Republic of the Philippines

President Ramon Magsaysay State University

College of Accountancy and Business Administration
(Formerly Ramon Magsaysay Technological University)
Iba, Zambales, Philippines
Tel/Fax No.: (047) 811-1683

College/Department College of Accountancy and Business Administration

Course Code BA Core 3

Course Title Income Taxation

Place of the Course in the Program Major or Minor Subject

Semester & Academic Year First Semester AY 2020-2021

CHAPTER 10-FRINGE BENEFITS TAX

Introduction
This chapter discusses fringe benefits of managerial and supervisory employees subject to final fringe
benefit tax and the computations of the fringe benefit tax (FBT).

Intended Learning Outcomes

1. Knowledge of the nature of fringe benefits
2. Distinguish exempt benefit, partially exempt, and fully taxable fringe benefits
3. Understanding of the procedures of fringe benefit tax computation
4. Knowledge of the list of exempt fringe benefit

Discussion
Tax classification of fringe benefits
Under current tax rules items of fringe benefits are divided among the three classes of gross taxable compensation
income while some are exempt from income tax:

For example:
a. Fringe benefits that are fixed every payroll period are considered regular compensation.
For example: Fixed transportation allowance

b. Fringe benefits that are variable and performance-based are considered supplemental compensation.
For example: commission, profit sharing and overtime pay

c. Fringe benefits in the form of incentives are considered 13th month pay and other benefits.
d. Fringe benefits furnished for the employer’s convenience or necessity are exempt from income tax.

Other fringe benefits

As mentioned in the previous chapter, other fringe benefits not included or classifiable as items of compensation
income and which are not exempted under the law are treated as follows:

141
 1. For rank and file employees – included as “other benefits“ under “13th month pay and other benefits”
2. For managerial and supervisory employees – in excluded compensation income and are subjected to final
fringe benefit tax

SCOPE OF THE FRINGE BENEFIT TAX

The fringe benefit tax covers only the taxable fringe benefits of the managerial and supervisory employees.

For purposes of the fringe benefit tax, RR3-98 clarifies that taxable fringe benefits exclude those items considered as
compensation income.

GENERAL CATEGORIES OF FRINGE BENEFITS SUBJECTED TO FINAL TAX

1. Management perquisite benefits
2. Employee personal expenses shouldered by the employer
3. Taxable de minimis benefits
a. Excess de minimis over their limits
b. Benefits not included in the de minimis list

Management perquisite benefits

Perquisites benefits, also called “management perks” are highly privileged incentives given only to a special group
of employees. These benefits are non-performance based and are given as incentives to management employees.
Perquisites benefits are not considered as compensation income, but as fringe benefits subject to fringe benefit tax.

In practice, the boundary between fringe subject to final tax and compensation income subject to regular tax
sometimes overlaps.
Based on past rulings, however, the BIR seemed to maintain to view that performance-based benefits are
compensation income while benefits in the nature of incentive or perks are fringe benefits.

Employee personal expenses

When an expense takes the nature of an employee personal expenses or expenditure and is paid or assumed by the
employer in default of a proximate business necessity, it is deemed a fringe benefit in its entirety even if the expense
is receipted in the name of the employer.

Illustration
Mr. Lakewood, a managerial expatriate employee, was granted by his employer a P30, 000 monthly housing
allowance in addition to his regular salary. The actual monthly rent of Mr. Lakewood’s residence is P25, 000.

The P25, 000 personal expenses assumed by the employer constitutes a taxable fringe benefit subject to fringe
benefit tax. The monthly fixed P5, 000 excess is taxable additional compensation. (BIR Ruling No. 512-2011)

Hybrid expenses
When the employer incurs expenses which is purported partly for business and partly for employee’s incentive, only
50% of the expenses representing the employee incentive is subject to the fringe benefit tax.

The following are hybrid expenses under RR3-1998:

1. Housing benefits in the form of rental accommodation
When an employer lease a residential unit for the use of the employee and the business, the rental expense
is deemed half business expense and half fringe benefit to the employee.
2. Allowing an employee free use of business property
When the employer allows its employee to use business properties, the rental value or depreciation value of the
business property over the period of usage is deemed half business expense and half fringe benefit to the employee.

