CHAPTER 3: FRINGE BENEFITS TAX AND FRINGE BENEFIT

DE MINIMIS BENEFITS
Any goods, service or other benefit furnished or
INTENDED LEARNING OUTCOMES granted by an employer in cash or in kind, in
addition to basic salaries to individual employees
✓ Define and discuss the fringe benefits tax except rank and file employees.
and de minimis benefits.
✓ Execute skills in solving problems regarding Items of fringe benefits subject to final tax:
fringe benefits taxation.
1. Housing
2. Expense account
FRINGE BENEFIT TAX 3. Vehicle of any kind
4. Household personnel, such as maid, driver
✓ Fringe benefit tax (FBT) is a monetary burden and others
imposed by the sovereignty on any good, service, 5. Interest on loan at less than market rate to
or other benefit furnished or granted by an the extent of the difference between the
employer, in cash or in kind, in addition to basic market rate and actual rate granted
salaries, to an individual employee, other than a 6. Membership fees, dues and other expenses
rank and file employee. borne by the employer for the employee in
✓ The FBT is a final withholding tax on the social and athletic clubs and similar
grossed-up monetary value of the fringe benefit organizations
granted by the employer to an employee who 7. Expenses for foreign travel
holds a managerial or supervisory position. This 8. Holiday and vacation expenses
tax is effective regardless of whether the employer 9. Educational assistance to the employee or
is an individual, professional partnership or a his dependents
corporation (regardless of whether the corporation 10. Life or health insurance and other non-life
is taxable or not). insurance premiums or similar amounts in
excess of what the law allows.
TAX TREATMENT OF FRINGE BENEFITS

ILLUSTRATION 1: Covered Employees

Part of Subject to Subje Ana was hired by Earl to be the latter’s
basic basic tax ct to secretary and personal assistant. To enable her
salaries or and CWT FBT to perform her duties well, Earl provided a
taxable on condo unit (adjacent to his) unit which Ana
compensat compensat could use as her temporary residence. Is the fair
ion ion market value of the use of the condo by Ana a
“fringe benefits” that is subject to fringe benefit
Rank & YES YES NO tax imposed under section 33 of the National
file Internal Revenue Code?
Supervisor NO NO YES ►Answer: No.
y/manager Ana is neither a managerial nor a supervisory
ial employee. Only fringe benefits granted to
managerial and supervisory employees are
SCOPE OF FBT subject to the fringe benefits tax.

The FBT Tax Regulations cover only those fringe Tax Exempt Fringe Benefits
benefits given or furnished to managerial or
supervisory employees. The Regulations do not The following fringe benefits shall not be
cover those benefits which are part withholding subject to basic tax or fringe benefit tax:
tax on compensation in accordance with RR
No.2-98.
1 [GUTIERREZ]
1.Fringe benefits which are authorized and the employer, irrespective of the employee’s
exempted from income tax under any special law rank , the benefit shall not be subject to fringe
such as : benefit tax and basic tax on compensation
❖ Contributions required under SSS law income.
❖ Contributions required under GSIS law
❖ Similar contributions under an existing law
❖ Premium for group insurance of employees Computation of Fringe Benefit Tax
2. If the grant of fringe benefits to the employee is
required by the nature of, or necessary to the Fringe Benefit Tax rate = 35 % (25% for
trade, business or profession of the employer. NRA-NETB)
3. De minimis benefits 1. Evaluating the value of the benefit granted or
4. If the grant of benefits is for the convenience or determining the monetary value.
advantage of the employer. 2. Determining the proportion or percentage
(gross monetary factor) of the benefit which is
subject to the FBT.
ILLUSTRATION 2 3. Determining the grossed-up monetary value of
“Outstation Allowance (covers meals and the fringe benefit by dividing the monetary value
trip-related expenses)” are granted to the of the fringe benefit by the gross monetary value
managerial and supervisory employees of factor.
Philippine Gaming Management Corporation 4. Multiplying the grossed-up monetary value
(PGMC) who will be away from the office site factor by the FBT rate.
for at least 8 hours to visit lotto franchise
holders for repairs and/or inspection of FRINGE BENEFIT TAX BASE AND RATE
equipment leased by PGMC from Philippines
Charity Sweepstakes Office (PCSO).

