MAPUA INSTITUTE OF TECHNOLOGY INTEGRATED TAX REVIEW COURSE
Fringe Benefit Tax De Minimis Benefits
DEFINITION 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 withholding tax on the grossedup monetary value of the fringe benefit granted by the employer to an employee who holds a managerial or supervisory position. This is tax is effect effective ive regard regardles less s of whethe whetherr the employ employer er is an indivi individua dual, l, profes professio sional nal partne partnersh rship ip or a corporation (regardless of whether the corporation is taxable or not).
Scope of FBT The FBT Tax !egulations cover only those fringe benefits given or furnished to managerial or supe superv rvis isor ory y empl employ oyee ee.. The The !egu !egula lati tion ons s do not not cove coverr thos those e bene benefi fits ts whic which h are are part part of compensation income, because these are sub"ect to withholding tax on compensation in accordance with !! #o.$%&.
Fringe Benefit 'ny goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries to individual employee except rank and file employee.
Items of fringe benefits subject to final tax: ) ousing $) *xpe *xpens nse e acco accoun untt +) ehi ehicl cle e of any any kin kind d -) ousehold ousehold person personnel, nel, such such as as maid, maid, driver driver and others others ) /nterest /nterest on loan loan at less than than market market rate to to the extent extent of the differ difference ence between between the market rate and actual rate granted 0) 1embership 1embership fees, fees, dues dues and other other expenses expenses borne borne by the the employer employer for for the employee in social and athletic clubs and similar organi2ations 3) *xpens *xpenses es for foreig foreign n trav travel el &) olida oliday y and and vacati vacation on expens expenses es %) *ducational *ducational assistance assistance to the the employee employee or his depende dependents nts 4) 5ife or health insurance insurance and other nonlife insurance premiums or similar amounts in excess of what the law allows.
I.
IMPO IMPOSI SITI TION ON OF FRIN FRINGE GE BENE BENEFI FIT T TAX TAX BASIC RULES: 1.
Benefit/Type of Employee FB given to a rank and file employee
2. FB given to a supervisor or !"n"geri"# e!p#oee
Rule #6T sub"ect to F.B. Tax
78B9*:T to F.B. Tax
Exception: a) F.B. which are autho authori2ed ri2ed and exempt exempted ed from from income income tax under any special law; b) :ont :ontri ribu buti tion ons s of the emplo employe yerr for for the the bene benefi fitt of the employee to retirement, insurance and hospitali2ation benefit plans; c) /f the grant grant of frin fringe ge bene benefi fits ts to the the empl employ oyee ee is re
$. De Mini!is benefit given to a rank and file employee employee or
#6T sub"ect to F.B. Tax
to a managerial or supervisory employee
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21-19 e !inimis Benefits =e minimis benefits are Facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees.
T%e fo##o&ing s%"## 'e (onsi)ere) *DE MINIMIS+ 'enefits NOT S,B-ET TO INOME TAX /"s &e## "s &it%%o#)ing t"0 of BOT !"n"geri"# "n) r"n3 "n) fi#e e!p#oees. a) 1oneti2ed unused vacation leave credits of employees not exceeding *14 )"s+ during the year and the monetized value of leave credits paid to government officials and employees. b) 1edical cash allowance to dependents of employees not exceeding P 564
per se!ester or P126 " !ont%. c) !ice subsidy of not more than P17644 per !ont% or sack (4kg.) rice per month. d) 8niforms given to employees by the employer not exceeding P67444 per annum (!! &$4$ effective 9anuary , $4$). e) 'ctual 1edical benefits given to employees by the employer not exceeding P147444 per annum. f) 5aundry allowance not exceeding "#$$ per mont% ; g) *mployees 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 and annual monetary value not e0(ee)ing P147444 under an established written plan which does not discriminate in favor of highly paid employees); h) >ifts given during :hristmas and ma"or anniversary celebrations not exceeding P67444 per employee per annum. (deleted: amounts provided to guests). i) =aily meal allowance for overtime work not e0(ee)ing 268 of the basic minimum wage. •
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The amount of de minimis benefits conforming to the ceiling herein shall not be considered in determining the !",""" ceiling of other benefits e#cluded from the gross income under $ection !%&'&('&e' of the )ode* +llowances which are fixed in amounts and are regularly received by the employee as part of his monthly compensation income s%all not be treate& as taxable fringe benefit but as compensation income* The !inimum 'age Earner receiving other benefits- e#ceeding the !",""" limit shall be ta#able on the e#cess benefit-, as well as on his salaries, wages and allowances, .ust like an employee receiving compensation income beyond the $tatutory inimum 0age* !inimum 'age Earner receiving other income-, such as income from the conduct of trade, business, or practice of profession, e#cept income sub.ect to final ta#, in addition to compensation income, are not exempt from income tax on the entire income earned during the ta#able year*
(ATURE of F)B) Tax: Fringe benefit tax is a FI(ALTA*) a. /t is imposed on the grosse)9up !onet"r v"#ue of fringe benefits furnished, granted or, paid by employer to employees except rank and file employees. b. /t 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. c. Fringe benefits shall be tre"te) "s " fin"# t"0 on t%e e!p#oee, which shall be withheld and paid by the employer on or before the 4 th day of the month following the calendar
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21-19
II.