142
Illustration 1
The University of Ramon pays for the P50,000 monthly rental of the residential unit of its President.

The amount of taxable fringe benefits shall be P25,000 computed as 50% x P50,000.

Illustration 2
A manufacturer and distributor of consumer products all over the Philippines leases cars and other vehicles for the
use of its employee. The company requires employees to share at least 40% of the monthly rental deductible through
their payroll while the company books the 60% as rent expense.

The BIR opined that only 10% of the monthly rental is taxable as fringe benefit since employees shouldered 40% of
their 50% counterpart. (BIR Ruling No. 009-2000)
Exempt fringe benefits
The following fringe benefits are exempt from the fringe benefit tax:
1. Fringe benefits which are authorized and exempted from tax under special laws
Examples: Employer’s contribution to SSS PhilHealth, HDMF or group insurance
2. Benefits required by the nature of, or necessary to the trade, business or profession of the employer
3. Benefits given for the convenience or advantage of the employer
4. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization
benefit plans
5. Benefit given to rank and file employees whether or not granted under a collective bargaining agreement
6. De minimis benefits within their legal limits

“Necessity or convenience of the employer” rule

If an expense is necessitated by the nature of the trade, business, or profession of the employer, or is furnished
principally for the employer’s convenience or advantage, it is an ordinary business expense. The personal advantage
of the employee is merely incidental to the expense. The fringe benefits are not viewed as taxable fringe benefits
under the NIRC.

Examples of exempt benefits under this rule:

1. Scholarship program for an employee to study and acquire competence for future use of the business
2. Car incentives to medical doctors so they will be available for duty anytime
3. Free transportation services to employees working a distant facilities
4. Mobile phone allowance to corporate secretaries who are required to handle off duty client inquiries
5. Sleeping quarters to field engineers and staffs working on remote facilities
6. Helicopters assigned to fishing employees for locating schools of fish offshore or to mining engineers for
mineral exploration purposes
7. Personal aircraft to a chief executive officer managing business affiliates and subsidiaries spread across
different countries
8. Car incentives to a travelling company salesman
9. Sleeping quarters near the camp furnished to military personnel so they will be available for duty at any
time of insurgency
10. Housing units for an employee and his family near employer’s place of business to ensure the employee’s
availability anytime when the employer needs him

THE FRINGE BENEFIT TAX

The fringe benefit tax is a final tax imposed on the fringe benefit furnished, granted or paid by the employer to the
employee, except rank and file employees, whether such employer is an individual, as a professional partnership or a
corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalities.

143
 For the purposes of the fringe benefit tax, fringe benefit means any good, service, or other benefits furnished or
granted in cash or in kind by the employer to individual employees(except rank and file employees) such as, but not
limited to, the following:

1. Housing benefits
2. Expense account
3. Vehicles of any kind
4. Household personnel, such as maid, driver or others
5. Interest, for the difference between the market rate (12%) and the actual interest granted
6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic
clubs or other similar organizations
7. Expense for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health and other non-life insurance premiums or similar accounts in excess of what the law allows

CHARACTERISTICS OF THE FRINGE BENEFIT TAX

1. Final tax
The fringe benefit tax is a final tax which is withheld by the employer at source. Thus, the employee need no report
the fringe benefits in his income tax return.
2. Tax upon managerial or supervisory employees
The fringe benefit tax is not a tax to the employer. It is a tax upon the fringe benefit realized by the managerial or
supervisory employee. It is a tax to the employee; hence, it applies regardless of the identity of the employer.
Therefore, it applies even if the employer is a sole proprietor, partnership, corporation whether taxable exempt, or
the government.
3. Paid by the employer
As a final tax, the tax is withheld at source and remitted by the employer to the government.
4. Grossed-up tax
The monetary value or the amount of fringe benefit realized or taken home by the employee is effectively net of the
final tax which is to be withheld at source. Hence, the monetary value is first gross-up by the complement
percentage of the applicable fringe benefit tax rate before the fringe benefit tax rate is applied.
5. Due quarterly
The fringe benefit tax is due for remittance quarterly based on the accounting period (fiscal or calendar) selected by
the employer. The monetary value of each taxable fringe benefit is determined and reported quarterly through BIR
Form 1603.

