fringe benefit.
2. Temporary housing for short-term assignments: Temporary housing provided for assignments lasting three (3) months or less is not taxable.
3. Housing privilege of military officials: Housing benefits granted to military personnel under specific laws are not taxable.
OTHER FRINGE BENEFITS
Expense Account
• Taxable as fringe benefit: If the expense account is used for personal purposes and not liquidated.
• Not taxable: If the expense account is used exclusively for business purposes and liquidated.
Representation and Transportation Allowance (RATA)
• Regular RATA: Not taxable if used for official duties and liquidated.
• Excess RATA: Any amount exceeding the authorized limit is taxable as compensation income.
Foreign Travel Expenses
• Taxable as fringe benefit: If the travel is for personal purposes or if not properly liquidated.
• Not taxable: If the travel is for business purposes and properly documented.
Educational Assistance
• Taxable as fringe benefit: If provided to managerial/supervisory employees and not part of basic compensation.
• Not taxable: If the assistance is part of the employee’s compensation package or if provided to rank-and-file employees.
Membership Fees, Dues, and Other Similar Benefits
• Taxable as fringe benefit: If paid for managerial/supervisory employees and not part of basic compensation.
• Not taxable: If part of basic compensation or for rank-and-file employees.
6. The following shall not be treated as taxable fringe benefits:
a. Fringe benefits authorized and exempted from income tax under the Tax Code or any special law.
b. Benefits required by the nature of or necessary to the employer’s trade, business or profession.
c. Benefits for the convenience or advantage of the employer.
d. Employer contributions to retirement, insurance and hospitalization benefit plans.
e. Benefits given to rank-and-file employees.
f. Non-taxable housing benefits discussed earlier.
g. Other non-taxable benefits covered in this Chapter.
Use of Aircraft and Helicopters
The use of aircraft and helicopters owned and maintained by the employer is not a taxable fringe benefit but is treated as a business expense of the employer.
FILING OF RETURNS
The fringe benefit tax return shall be filed and the tax paid/remitted not later than the last day of the month following the close of the quarter during which the withholding was made (TRAIN Law; RR 11-2018).
ILLUSTRATION 5
Assume an employer furnished a cash fringe benefit subject to fringe benefit tax amounting to P975,000 during the first quarter of 2023.
Answer:
• Fringe benefit expense (monetary value) – P975,000
• Fringe benefit tax expense – P525,000 (computed as (P975,000 / 65%) x 35%)
• Total deductible expense – P1,500,000 (P975,000 + P525,000)
Journal Entry:
Fringe benefit expense – P975,000
Fringe benefit tax expense – P525,000
Cash (or FBT Payable) – P1,500,000
CHAPTER EXERCISES
PROBLEMS
Determine if each income is subject to fringe benefit tax (FBT), subject to basic tax, or exempt from tax. Where applicable, indicate the correct amount related to each tax treatment.
1. Officer’s expense account not subject to liquidation – Amount P120,000
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
2. Officer’s expense account subject to liquidation – Amount P80,000
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
3. Personal expenses of company officers, paid for or reimbursed by the company – Amount P50,000
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
4. Annual uniform allowances granted to an executive – Amount P6,000
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
5. Housing benefits of officials of the Philippine Army – Amount P360,000
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
6. Housing benefits of officials of a domestic corporation – Amount P250,000
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
7. Monetized unused vacation leave credits not exceeding 10 days – Amount P15,000
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
8. Household personnel benefit by an officer of a domestic corporation – Amount P60,000
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
9. Annual medical cash allowance to dependents – Amount P1,500
◦ Subject to FBT: [ ]
◦ Subject to Basic Tax: [ ]
◦ Exempt: [ ]
P3.2
During the current taxable year, Garcia Realty Corporation paid P325,000 to Mike, an executive of Garcia Realty, representing vacation expenses incurred by Mike during a business trip abroad. Answer the following:
a. Is this a taxable fringe benefit?
b. How much is the fringe benefit tax?
P3.3
LJ is a resident citizen employed by XYZ Corporation. During the year, she received the following benefits from her employer:
• Basic salary: P600,000
• 13th month pay: P50,000
• Christmas gift: P6,000
• Rice subsidy: P24,000
• Uniform allowance: P8,000
• Monetized unused vacation leave: P12,000
Required: Compute LJ’s taxable compensation income.