1.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
afore state allowance which may be incurred or
expected to be incurred by the managerial and
supervisory employees in the performance of ILLUSTRATION
their duties cannot be considered as part of
compensation subject to withholding tax even if Determine the grossed-up monetary value and
the employees fail to account/liquidate the same the fringe benefit tax of the following (if
considering that said expenses are pre- applicable):
computed on a daily basis and are paid to 1. ₱39 grocery allowance for personal
employees while on an assignment or duty (BIR consumption of an executive of ABC
Ruling No. 013-2002 dated April 5,2002). Corporation.
2. ₱40,800 expenses paid by an executive of
2.Assuming Ana is a managerial or supervisory ABC Corporation duly receipted for in the
employee, is the fair market value of the use of name od ABC Corporation and is not in the
the condo by Ana a “fringe benefit” subject to nature of personal expenses.
FTB?
►Answer: No. ❖ Answers:
As explained in question #1, if the grant of 1. GUMV = P39k/65% = P60,000;
benefits is for the convenience or advantage of FBT = P39k/65% x 35% = P21,000
2 [GUTIERREZ]
 2. GUMV = P40,800**; FBT = 0 received from the two items combined do
The expenditure is not in the nature of personal not exceed ₱10,000 per employee per
expense of the company's executive, hence, it is taxable year.
not' a fringe benefit taxable to the employee. It
is an ordinary business expenditure of ABC ₱90,000 Ceiling for 13th month pay/bonuses
Corporation and other benefits

Exempted (not exceeding 90,000 in total):

De Minimis Benefit ● 13th month pay
● Christmas bonus
✓ Facilities and Privileges such as ● Productivity incentive bonus
entertainment, medical service or so called ● Loyalty awards
“courtesy” discounts on purchases offered by an ● Gifts in cash or in kind and other similar
employer to his employee. benefits
✓ Not considered as compensation subject to Not applicable to:
income tax and consequently to withholding tax ● Self-employed individuals
IF such facilities or privileges are relatively small ● Income generated from business
value and are offered by the employer as means of
promoting health, goodwill, contentment or Special Rules in Computing the Monetary
efficiency of his employees. Value of Housing Benefits

De Minimis Benefit not subject to income and

withholding tax
SPECIAL RULE IN COMPUTING THE
● Monetized unused vacation leave credits MONETARY VALUE OF HOUSING
of private employees not exceeding 10 BENEFITS
days during the year Employer leases a Monetary Value:
● Monetized value of vacation and sick residential property Rental paid x 50%
leave credits paid to government officials for the use of the
and employees. employee
● Medical cash allowance to dependents of
employees not exceeding ₱1,500 per Employer owns a Monetary Value: The
semester of ₱250 a month. residential property in higher between in the
● Rice subsidy not more than ₱ 2,000 per installment for the use Real Property
month or 1 sack (50 kg) per month. of the employee declaration or Zonal
● Uniforms not exceeding ₱6,000 per Value x 5% x 50%
annum.
● Actual medical assistance not exceeding Employer purchases Monetary Value:
₱10,000 per annum residential property in Acquisition cost
● Laundry allowance not exceeding ₱300 installment for the use exclusive of interest x
per month. of the employee 5% x 50%
● Employees achievement awards not
exceeding ₱10,000 Employer purchases Monetary Value of the
● Gifts given during Christmas and major residential property Benefits: The higher
anniversary celebration not exceeding and transfers between the
₱5,000 per employee per annum ownership to acquisition cost or
● Daily meal allowance for overtime work employee Zonal value as
and night shift not exceeding 25% of the determined by the CIR
basic minimum wage on a per region basis
● Benefit received by an employee by virtue Employer purchases Monetary Value: The
of collective bargaining agreement and residential property higher between the
productivity incentive scheme provided and transfers FMV in the real
that the total annual monetary value ownership to property declaration or