PROCEDURES IN COMPUTING THE FRINGE BENEFIT TAX

1. Determine the monetary value

Monetary value refers to the taxable amount of benefits taken home or realized by the managerial or supervisory
employee. The monetary value is presumed net of the final tax.

2. Determine the gross-up rate and fringe benefit tax rate applicable for the taxpayer.

The gross-up rate is complement of the fringe benefit tax rate. If the fringe benefit tax rate is 35% the gross-up rate
is (100% less 35%) or 65%. If the fringe benefit tax rate is 25%, the gross-up rate is 75%.

3. Determine the gross-up monetary value by dividing the monetary value by the gross-up rate.

144
 4. Determine the fringe benefit tax by multiplying the fringe benefit tax rate to the gross-up monetary
value.

RULES ON VALUATION OF FRINGE BENEFITS

1. When benefit is given in cash or paid for in cash, the monetary is the amount paid for in cash.
Note: The only exception here is when the employer pays for the rent of the residence of the employee. Monetary
value is 50% of the rental payment.

2. When benefit is given in kind, the monetary value is the fair value of the thing give unless its book value is
higher. Book value is the cost less any provision for depreciation for depreciable properties.

Simply stated, the monetary value is the fair value or the book value of the ting given, whichever is higher.

When ownership over the property is transferred to the employee, the monetary value is the entire fair value of the
property even if the property is partially used in the business of the employer.

3. When the benefit is given in the form of free use of the employer’s property, the monetary value is 50% of
the rental value of the property. If the property has no rental value, the depreciation value is used.

For purposes of the depreciation value, the presumptive useful lives of the property are:
a. 20 years for real properties.
Hence, the depreciation value is computed as 1/20 or 5% of the value of the property.
b. 5 years for movable properties.
Hence, the depreciation value is computed as 1/5 or 20% of the value of the property.

Since the fringe benefit tax is paid quarterly, the valuation and reporting of monetary value is also done quarterly. In
case of use of employer properties, the reporting of monetary value cases from the month the free use is
discontinued.

Illustration: Determination of depreciation value

A partnership transferred the use of a property with a fair value of P200,000,000 to its supervisor.

The annual depreciation value shall be:

1. If the property is an immovable such as residential unit, the annual
depreciation value shall be P100,000 computed as P2,000,000 x 5%.
2. If the property is movable such as a car or motor vehicles, the annual
depreciation value shall be P400,000 computed as P2,000,000 x 20%.

In quarterly reporting for the fringe benefit tax, the quarterly monetary value is determined by dividing the annual
value by 4.

SPECIAL GUIDELINES ON MONETARY VALUE DETERMINATION

Taxable Housing Benefits

Employer leases a residential property for the use of his employee and the said property is the usual residence of the
employee.

Monetary value = 50% of the benefit

145
Illustration
A sole proprietorship business leases a residential house and lot for the use of his business manager for
P20,000/month.

The monetary value shall be:

Quarterly value = (P20,000 x3 months) = P 60,000
Quarterly monetary value = P60,000 x 50% = P 30,000

1. Employer owns a residential property and assigns the same for the use of his employee as his usual place of
residence; the annual value of the benefit is 5%of whichever is higher of the zonal or assessed value of the
land and improvement.

Monetary value = 50% of the annual value of the benefit

Illustration
Carrie, Inc. allowed one of its unused realty investment costing P3,500,000 with zonal value of P4,000,000 and
assessed value of P3,000,000 to be used by its vice president

The monetary value shall be determined as follows:

Annual depreciation value = P4,000,000 x 5 % P 200,000

Quarterly value = P200,000 /4 quarters P 50,000
Quarterly monetary value = P50,000 x 50% P 25,000

Illustration
Cubao Corporation purchased a residential property for the use of its production manager. The property is payable
over 11 annual installments of P200,000 including interests but have a cash price of P2,000,000. For accounting
purposes, C Corporation opted to capitalize the interest and recorded the P2,200,000 contract price as acquisition
cost of the property.