P3.4
XYZ Company provides the following benefits to its employees during the year:
• Housing benefit to manager: P150,000
• Monetized value of car benefit: P200,000
• De minimis benefits: P40,000 (total, within ceilings)
• 13th month pay and other benefits: P90,000
Required: Compute the total fringe benefit tax due.
P3.5
A domestic corporation provided the following benefits to its employees:
• Housing benefit to supervisor: P120,000
• Car benefit to manager: P300,000
• De minimis benefits: P50,000
• 13th month pay and other benefits: P90,000
Required: Compute the total deductible expense of the employer.
TRUE OR FALSE
Write True if the statement is correct, otherwise write False.
1. A fringe benefit is any good, service or other benefits furnished or granted by an employer in cash or in kind, including basic salaries to individual employees.
2. A fringe benefit subject to fringe benefit tax is taxable income of the employee.
3. A fringe benefit not subject to fringe benefit tax is taxable income of the employee.
4. Fringe benefits subject to fringe benefit tax cover only those fringe benefits given to a managerial or supervisory employee.
5. Fringe benefit tax shall be treated as a final income tax on the employee withheld and paid by the employer on a quarterly basis.
6. The grossed-up monetary value of the fringe benefit is the actual amount received by the employee.
7. The grossed-up monetary value of the fringe benefit shall be determined by dividing the monetary value of the fringe benefit by the gross monetary value factor.
8. The person liable for fringe benefit tax is the employer, whether he is an individual, professional partnership or a corporation regardless of whether the corporation is taxable or not.
9. A managerial employee is one who is vested with powers of prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively recommend such managerial actions.
10. The grant of fringe benefits to the employee is exempt from tax if such grant is required by the nature of, or necessary to the trade, business or profession of the employer.
11. The amount on which the fringe benefit tax rate is applied is the monetary value of the fringe benefit.
12. The amount deductible by the employer from its gross income is the grossed-up monetary value of the fringe benefit.
13. Grossed-up monetary value is reflected in the books of accounts as fringe benefit expense and fringe benefit tax expense.
14. Failure to withhold the required tax on salary is collectible from the employer.
15. Failure to withhold the required tax due to false information supplied by the employee shall be the liability of the employee.
(MODIFIED) IDENTIFICATION
Determine whether or not the following is subject to fringe benefit tax. Write A if the benefit is subject to fringe benefit tax, otherwise write B. Assume further that the employee is holding supervisory or managerial position unless stated otherwise.
1. Fringe benefit required by the nature of or necessary to the trade or business of the employer.
2. Fringe benefit for the convenience or advantage of the employer.
3. Car plan for managerial employees.
4. Daily meal allowance for managerial employees not exceeding 25% of the basic minimum wage on a per region basis.
5. Monetized unused vacation leave credits of private employees not exceeding 10 days.
6. Monetized unused vacation leave credits of private employees in excess of 10 days.
7. Actual medical assistance given not exceeding P10,000 per annum.
8. Monetized unused sick leave credits of private employees.
9. Rice subsidy given to employees.
10. Uniform and clothing allowance given to employees not exceeding P6,000 per annum.
11. Educational assistance granted to the employee for the study of the employee.
12. Educational assistance granted to the dependents of the employee.
13. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.
14. Cost of life or health insurance and other non-life insurance premiums or similar amounts borne by the employer for the employee.
15. Contributions made by an employer to SSS, GSIS and similar benefit plans.
16. Benefits received by officials and employees of the government and private offices under an established written plan which does not discriminate in favor of highly paid employees.
17. Benefits received by officials and employees of the government and private offices under an established written plan which discriminates in favor of highly paid employees.
18. Any other benefits of similar nature actually received by officials and employees of government and private offices.
19. Contributions made by an employer to SSS, GSIS and similar benefit plans in excess of what the law allows.
20. Contributions made by an employer to SSS, GSIS and similar benefit plans in excess of what the law requires.
MULTIPLE CHOICE
Choose the letter of the correct answer.
Principles
1. Which of the following statements is correct?
I. The fringe benefit tax is a final withholding tax on the grossed-up monetary value of the fringe benefit granted by the employer to an employee holding a managerial or supervisory position.