OMP,TATION OF MONETAR: ;A<,E OF BENEFIT TA* BASE A( TA* RATE: Grosse) up !onet"r v"#ue of fringe 'enefits. 1onetary value of fringe benefit =ivided by (effective $444) Grosse)9up !onet"r v"#ue 0 T"0 R"te F.B. Tax •
@xxx 0&A
P000 $28 @xxx
1. O,SING PRI;I
1onthly rental paid x 4A T%e %ig%er bet+een: F1 in the !eal property declaration
OR the 2onal value of :/!.
0 A 0 4A )ivi)e ' $ months c. *mployer pur(%"ses residential installment for use employee
property
in
d. *mployer pur(%"ses residential property and
tr"nsfers o&ners%ip to e!p#oee
'c
'c
e. ousing unit inside or ad"acent (within 4 meters) from the perimeter of the business premises
#6T a T'C'B5* fringe benefit
f.
#6T a T'C'B5* fringe benefit
Te!por"r %ousing for a stay in the housing unit for three (+) months or less
g. ousing privilege of military officials of the 'rmed Forces of the @hilippines
#6T a T'C'B5* fringe benefit
2. MOTOR ;EI
'c
e!p#oee. b. *mployer provides employee with cash for the purchase of the vehicle, and ownership is placed in the name of the employee. c. *mployer purchases the vehicle on inst"##!ent and ownership is placed in the name of the employee.
:ash received
'c
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21-19 d. *mployer shoulders a portion of the amount of the purchase price of vehicle and ownership is placed in the name of the employee. e. *mployer owns a fleet of motor vehicles for use of the business and employees.
f.
*mployer leases and maintains a fleet of motor vehicles for use of business and employees
'mount shouldered by employer
'c
!u#tip#ie) ' 648
$. OTER FRINGE BENEFITS ,) Expenses accounts ". Taxable as fringe benefits a. *xpenses incurred by employees but paid by employer $a. *xpenses by employees reimbursed by employer +a. @ersonal expenses of the employee (e.g. groceries) paid for or reimbursed by employer.
Notes= Ite!s 1" "n) 2" "re not t"0"'#e "s fringe 'enefits when receipted in the name of the employer and do not partake the nature of the personal expense attributable to employee. /tem $" is taxable as fringe benefit whether or not receipted in the name of the employer.
'. #ot treated as taxable fringe benefits but taxable as compensation income under 7ec. $-. •
!epresentation and transportation allowance given regularly on a monthly basis.
-) E&ucational assistance to emplo.ee or %is &epen&ents) a. :ost of educational assistance is treated as taxable fringe benefit. b. :ost of educational assistance is not treated as taxable fringe benefit; Dhen the study is directly connected with the employerEs 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. Dhen given to employeeEs dependents through a competitive scheme under scholarship program of the company. •
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#) Interest on loan at less t%an mar/et 0alue a. The benchmark is $A until revised. The taxable fringe benefit is (a) /nterest foregone by the employer or (b) the difference of the interest assumed by the employee and the rate of $A. 1) Expenses for foreign tra0el of emplo.ee pai& for b. emplo.er) a. *xpenses in connection with attending business meeting or convention (except lodging cost in a hotel) at an average of +44 per day are considered reasonable expenses and shall not be sub"ect to fringe benefit tax. b. The cost of economy and business class airplane ticket shall not be sub"ect to fringe benefit tax. owever, +4A of the cost of first class airplane ticket shall be sub"ect to fringe benefit tax. c. /n the absence of documentary evidence showing that the employeeEs travel abroad was in connection with business meeting or convention, the entire cost of ticket, including cost of hotel accommodations and other expenses shouldered by employer shall be treated as taxable fringe benefits.
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21-19 d.
III.
Traveling expense of family members of employees paid for by employer shall be treated as taxable fringe benefit.