The monetary value shall be determined as follows:

Annual depreciation value = P2,000,000 x 5% P 100,000

Quarterly value = P100,000 / 4 quarters P 25,000
Quarterly monetary value = P25,000 x 50% P 12,500

Note: The purchase price is the cost net of interest.

1. Purchase by the employer of residential property and transfer of ownership in the name of the employee,
the value of the benefit is whichever is higher of the acquisition cost or zonal value

Monetary value = 100% of the value of the benefit

Illustration
A non-profit corporation bought a residential dwelling for P5,000,000 and transferred ownership to its president.
The property has P3,000,000 zonal value.

Since there is transfer of ownership, the monetary value is the entire P5,000,000, the higher book value (i.e. cost in
this case) and zonal value.

146
 1. Purchase by employer of property and transfer of title to employee for less
than adequate consideration, the value is [(fair market value or zonal value,
whichever is higher) less consideration paid by employee.

Monetary value = 100% of the value of the benefit

Illustration
Remy, a professional practitioner, transferred is residential property in the name of his managerial employee for
P2,000,000. The property has fair value per tax declaration of P3,400,000 and P5,000,000 zonal value.

Since there is a transfer of ownership (i.e. tittle), the monetary value is P3,000,000,computed as P5,000,000 fair
value less the P2,000,000 consideration paid.

Exempt housing privileges;

1. Military officials of the Armed Forces of the Philippines (AFP),
Philippine Air Force (PAF), Philippine Army, and Philippine Navy on
their quarters which are within or accessible from the military camp so
they can be readily available on call to meet the exigencies of their
military service.

2.Housing unit situated or adjacent to the premises of a business or

factory (within a maximum of 50 meters) from the perimeter of the
business premises.
The 50-meter rule may be relaxed when upon the basis of health or safety requirements such as in the case of
chemical manufacturing, the housing needs to be located at a farther location.

3. Temporary housing of an employee in a housing unit for 3 months or

less (i.e., not exceeding one quarter)

Expense Account
Expenses incurred by an employee but which are paid by his employer or incurred and paid by employee but
reimbursed or advanced by the employer are taxable fringe benefits. The monetary value is the amount paid by the
employer.

Properly documented employer expense

When the expense is receipted for and in the same of the employer and the expenditure does not partake of the
nature of a personal expense attributable to the employee, it is not a taxable fringe benefit because it is a business
expense.

Personal expenses of the employee such as groceries for the personal consumption of the employee and /or his
family, if aid or reimbursed by the employer, are taxable fringe benefits whether or not receipted in the name of the
employer.

Fixed and regular RATA are treated as part of regular compensation income and are subject to creditable
withholding taxes, not to fringe benefit tax.

Illustration
Denver Corporation paid for the following expenses which were liquidated by its managerial employee:

147
Water and electricity bill at manager’s home P 15,000
Meals and groceries at manager’s home 18,000
Bill on business telephone 2,000
Bill on personal phone 1,000
Transportation from office to and from clients 12,000
Transportation from office to and from manager’s home 10,000
Foods and beverages for visiting business clients 8,000

The monetary value of fringe benefits shall be computed as follows:

Water and electricity bill at director’s home P 15,000

Meals and groceries at director’s home 18,000
Bill on personal phone 1,000
Transportation from office to and from home 10,000
Total monetary value P 44,000

Note: Business telephone bills, office to client transportation and food and beverages for client visitors are business
expenses, not fringe benefits to the manager.

Motor Vehicles of Any Kind

1. Purchase by employer of motor vehicle in the name of the employee regardless of whether the
same is used partially in the business of the employer.

Monetary value = 100% of the cost of the motor vehicle

Note that the monetary value shall be reported in the quarter of purchase.

2. Cash benefit to employee for the purchase of a vehicle, even if the vehicle is partly used in the
business of the employer.