II. Fringe benefit tax is effective regardless of whether the employer is an individual, professional partnership or a corporation.
III. The fringe benefit tax regulations cover only those fringe benefits given or furnished to a managerial or supervisory employee.
a. I only
b. I and II only
c. I, II and III
d. None of the above
2. Statement 1: Fringe benefits are forms of incentives to employees.
Statement 2: Fringe benefits include salaries, services, or other benefits furnished or granted by an employer in cash or in kind, including basic compensation.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
3. Which of the following statements regarding fringe benefit tax is wrong?
a. Fringe benefit tax is imposed on the employee.
b. The employer is liable to pay the fringe benefit tax.
c. Fringe benefit tax is a final tax.
d. None of the above
4. This income of a resident alien holding managerial position is subject to basic tax:
a. Fringe benefit tax
b. Interest income from Philippine currency deposit
c. Prizes from SAR (P10,000), Gateway (P10,000), and Glorietta (P10,000) or a total of P30,000
d. None of the above
5. Which of the following is a fringe benefit not covered by fringe benefit tax?
a. De minimis benefits
b. Housing privileges granted to rank-and-file employees
c. Fringe benefits granted for the convenience of the employer
d. All of the above
6. The following earnings are subject to fringe benefit tax, except:
a. Salary of a rank-and-file employee
b. Housing benefit granted to a managerial employee
c. Vehicle of any kind granted to a supervisory employee
d. None of the above
7. Which of the following is exempt from fringe benefit tax?
a. De minimis benefits
b. Housing privilege granted to rank-and-file employees
c. Fringe benefits required by the nature of the employer’s business
d. All of the above
8. The fringe benefit tax is computed based on the:
a. Monetary value of the benefit
b. Grossed-up monetary value of the benefit
c. Book value of the benefit
d. Fair market value of the benefit
9. Statement 1: Fringe benefit tax is a final tax imposed on the employee.
Statement 2: The employer is liable to pay and remit the fringe benefit tax to the BIR.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
10. Fringe benefit tax is not applicable to:
a. Rank-and-file employees
b. De minimis benefits
c. Benefits required by the nature of the employer’s business
d. All of the above
11. Which of the following statements regarding grossed-up monetary value is correct?
I. The grossed-up monetary value of the fringe benefit is simply the amount received by the employee.
II. The grossed-up monetary value is determined by dividing the monetary value by the applicable factor.
III. The grossed-up monetary value is the amount on which the fringe benefit tax rate is applied.
a. I only
b. II only
c. III only
d. II and III only
12. Which statement is wrong about the amount on which fringe benefit tax is applied?
a. The monetary value of the fringe benefit
b. The grossed-up monetary value of the fringe benefit
c. The amount deductible by the employer from gross income
d. None of the above
13. If both fringe benefit expense and fringe benefit tax expense are allowed as deductions from gross income of a corporation, the entry in the books of accounts is:
a. Fringe benefit expense – xxx; Cash – xxx
b. Fringe benefit expense – xxx; Fringe benefit tax expense – xxx; Cash – xxx
c. Fringe benefit expense – xxx; Fringe benefit tax payable – xxx; Cash – xxx
d. Any of the above
14. The monetary value of a fringe benefit if given in money is:
a. Fair market value or zonal value, whichever is higher
b. Amount granted
c. Depreciated value
d. Acquisition cost plus incidental costs
15. Statement 1: If the employer did not withhold the fringe benefit tax and it was subsequently discovered by the BIR, the related fringe benefit tax is not allowed as a deduction from the employer’s gross income.
Statement 2: Fringe benefit tax includes additional benefits granted by the employer to the employee in addition to basic salary.
a. Both statements are false
b. Statement 1 is true but Statement 2 is false
c. Statement 1 is false but Statement 2 is true
d. Both statements are true
16. Statement 1: The exemption of any fringe benefit from fringe benefit tax does not mean exemption from other income tax.
Statement 2: Fringe benefits granted for the convenience or advantage of the employer are exempt from fringe benefit tax.
a. Both statements are false
b. Statement 1 is true but Statement 2 is false
c. Statement 1 is false but Statement 2 is true
d. Both statements are true
17. Cost of life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows are:
a. Subject to fringe benefit tax
b. Subject to basic tax
c. Exempt from tax
d. None of the above
18. Which of the following statements regarding fringe benefit tax is true?
I. Expenses incurred by the employee which are paid or reimbursed by the employer are taxable fringe benefits if not properly substantiated.
