University of Southern Philippines Foundation

College of Accountancy

INCOME TAX (FRINGE BENEFITS AND FRINGE BENEFIT TAX)

1. Definition of Certain Terms

a. Fringe benefits 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.
b. Rank and file employees All employees who are holding neither managerial nor supervisory position.
c. Managerial employee One who is vested with powers or prerogatives to lay down and execute management policies
and/or to hire, transfer, suspend, layoff, recall, discharge, assign or discipline employees.
d. Supervisory 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.

2. Imposition of Fringe Benefit Tax

a. A final tax Fringe benefit tax is a final tax.
b. Imposed on the grossed- Fringe benefit tax is imposed on the grossed-up monetary value of fringe benefits furnished
up monetary value granted or paid by employer to employees except rank and file employees.
c. Imposed regardless Fringe benefit tax is imposed whether the employer is an individual, professional partnership
of who the employer or corporation, regardless of whether the corporation is taxable or not, or the government or
its instrumentalities.
d. Withheld by employer Fringe benefit tax shall be treated as a final tax on the employee, which shall be withheld and
paid by the employer on a calendar quarterly basis.
e. Tax base and tax rate Monetary value of fringe benefit P xxx
Divided by 68%
Grossed-up monetary value xxx
Tax rate 32%
Fringe benefit tax P xxx
f. 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
g. Tax base and tax rate Monetary value of the fringe benefit P xxx
for special aliens and Divided by 85%
their Filipino counter- Grossed-up monetary value xxx
parts and employees in Tax rate 15%
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;
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.
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4. De Minimis Benefits
a. Meaning of de minimis De minimis benefits are facilities or privileges furnished or offered by an employer to his
benefits employees that are of relatively small value and are offered or furnished by the
employer merely as a means of promoting the health, goodwill, contentment, or
efficiency of his employees.
b. Examples of de minimis benefits
Item Ceiling
1) Medical benefits given to the employees by Actual medical assistance, e.g. medical allowance to cover medical
the employer and healthcare needs, annual medical/executive check-up,
maternity assistance, and routine consultations, not exceeding
P10,000 per annum
2) Employee achievement awards (e.g. for Must be in the form of a tangible personal property other than cash
length of service or safety achievement) 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
3) Gifts given during Christmas and major Not exceeding P5,000 per employee per annum per employee
anniversary celebrations
4) Uniforms and clothing allowance given to Not exceeding P5,000 per annum (old P4,000)
employees by the employer
5) Rice subsidy granted by an employer to his P1,500 (old P1,000) or one (1) sack of 50 kg. rice per month
employees amounting to not more than P1,500
6) Laundry allowance Not exceeding P300 per month
7) Medical cash allowance to dependents of Not exceeding P750 per semester or P125 per month.
employees
8) Daily meal allowance for overtime work and Not exceeding 25% of the basic minimum wage on a per
night/graveyard shift region basis
9) Leave Credits Monetized unused vacation leave credits of private employees not
exceeding ten (10) days during the year AND THE MONETIZED
VALUE OF LEAVE CREDITS PAID TO GOVERNMENT OFFICIALS AND
EMPLOYEES
10) Benefits received by an employee by ---
virtue of a collective bargaining agreement
(CBA); and Productivity incentive schemes
(RR 1-2015); Provided, that the total
annual monetary value received from the
two (2) items combined, do not exceed
P10,000 per employee per taxable year.
Note: All other benefits given by employers Not considered as de minimis benefits and shall be subject to
which are not included in the above income tax as well as withholding tax as compensation income.
enumeration
*

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 employers 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: 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 employers gross income
as fringe benefit expense.

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 is the same as the value of
the benefit.

7. Monetary value of housing privilege

Monetary value of the
Value of the benefit benefit
a. Employer leases residential property for the use of the Rental paid 50% of the value of the
employee benefits
In the year 2016, Peso Bank, Inc. paid for the quarterly rental of a residential house of its branch manager, Mr. Fernandez,
amounting to P68,000.
1. How much is the fringe benefit expense?
2. How much is the fringe benefit tax?
b. Employer owns residential property which was 5% of the ZV or FMV of the 50% of the value of the
assigned to an officer for his use as residence land and improvements, benefits
whichever is higher
Global Zinc, Inc. owns a condominium unit. During the year 2016, it allowed its CEO to use the said property as his residence.
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The zonal value of the property is P10,000,000 while its fair market value as shown in its current Real Property Tax Declaration
amounts to P8,000,000.
1. How much is the fringe benefit expense?
2. How much is the quarterly fringe benefit tax expense?