Monetary value = 100% of the cash benefit, except when the amount is subjected to withholding tax on
compensation

Car benefits that are paid in cash and are subjected to withholding tax on compensation are subject to regular tax,
not to fringe benefit tax. If subject to fringe benefit tax, the monetary value shall be reported in the quarter of
payment.

3. Purchase of car on installment basis by the employer with ownership placed in the name of the
employee even if the car is used partly for the employer’s business, the benefit is the acquisition
cost divided by 5 years

Monetary value = (1/5) OR 20% of the acquisition cost

Illustration
An employer purchased a car for P1,000,000 payable in four installment plus 10% interest on the outstanding unpaid
balance of the car.

The entire acquisition cost shall be recognized as monetary value since there is transfer of ownership but the
regulation requires amortization over 5 years. Hence, the employer shall recognize P1,000,000/5 or P200,000

148
monetary value annually for five years. For every quarter, the employer shall report P200,000/4 or P50,000
monetary value until the cost is fully reported over 5 years.

4. Employer shoulders a portion and is placed I the name of the employee, even if partially used in
business

Monetary value = the portion shouldered by employee

Illustration
An employer assisted its managerial employee in purchasing a brand new car for P4,000,000; 60% of the value is
deductible against future salaries of the managerial employee.

The monetary value shall be P1,600,000 computed as P4,000,000 x 40% representing the portion shouldered by the
employer. This will be reported in the quarter the employer’s share is paid.

5. Fleet of motor vehicles owned for the use of the business and the employees, the value of benefit
is the cost of all motor vehicles not used for sales, freight, delivery service, and other non-personal
uses divided by 5 years

Monetary value = 50% of the value of benefit

6. Fleet or motor vehicles leased for the use of the business and the employee, the value of the
benefits is the rental payments for motor vehicles not normally used for sales, freight, delivery,
service, and other non-personal use

Monetary value = 50% of the value of benefit

7. Aircrafts including helicopters are deemed solely for business use; hence, they are not subject to
fringe benefit tax.

8. Yachts whether owned and maintained or leased by the employer are presumed not for business
use; hence, taxable a fringe benefits. If owned or maintained, the value of the benefit is measured
as the depreciation value over 20 years.

Illustration
Assume a corporation acquired a P10,000,000 yacht for the use of its executives.

The monetary value shall be determined as:

Annual depreciation value = P10,000,000/20 P500,000

Quarterly monetary value = P500,000/4 P125,000

A yacht is considered immovable by virtue of the fact that it is fixed and cannot be removed from water. Hence, the
20-year presumptive useful life for real properties is used. If this is leased, the entire rental payment is the monetary
value. Note that the 50% rule is not applied by the regulation.

Supposing the yacht is purchased and transferred to the name of the executive, the monetary value shall be the entire
P10,000,000.

Household Expenses

149
Employee expenses borne by the employer for household personnel, salaries of household help, personal driver of
the employee, and other personal expenses such as homeowners association dues, garbage dues, electricity, and
water are taxable fringe benefits. The monetary value is the amount paid.

Illustration
Henesy Corporation granted the following benefits to a managerial employee:

Salary of household personnel P12,000/month

Salary of personal driver P10,000/month
Home owner’s association dues 4,000/year

The quarterly monetary value of the benefit shall be determined as follows:

Salary of household personnel P 12,000 x 3 P 36,000

Salary of personal driver P 10,000 x 3 30,000
Home owner’s association dues* P 4,000/4 1,000
P 67,000

Interest on Loan at Less than Market Rate

The interest forgone by the employer representing the difference between 12% and the actual interest charged is a
taxable fringe benefit.

Illustration
Felize Cooperative lent it chief executive officer P1,000,000 at a minimal 3% annual interest rate. The monetary
value shall be computed as follows:

Annual monetary value = (12% - 3%) x P1,000,000 P 90,000

Quarterly monetary value = P90,000/4 P 22,500

Note : Membership fees, dues, and other expenses borne by the employer for his employees in social and
athletic clubs or other similar organizations constitute taxable fringe benefit. The monetary value is the amount
paid.