II. Benefits given to rank-and-file employees are not subject to fringe benefit tax.
III. The exemption of any fringe benefit from the fringe benefit tax shall NOT be interpreted to mean exemption from any other income tax unless the same is likewise exempt by law.
a. I only
b. I and III only
c. I, II and III
d. All of the above
19. Fringe benefits NOT SUBJECT to fringe benefit tax include which of the following?
I. Fringe benefits authorized and exempted from income tax under the Tax Code or under any special law.
II. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans.
III. De minimis benefits.
a. I and II only
b. II and III only
c. I, II and III
d. None of the above
20. Which of the following shall be subject to fringe benefit tax?
a. Housing privilege of Armed Forces of the Philippines.
b. Housing unit situated inside or adjacent to business premises.
c. Temporary housing for an employee who stays in the housing unit for three (3) months or less.
d. Housing privilege of an alien employee of an offshore banking unit in the Philippines.
23. ABC Corporation provided a 3-day vacation in Tagaytay to all of its employees. Total expenses incurred by the company amounted to P1,200,000. The fringe benefit tax expense
a. P470,588
b. P420,000
c. P840,000
d. P1,200,000
24. Using the same data in number 23, the total deductible expense is
a. P1,200,000
b. P1,620,000
c. P2,040,000
d. P2,400,000
25. A domestic corporation granted fringe benefits to its employees. The following data are given:
• Salaries and wages - P5,000,000
• Fringe benefits to managerial employees - P2,000,000
• Fringe benefits to rank and file employees - P1,000,000
The total deductible expense of the corporation is
a. P5,000,000
b. P6,000,000
c. P7,000,000
d. P8,000,000
Computation of FBT
21. How much is the allowable deduction from business income of a domestic corporation which granted and paid P975,000 fringe benefits to its key officers during the current taxable year?
a. P975,000
b. P1,500,000
c. P2,475,000
d. P3,000,000
22. During the current taxable year, ABC Corporation paid P1,200,000 for the rental of a residential house for the use of its branch manager. The fringe benefit tax is
a. P420,000
b. P480,000
c. P525,000
d. P600,000
23. ABC Corporation gave fringe benefits to its employees amounting to P1,200,000. The fringe benefit tax expense
a. P470,588
b. P420,000
c. P840,000
d. P1,200,000
24. Using the same data in number 23, the total deductible expense is
a. P1,200,000
b. P1,620,000
c. P2,040,000
d. P2,400,000
25. A domestic corporation granted fringe benefits to its employees. The following data are given:
• Salaries and wages - P5,000,000
• Fringe benefits to managerial employees - P2,000,000
• Fringe benefits to rank and file employees - P1,000,000
The total deductible expense of the corporation is
a. P5,000,000
b. P6,000,000
c. P7,000,000
d. P8,000,000
26. The fringe benefit tax due from the above benefit is
a. P36,706
b. P33,412
c. P24,846
d. P25,846
Special Rules on the Determination of the Monetary Value for Housing and Vehicle Benefits
27. For purposes of the fringe benefit tax, the monetary value of a housing benefit granted by employer to employee where the housing unit provided for use by the employee as his usual place of residence is owned by the employer
a. The amount of depreciation for the housing unit.
b. 50% of the annual value which is 5% of the fair market value or zonal value, whichever is higher.
c. 50% of the amount of depreciation.
d. Net book value
28. During the year, Mabuhay Corporation paid for the annual rental of a residential house used by its general manager amounting to P637,500.
a. P637,500
b. P318,750
c. P809,135
d. P468,750
Use the following data for the next five questions:
Included in the compensation package of an executive was the free use of the company’s residential condominium unit in Makati City, Philippines. Data on the condominium unit for the taxable year were as follows:
• Fair market value in Real Property Declaration: P1,000,000
• Zonal value: P2,000,000
• Fair market value: P2,500,000
29. How much is the monetary value of the fringe benefit?
a. P1,000,000
b. P2,000,000
c. P2,500,000
d. P1,250,000
30. Assume the residential condominium unit was purchased by the company in installment for the executive’s free use. Acquisition cost exclusive of interest was P3,000,000 with a zonal value of P5,000,000. At what amount should the company report as the monetary value of the fringe benefit and the fringe benefit tax, respectively?