Using the same data above and assuming that the acquisition cost of the residential property is P7,000,000 and the remaining
useful life is 15 years. How much is the fringe benefit expense?
c. Employer purchases residential property on the 5% of the acquisition cost 50% of the value of the
installment basis and allows the employee to use the exclusive of interest benefits
same as his residence
Painbank, a commercial bank, bought a residential property on installment for the use of its Comptroller. The total amount paid
by the Bank is P5,500,000, gross of 10% interest. The fair market value of the property Per Tax Declaration is P6,000,000
while the zonal value is P5,236,000. How much is the annual fringe benefit tax?
d. Employer purchases a residential property and transfers Employers acquisition cost or Entire value of the
the ownership in the name of the employee ZV, whichever is higher benefit
Based on the preceding problem, assuming the ownership over the property will be transferred to the Banks Comptroller, how
much is the fringe benefit tax?
e. Employer purchases a residential property and transfers Higher of Entire value of the
ownership to his employee for the latters residential FMV or ZV xxx benefit
use at a price less than the employers acquisition cost Less: Cost to
employee xxx
Value of benefit xxx
In 2016, EPE Corporation purchased a residential house and lot for P2,300,000. The property was later sod to its General
Manager for P1,980,000. The fair market value per Assessors Office is P2,200,000 while the zonal value is P2,100,000.
How much is the fringe benefit tax?

Based on the above information, assuming the selling price is P2,400,000, how much is the fringe benefit tax?

8. Monetary value of vehicles of any kind

Monetary value of the
Value of the benefit benefit
a. Employer owns and maintains a fleet of motor Acquisition cost of all motor 50% of the value of the
vehicles for the use of the business and vehicles not normally used for benefit
employees business divided by 5 years
b. Employer leases and maintains a fleet of motor Amount of rental payments for 50% of the value of the
vehicles for the use of the business and the motor vehicle not normally used benefit
employees for business purposes
Barack Flower Shop Inc. purchased a motor vehicle for the use of its manager, Mike. It was registered under Mikes name. The
cost of the vehicle was P400,000. The vehicle will used partly for the benefit of the company.
How much is the fringe benefit tax?
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

9. Other fringe benefits

Monetary value of the
Value of the benefit benefit
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.

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;
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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)
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 1) Expenses in connection with attending business meeting or convention (except lodging cost
travel of employee in a hotel) at an average of $300 per day are considered reasonable expenses and shall not
paid for by employer 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 Cost of educational assistance is not treated as taxable fringe benefit:
assistance 1) when the study is directly connected with the employers 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 employees dependents through a competitive scheme under scholarship
program of the company.
f. Life or health insurance The following shall not be treated as taxable fringe benefits:
and other non-life 1) Contributions under SSS law;
insurance premiums or 2) Contributions under GSIS law;
similar amounts in excess 3) Similar contributions under existing laws;
of what the law allows 4) Premiums for group insurance of employees.
An employer gave P1,312,500 cash to the employee to purchase any vehicle he desires. However, the employee purchased a
brand new car only worth P1,200,000. Assuming that the employee is a non-resident alien not engaged in trade or business,
how much is the grossed-up monetary value?

An employer, offshore banking unit, purchased a car in installment for P1,700,000 in the name of the employee, how much is
the fringe benefit tax?

Liberate yourselves from the chains of will power and illusions of positive mental attitude. They cant give you
realistic results nor will they take you an inch further towards your chief aims and goals. Instead, reduce your
purpose to achievable and precise plans. Then start working on it. As you further, your hopes and dreams will be
reinforced knowing that every effort exerted is not wasted. Direction plus effort yields progress. The world will then
step aside for you in recognition to your sense of purpose.

Almari Vincent P. Lariza, CPA