Expenses for Foreign Travel

Reasonable business expenses for foreign travel for attending business meetings and conventions are exempt.
- In land travel expenses: Foods, beverage and local transportation except lodging costs amounting to an
average of $300 or less per day are exempt.
- Lodging costs are exempt.
- Economy and business class airplane tickets are exempt.
- For first class ticket, 30% of ticket cost is presumed a fringe benefit.

Substantiation requirement
The above rules apply if the expenses were supported by documentations proving the actual occurrences of the
meeting convention; otherwise, they shall be subject to fringe benefit tax.
- Business meeting must be supported by an official communication from business associates abroad
indicating the purpose of the meeting.
- Business conventions must be supported by an official invitation or communication from the host
organization or entity abroad.

150
Expenses for the family members of the employee shouldered by the employer are taxable fringe benefits in full.

Illustration
Tuna, Inc. allowed its VP Finance, Mr. Puppet, to attend a convention abroad with the privilege
to bring his wife. The expenses of the foreign travel were:

Mr. Puppet Mrs. Puppet Total__

First class plane ticket P 70,000 P 70,000 P 140,000
Lodging cost 91,000 91,000 182,000
Food & local transportation* 50,000 50,000 100,000
P 211,000 P 211,000 P 422,000

The applicable exchange rate is P40:$1 – P40x $250 x 5 days each to Mr. and Mrs. Lasuna

The monetary value shall be determined as follows:

Items Remarks Amount

First class plane ticket:
Mr. Puppet P70,000 x 3% P 21,000
Mrs. Puppet P70,000 x 100% 70,000
Lodging costs:
Mr. Puppet 13,000
Mrs. Puppet Fully taxable 60,000
Foods and local transportation
Mr. Puppet Exempt – below limit 0
Mrs. Puppet fully taxable 50,000
Total monetary value P 245,000

Holiday and Vacation Expenses

• Holiday and vacation expenses are taxable fringe benefits if shouldered by the employer.
• The monetary value is the amount paid or shouldered by the employer.

Educational Assistance to the Employee or his Dependents

Educational assistance to the employee is generally taxable except when it is incurred for the convenience or
furtherance of the employer’s business, such as:
1. the education or study is directly connected with the employer’s trade, business or profession; and
2. there is a written contract (i.e., employee bond) that the employee is under obligation to remain at the
employ of the employer for a period of time they mutually agreed upon.

Educational assistance granted to dependents of the employee is generally taxable except when the assistance was
provided through a competitive scheme under a scholarship program of the company.

Illustration
Angelica Marketing, a distributor of cosmetics products, provides educational assistance to the following employees
under an employment bond:

Amount per
Position Field of study semester _
VP for Management Doctor in Business

151
 Administration P 50,000
VP for Marketing Master in Marketing
Management 35,000
Operation manager BS Cosmetology 25,000
Accounting supervisor BS Criminology 24,000
Accounting staff BS Accountancy 20,000

Only the tuition fee of the accounting supervisor is subject to fringe benefit tax and shall be reported in the quarters
it is paid.

Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law
allows
These are taxable fringe benefits except the following insurance or premium contributions allowed or required by
law:
1. Contributions of the employer for the benefit of the employee pursuant to the provisions of existing
law such as contributions to SSS, GSIS, PhilHealth, and HDMF.
2. Cost of premium for group insurance of employees

Illustration
Elizabeth Company made the following insurance premium payments during a calendar quarter:
- P30,000 premium for the life insurance of the Chief Executive Officer (CEO) with Elizabeth Company as
the beneficiary of the policy
- P20,000 premium for the life insurance of the Company Chief Operating Officer (COO) with his wife as
the beneficiary
- P15,000 insurance premium of the personal car of the company manager
- P40,000 premium for group insurance of employees
- P80,000 premium share in SSS, PhilHealth, and Pag-Ibig dues of employees
- P10,000 fire insurance premium for the company building

The quarterly monetary value of fringe benefits shall be computed as follows:

Life insurance premium of COO where his wife

is the beneficiary P 20,000
Car insurance of company manager 15,000
Quarterly monetary value P 35,000