a. P1,500,000; P652,500
b. P2,500,000; P892,500
c. P3,000,000; P1,057,500
d. P5,000,000; P1,750,000
31. Assume the residential condominium unit was purchased by the company in installment for the executive’s free use. Acquisition cost exclusive of interest was P3,000,000. At what amount should the company report as the monetary value of the fringe benefit and the fringe benefit tax, respectively?
a. P1,500,000; P525,000
b. P2,500,000; P875,000
c. P3,000,000; P1,050,000
d. P5,000,000; P1,750,000
32. Assume the residential condominium unit is located in Cebu and that the executive is allowed to use the same for a period of three months while he is completing an evaluation of the company’s branch. At what amount should the company report as the monetary value of the fringe benefit and the fringe benefit tax, respectively?
a. P0; P0
b. P1,500,000; P525,000
c. P2,000,000; P700,000
d. P2,500,000; P875,000
33. Assume the residential unit is located in Cebu and that the executive is allowed to use the same for a period of three months while he is completing an evaluation of the company’s branch. Total expenses incurred by the company amounted to P1,200,000. The fringe benefit tax expense is
a. P470,588
b. P420,000
c. P840,000
d. P1,292,231
34. Using the above data, the total deductible expense is
a. P1,294,118
b. P294,118
c. P1,284,000
d. P1,329,231
Use the following data for the next two questions:
The following data were from a managerial employee:
• Salaries and wages - net of SSS and medicare contributions: P681,200
• Total fixed monthly allowance (P5,000/mo.): P12,000
• Allowance, not subject to liquidation: P134,800
• Gasoline allowance, subject to liquidation: P60,000
• 13th month pay: P60,000
• Christmas bonus: P15,000
35. The gross compensation income subject to graduated rate is
a. P440,000
b. P681,200
c. P816,000
d. P876,000
36. The fringe benefit tax due from the above benefit is
a. P36,706
b. P33,412
c. P24,846
d. P25,846
Special Rules on the Determination of the Monetary Value for Housing Benefits
37. For purposes of fringe benefit tax, the monetary value of a housing benefit granted by employer to employee where the housing unit provided for use by the employee as his usual place of residence is owned by the employer
a. The amount of depreciation for the housing unit.
b. 50% of the annual value which is 5% of the fair market value or zonal value, whichever is higher.
c. 50% of the amount of depreciation.
d. Net book value
DE MINIMIS BENEFITS
37. Statement 1: De minimis benefits are facilities or privileges furnished or granted by an employer to its employees, which are relatively of small value.
Statement 2: De minimis benefits given to rank and file employees or to managerial or supervisory employees are not subject to fringe benefit tax.
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
38. Alpha Company grants grocery allowance of P5,000 per semester per employee payable every June 30 and December 31 based on the existing Collective Bargaining Agreement with its employees. The benefit granted is
a. Exempt from basic income tax but subject to 10% creditable withholding tax.
b. Exempt from basic income tax and to creditable withholding tax.
c. Subject to fringe benefit tax if the recipient is a rank and file employee.
d. Subject to fringe benefit tax if the recipient is a managerial employee.
39. Fixed daily meal allowances granted employees are
a. Exempt from income tax.
b. Subject to fringe benefit tax if the recipient is a rank and file employee.
c. Subject to fringe benefit tax if the recipient is a managerial employee.
d. Subject to basic income tax regardless of employee’s rank.
40. Statement 1: Uniform and clothing allowance not exceeding P6,000 per annum is a de minimis benefit.
Statement 2: Monetized unused vacation leave credits not exceeding 10 days is a de minimis benefit.
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
41. Other benefits received by employees which are not in the list of de minimis benefits are
a. Treated as de minimis benefits if the benefits are of relatively small value.
b. Treated as de minimis benefits if the employer is a domestic corporation.
c. Not de minimis benefits and are subject to income tax.
d. None of the above
42. Reasonable business expenses which are paid for by the employer for the foreign travel of his employee to attend business meetings or conventions are not taxable as fringe benefits. Which is NOT true?