DED,TION FOR TE EMP
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/f 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 t%e monetar. 0alue of t%e fringe benefit) /f the fringe benefit is given to a supervisory or managerial employee and is subject to fringe benefit tax , the &e&uction is t%e grosse&2up monetar. 0alue of the fringe benefit which compose of the fringe benefit expense and the fringe benefit tax.
QUIZZER
Prin(ip#es . Dhich of the following statements regarding Fringe Benefit isGare correctH /. The fringe benefit tax is a final withholding tax on the grossedup monetary value of the fringe benefit granted by the employer to an employee who holds a managerial or supervisory position. //. Fringe benefit tax is effective regardless of whether the employer is an individual, professional partnership or a corporation (regardless of whether the corporation is taxable or not). ///. The fringe benefit tax regulations cover only those fringe benefits given or furnished to managerial or supervisory employee. The regulations do not cover those benefits which are part of compensation income, because these are sub"ect to creditable withholding tax on compensation. a. / only c. /, // and /// b. / and // only d. #one of the above $. 'n employer sub"ect to fringe benefit tax may be aGan a. /ndividual c. :orporation b. >eneral professional partnership d. 'll of the above +. Dhich of the following statements is correctH $tatement 1: The fringe benefit tax is part of the compensation of the managerial employee. $tatement % The fringe benefit tax is to be withheld and remitted by the employer to the B/!. a. 7tatement only c. 7tatements and $ b. 7tatement $ only d. #either statement nor statement $ -. Dhich a. b. c. d.
of the following is not correctH Fringe benefit tax is an income tax Fringe benefit tax rate is +$A Fringe benefit of a managerial employee is sub"ect to final income tax Fringe benefit tax is a creditable withholding tax
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21-19 . Dhich of the following is sub"ect to fringe benefit taxH a. :ompensation of the rank and file employee. b. :ompensation of the supervisory or managerial employee. c. Fringe benefit of the rank and file employee. d. Fringe benefit of the supervisory or managerial employee. 0. $tatement 1 ' fringe benefit which is su'?e(t to the fringe benefit tax is taxable income of the employee. $tatement % ' fringe benefit which is not su'?e(t to the FBT is taxable income of the employee a. 7tatements I $ are false b. 7tatement is true but statement $ is false c. 7tatement is false but statement $ is true d. 7tatements and $ are true 3. Fringe benefit not covered by the fringe benefit tax. a. =e minimis benefit. b. ousing privileges granted to rank and file employees. c. Fringe benefits granted as a result of the nature of the business, trade, or profession of the employer. d. 'll of these. &. The following earnings are sub"ect to fringe benefit tax, e0(ept a. 7alary of a rank and file employee b. ousing necessary for trade and for the convenience of the employer c. Food allowance for the convenience of the employer and necessary in the conduct of the business d. 'll of the above %. The following are e0e!pt fringe 'enefits7 e0(ept for one a. Fringe benefits given to rank and file employee. b. Fringe benefit given for the convenience of the employee. c. Dhen the fringe benefit is rerossed up monetary value of the fringe benefit d. Fair value of the fringe benefit +. Dhich of the following statements regarding grossedup monetary value isGare correctH /. The grossedup monetary value of the fringe benefit is simply a figure meant to represent the entire income earned by the employee. //. The grossedup monetary value includes the net amount of money received, the net monetary value of any property received, "n) the amount of fringe benefit tax received by the employee from the employer. ///. The grossedup monetary value of the fringe benefit is determined by dividing the monetary value of the fringe benefit by 0&A starting 9anuary , $444. *.=. T'B'> ?
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21-19 a. b.
/ only / and // only
c. d.