FRINGE BENEFIT TAX RATES

The fringe benefit tax rates are as follows:

Type of employee

RC, NRC, RA, NRA-ET NRA-NETB

Year
2000 to 2017 32%
2018 and thereafter 35% 25%

152
*Includes resident citizens, non-resident citizens, and resident aliens

GROSSED-UP MONETARY VALUE

The basis of the fringe benefit tax is the grossed-up monetary value of the fringe benefit. The grossed-up monetary
value is the monetary value of benefit divided by the appropriate grossed-up rate for the employee. The grossed-up
monetary value is inclusive of the fringe benefit tax.

Illustration
Assume an employer grants fringe benefits with monetary value of P58,500 to a resident citizen managerial
employee.

The grossed-up monetary value is computed as P 58,500/65% = P 90,000. If the employee is a NRA-NETB, the
grossed-up monetary value shall be computed as P58,500/75% = P 78,000.

ILLUSTRATIONS: FRINGE BENEFIT AX COMPUTATIONS

Illustration 1
In the last quarter of 2018, Alexander, a Filipino supervisory employee, was given P13,000 worth of groceries for
personal use.

Monetary value P 13,000

Grossed-up monetary value P 13,000/65% P 20,000
Fringe benefit tax P 20,000 x 35% P 7,000

Alternatively, the fringe benefit tax can be directly computed as P13,000 x 35%/65%.

Illustration 3: Non-resident alien NETB

On January 2019, Cyberspace Company purchased a P3,000,000 car and designated it for the personal use of its
non-resident alien executive.

Monetary value (P3,000,000/5) x 50% P 300,000

Quarterly value (P300,000/4) P 75,000
Quarterly grossed-up monetary value (P7K/75%) P 100,000
Quarterly fringe benefit tax (P100K x 25%) P 25,000

Note:
1. The fringe benefit tax continues to be payable for as long as the employee uses the property for personal
use and/or business use.
2. The quarterly fringe benefit tax can be directly computed s P75,000 x 25%/75%.

ACCOUNTING ENTRIES
Accounting entries shall be classified as follows:
1. Taxable benefits paid for in cash or in kind
2. Taxable benefits which do not involve payment of cash or transfer of property

153
 3. Exempt benefits paid for in cash or in kind
4. Exempt benefits which do not involve payment of cash or transfer of property

Benefits paid for in cash or in kind

Taxpayers shall record fringe benefits paid for in cash or in kind in their books as follows:

Fringe benefit expense (monetary value) xxx

Fringe benefit tax expense xxx
Cash/Tax basis of property given xxx
Fringe benefit tax payable xxx

Illustration 1: Rental accommodation

Plato Corporation paid P91,000 for the rental of a housing unit for the use of its president.

Fringe benefit expense P 91,000

Fringe benefit tax expense 24,500
Cash P 91,000
Fringe benefit tax payable 24,500
Fringe benefit tax = [(P91,000 x 50%)/65%] x 35%

Illustration 2: Transfer of ownership over properties

Aristotle Company transferred ownership over a newly acquired investment property costing P1,200,000 as
residence of its supervisory employee. The property has a zonal value of P1,300,000.

Fringe benefit expense P 1,200,000

Fringe benefit tax expense (P1.3mx35%/65%) 700,000
Investment property P 428,000
Fringe benefit tax payable 430,769

Tax Treatment of the Total Fringe Benefit Expense

The total fringe benefit expense including the fringe benefit tax expense is a deductible expense of the employer
against his gross income in the computation of his taxable income. It must be noted that a deductible fringe benefit
expense exist only when the benefit is paid in cash or in kind.

Activity

During 2020, Al Corporation gave the following fringe benefits to its employees:

Salaries to rank and file employees P1,000,000

Salaries to managerial employees 1,800,000
De minimis benefits to rank and file employees 54,400
De minimis benefits to managerial employees 27,200
Fringe benefits to rank and file employees 102,000
Fringe benefits to managerial employees 170,000

How much is the fringe benefits tax?______________

154
155