I. Inland travel expenses (food, beverages, and local transportation) except lodging cost in a hotel or similar establishment amounting to an average of US$300 or less per day, shall not be subject to a fringe benefit tax.
II. The cost of economy and business class airplane ticket shall not be subject to a fringe benefit tax. However, 30% of the cost of first-class airline ticket shall be subject to fringe benefit tax.
III. The expenses should be supported by documents proving the actual occurrences of the meetings or conventions, otherwise, they shall be treated taxable fringe benefit.
a. I only
b. I and II only
c. I, II and III
d. None of the above
43. 1st Statement - Rice subsidy of two thousand pesos (P2,000) or one sack of 50 kg. rice per month amounting to not more than two thousand pesos is an exempt de minimis benefit.
2nd Statement - Employee achievement awards, e.g., for length of service, or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding ten thousand pesos received by an employee under an established written plan which does not discriminate in favor of highly paid employees is an exempt de minimis benefit.
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
44. The amount of de minimis benefits conforming to the ceiling of de minimis benefits shall be:
a. Exempt from income tax, regardless of the rank of the employee
b. Not be considered in determining the P90,000 ceiling of other benefits excluded from the gross income under the Code, as amended.
c. Both "a" and "b"
d. Neither "a" nor "b"
45. The excess of the de minimis benefits over their respective ceilings prescribed under the regulations shall be:
a. Considered as part of other benefits subject to tax only on the excess over the P90,000 ceiling.
b. Not be considered in determining the P82,000 ceiling of other benefits excluded from the gross income under the Code, as amended.
c. Both "a" and "b"
d. Neither "a" nor "b"
Chapter 3 - Fringe Benefit Tax
c. Both "a" and "b"
d. Neither "a" nor "b"
46. Minimum Wage Earners (MWEs) receiving “other benefits” exceeding the P90,000 limit shall be:
a. Taxable on the excess benefits only
b. Taxable on the excess benefits as well as his salaries, wages and allowances, just like an employee receiving compensation income beyond the statutory minimum wage.
c. Exempt from income tax
d. None of the above
47. The amount of P90,000 under “other benefits” which are excluded from gross income shall:
I. Not be applicable to self-employed individuals.
II. Not be applicable to income generated from the conduct of trade or business.
III. Shall be applicable to all types of income.
a. I only
b. I and II only
c. I, II and III
d. None of the above
48. “Other Benefits” under revenue regulations include:
I. Christmas bonus
II. Productivity incentive bonus
III. Loyalty awards
IV. Gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices.
a. I only
b. I and II only
c. I, II and III
d. I, II, III and IV
49. Which of the following statements regarding thirteenth (13th) month pay is correct?
a. Thirteenth (13th) month pay and other benefits received by officials and employees of public and private entities are exempt from income tax and creditable withholding tax on compensation, provided that the total exclusion does not exceed P90,000.
b. The excess of de minimis benefits over their respective ceilings prescribed under the regulations shall be part of the gross income subject to income tax.
c. Both "a" and "b"
d. Neither "a" nor "b"
Chapter 3 - Fringe Benefit Tax
50. Pedro, single, is a minimum wage earner of EDT Manufacturing Corporation. In addition to his basic minimum wage of P144,000 for the current taxable year, he also received the following benefits:
• Holiday pay, P2,000
• Overtime pay, P12,000
• Night shift differential, P19,000
The income subject to tax should be:
a. P56,000
b. P31,000
c. P200,000
d. nil
51. Pedro, single, is a minimum wage earner of EDT Manufacturing Corporation. In addition to his basic minimum wage of P144,000 for the current taxable year, he also received the following benefits:
• De minimis benefits, P60,000 (P20,000 over the ceiling)
• 13th month pay and other benefits, P122,000
Pedro’s income tax due should be:
a. P20,000
b. P32,000
c. P52,000
d. nil
52. Pedro, senior citizen, is a minimum wage earner of ABC Manufacturing Corporation. Pedro is also engaged in trading various consumer products every weekend. He derived profit therefrom amounting to P500,000 for the year. In addition to his basic minimum wage of P144,000 for the current taxable year, he also received the following benefits:
• De minimis benefits, P40,000 (all within the ceiling)
• 13th month pay and other benefits, P35,000
Pedro’s taxable income should be:
a. P644,000
b. P594,000
c. P500,000
d. P35,000