/, // and /// #one of the above
-. Dhich statement is &rongH The amount on which the fringe benefit tax rate is applied is a. The monetary value of the fringe benefit b. The grossedup monetary value of fringe benefit c. The amount deductible by the employer from hisGits gross income d. !eflected in the books of accounts in the two accounts of Jfringe benefit expenseK and Jfringe benefit tax expenseK . /f both the fringe benefit expense and the 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 Fringe benefit tax expense xxx :ash xxx b. Fringe benefit tax expense xxx :ash xxx c. Fringe benefit expense xxx Fringe benefit tax expense xxx /ncome constructively xxx received :ash xxx d. 'ny of the above 0. The monetary value of fringe benefit if given in money is a. Fair market value (B/!) or 2onal value whichever is higher. b. 'mount granted c. =epreciated value d. 'c
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21-19 $4. :ost of life or health insurance and other nonlife insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, *C:*@T a. :ontributions of the employer for the benefit of the employee pursuant to provision of existing laws such as under 777 and >7/7. b. :ost of premiums borne by the employer for the group insurance of his employees. c. Both JaK and JbK. d. #one of the above $. Dhich of the following statements regarding fringe benefit isGare trueH /. *xpenses incurred by the employee but which are paid for or reimbursed by the employer are taxable fringe benefits, *C:*@T when the expenditures are duly receipted for and in the name of the employer and the expenditures do not partake the nature of a personal expense attributable to the employee. //. Benefits given to the rank and file, whether granted under a collective bargaining agreement or not are 78B9*:T to fringe benefit tax. ///. The exemption of any fringe benefit from the fringe benefit tax shall #6T be interpreted to mean exemption from any other income tax unless the same is likewise exempt by law. a. / only c. /, and // only b. / and /// only d. 'll of the above $$. Fringe benefits #6T 78B9*:T to fringe benefit tax include which of the followingH /. Fringe benefits authori2ed and exempted from income tax under the :ode or under any special law. //. :ontributions of the employer for the benefit of the employee to retirement, insurance, and hospitali2ation benefit plans. ///. Benefits given to the rank and file, whether granted under a collective bargaining agreement or not. /. =e minimis benefits. a. / and // only c. 'll of the above b. // and /// only d. #one of the above $+. Dhich of the following shall be sub"ect to fringe benefits taxH a. ousing privilege of 'rmed Forces of the @hilippines. b. ousing units situated inside or ad"acent to business or factory (located within +4 meters from the perimeter of the business. c. Temporary housing for an employee who stays in the housing unit for + months or less. d. ousing privilege of an alien employee of an offshore banking unit in the @hilippines. $-. $tatement 1 Fringe benefits sub"ect to fringe benefit tax is #6T among the items of gross income for purposes of computing the income tax liability under 7ection $-' of an individual employee. $tatement % ' fringe benefit tax of A is imposed on the grossedup monetary value of the fringe benefit of an alien individual employed by regional or area head
FRINGE BENEFITS TAX 9 o!put"tions $. ow much is the allowable deduction from business income of a domestic corporation which granted and paid @4$,444 fringe benefits to its key officers in $4$H a. @4,444 c. @%%,444 b. @44,444 d. 0,444 $0. /n $44, 'B: :orporation gave the following fringe benefits to its employees To managerial employees @,+04,444 To rank and file employees ,444,444 The allowable deduction from the gross income of the corporation for the fringe benefits given to employees is a. @$,444,444 c. @0,+$4,444 b. @$,-&,444 d. @3,444,444
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21-19 $3. /n $44, 'B: :orporation provided a +day vacation in Tagaytay to all of its employees of which &4A are rank and file. Total expenses incurred by the company for the said vacation amounted to @1. The fringe benefit tax expense is a. @-34,&& c. @%-,&& b. @+30,-34 d. @$%-,& $&. 8sing the above data, the total deductible expense is a. @,$%-,& c. @,444,444 b. @$%-,& d. @,4%-,& 2se the following data for the ne#t two 3uestions: From a managerial employee for taxable year $44 7alaries and wages net p" 777 and medicare contributions tax withheld Fixed monthly allowance, not sub"ect to li
@+-,444 0,444 $0,444 -&,444 +4,444 $4,444 4,444
$%. Taxable compensation income su'?e(t to gr")u"te) r"tes is a. @-&3,444 c. @+&4,444 b. @+&0,444 d. @+-,444 +4. The fringe benefit tax due from the above benefit is a. @+0,340 b. @++,-$
c. @$-,%- d. @$$,&&
+. The following information are presented to you in connection with the determination of the fringe benefits tax of the =aniel, ice@resident of ananiah :orporation aid by the company with official receipts in the name of the 4ananiah )orporation: 5aptop computer for =anielEs office use, @&4,444. 'irconditioning unit for =anielEs office use, @+4,444. >roceries for =anielEs family consumption, @4,444. @lumbing materials for use in the repair of =anielEs residential house, @,444. • • • •
aid by 5aniel with official receipts in the name of 4ananiah )orporation: @urchase of clothes and shoes for =anielEs daughter, @,444. 7amples of merchandise sold in the competitorEs store for marketing study, @$,444. • •
ow much is the fringe benefits tax dueH a. @-,& b. @-&,0-4
c. @&,&$d. @3,
%$Spe(i"# Ru#es on t%e Deter!in"tion of t%e Monet"r ;"#ue for ousing "n) ;e%i(#e Benefits +$. 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. 4A of the annual value which is A of the fair market value or 2onal value, whichever is higher. c. 4A of the amount of depreciation. d. #et book value 2se the following data for 3uestions !1 and !%: The following fringe benefits were given by an employer to its employees for the
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21-19 b. @$-,&
d. @&4,444
+-. ow much would be the total deductions from gross income which may be claimed by the employerH a. @&44,444 c. @344,444 b. @3$4,444 d. @0-4,444 2se the following data for the ne#t five 3uestions: /ncluded in the compensation package of an executive was the free use of t%e (o!p"nCs resi)enti"# (on)o!iniu! unit in 1akati :ity, @hilippines. =ata on the condominium unit follows Fair market value in the !eal @roperty =eclaration @,444,444 Lonal value $,444,444 Fair market value $,44,444
+. ow much is the monthly gross monetary value of the fringe benefit and the fringe benefit tax, respectivelyH a. @-,003.03; @,%04.3& c. @$,444,444; @34,&+$.+ b. @,44,444; @+$0,-44 d. @0,$3.-; @%-,30.-3 +0. 'ssume the residential condominium unit was purchased by the company in installment for the executiveEs free use. 'c
Use t%e follo+ing &ata for t%e next fi0e 3uestions: /ncluded in the compensation package of the :hief 'ccountant is a car plan worth @,444,444. The ownership will be transferred in the name of the employee. -4. 'ssume the employer purchases the car in the name of the employee. 't what amount should the employer report as the gross monetary value of the fringe benefit and the fringe benefit tax, respectivelyH a. @,-34,&&; @-34,&& c. @3+,$%-; @$+,$%b. @,444,444; @+$4,444 d. @44,444; @04,444
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21-19 -. 'ssume the employer provides @&44,444 to the employee to purchase any vehicle of his interest, 6wnership of the car is placed in the name of the employee. The employee purchased a brand new car worth @,$44,444. 't what amount should the employer report as the gross monetary value of the fringe benefit and the fringe benefit tax, respectivelyH a. @,30-,340; @0-,340 c. @,30,-3; @+30,-3 b. @,-34,&&; @-34,&& d. @&44,444; @$0,444 -$. 'ssume the employer purchases the car in installment in the name of the employee. 't what amount should the employer report as the gross monetary value of the fringe benefit and the fringe benefit tax, respectivelyH a. @,-34,&&; @-34,&& a. @$%-,&; @%-,& b. @,444,444; @+$4,444 b. @$44,444; @0-,444
DE MINIMIS BENEFITS -+. $tatement =e minimis benefits are Facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. $tatement $ =e 1inimis benefit given to rank and file employees or to managerial or supervisory employees are not sub"ect to final withholding tax for fringe benefit and creditable withholding tax. a. 7tatements I $ are false b. 7tatement is true but statement $ is false c. 7tatement is false but statement $ is true d. 7tatements and $ are true --. $tatement 1 8niforms and clothing allowance not exceeding @,444 per annum is an exempt de minimis benefit. $tatement % 'ctual medical benefits not exceeding @4,444 per annum is an exempt de minimis benefit. a. 7tatements I $ are false b. 7tatement is true but statement $ is false c. 7tatement is false but statement $ is true d. 7tatements and $ are true -. !easonable 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. Dhich is #6T trueH /. /nland travel expenses (food, beverages, and local transportation) except lodging cost in a hotel or similar establishment amounting to an average of 87+44 or less per day, shall not be sub"ect to a fringe benefit tax. //. The cost of economy and business class airplane ticket shall not be sub"ect to a fringe benefit tax. owever, +4A of the cost of first class airline ticket shall be sub"ect to a fringe benefit tax. ///. 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. / only c. /, // and /// b. / and // only d. #one of the above -0. 1st $tatement !ice subsidy of one thousand five hundred pesos or one sack of 4 kg. rice per month amounting to not more than one thousand five hundred pesos is an exempt de minimis benefit. %nd $tatement *mployee 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. 7tatements I $ are false b. 7tatement is true but statement $ is false c. 7tatement is false but statement $ is true d. 7tatements and $ are true -3. Dhich of the following benefits received by a rankandfile employee will be taxableH a. @$4,444 received e
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21-19 b. 1onthly rice subsidy of @,-4. c. @&,444 received for uniform and clothing allowance. d. 'nnual medical benefits for @4,444 -&. ' domestic :orporation gives all its employees (rank and file, supervisors and managers) one sack of rice every month valued at @,$44 per sack. =uring an audit investigation made by the Bureau of /nternal !evenue (B/!), the B/! assessed the company for failure to withhold the corresponding withholding tax on the amount e
c. @344,444 d. @04,444
NNN *ndNNN
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