3 [GUTIERREZ]
 employee on a lesser Zonal as determined 3. Educational assistance to the employee or his
amount by the CIR less cost to dependents
the employee 4. Membership dues or fees of employees borne
by employer in social and athletic clubs or other
similar organizations
ILLUSTRATION 5. Life or health insurance and other non-life
insurance premiums are treated as taxable
In 2018, a domestic corporation paid for the benefits.
monthly rental of a residential house of its
branch manager, Mr. Juan dela Cruz, NON-TAXABLE FRINGE BENEFITS
amounting to P156,000. Assume there is no
transfer of ownership, what is the total amount 1. Benefits which are authorized and exempted
of deductible expense by the employer from its from income tax
gross income? 2. Fringe benefit is required by the nature and
A. What is the monetary value of the benefit? necessary to the trade, business or profession of
B. What is the grossed-up monetary value of the the employer.
benefit? 3. Fringe benefit is for the convenience of the
C. How much is the fringe benefit tax? employer
D. Total amount deductible by the employer 4. Contributions of the employer for the benefit of
from its gross income? the employee to retirement, insurance, and
hospitalization benefit plans
Rental Payment 156,000 5. Benefits given to rank and file employees
X 50% 6. Non-taxable housing benefits
Monetary Value 78,000 7. Other non-taxable benefits
divided by 65%
GUMV 120,000 CHAPTER 4: TAXATION
x Fringe benefit tax rate 35% [CO-OWNERSHIP, ESTATES AND TRUST]
Monthly fringe benefit tax expense 42,000
Add: Rent Paid 156,000 CO-OWNERSHIP
Total deductible expense 198,000
Two or more heirs or beneficiaries inherit an
NON-TAXABLE HOUSING BENEFIT undivided property from a decedent, or when a
donor makes a gift of an undivided property in
1. Housing unit inside or adjacent within 50 favor of two or more donees.
meters from the perimeter of the business
premises. INHERITANCE VS DONATION
2. temporary housing for a stay in the
housing unit for three (3) months or less. Inheritance is subject to Estate Tax while
3. Housing privilege of military officials of Donation is subject to Donor’s Tax. Both taxes are
the Armed forces of the Philippines. not income taxes but classified as Transfer Taxes.

Co-ownership
OTHER FRINGE BENEFITS
✓ Co-owners are taxed individually on their
1. Expense Account distributive share in the income of the
a. Expense account paid for or reimbursed by co-ownership.
employer are taxable fringe benefits ✓ When inherited property remained undivided
b. Representation and transportation allowance for more than 10 years and no attempt was ever
given regularly on a monthly basis are not taxable made by co-heirs, nor was the property under
fringe benefits but taxable as compensation administration proceedings nor held in trust, the
income subject to basic tax. property should be considered as owned by an
2. Expenses for foreign travel unregistered partnership, consequently taxable as
a corporation.
4 [GUTIERREZ]
 CASE 1 Applicable Tax

Ana, Lorna and Fe bought a parcel of land for ✓ The taxable income of the estate is computed
the purpose of improving the same before in the same manner as an individual taxpayer.
leasing it out to interested tenants. Is a Consequently, the tax due is therefore computed
co-ownership created? using the graduated income tax rates for
Answer: No. Even the property is undivided it individuals.
was acquired by the owners not through
gratuitous transfer (inheritance or donation) but GRADUATED TAX RATE
by purchase.

ESTATE

✓ A mass of all property, rights and obligations

of a deceased person which are not extinguished
by his death, including those which have accrued
thereto since the opening of succession.

INCOME TAX OF AN ESTATE

✓ Tax on income received by the estate during

the period of administration or settlement.

TRANSFER TAX
CASE 2
✓ Tax on the gratuitous transfer of property either On November 2018, Juan de la Cruz died
through gift/donation (subject to donor’s tax) or leaving various property worth ₱30,000,000.
through inheritance (subject to estate tax). It is not The properties are income producing properties
an income tax because there is no taxable income deriving rental income. The net income from
realized from the passage of property to the heirs rentals from 2019 amounted to ₱2,500,000. A
upon the death of the decedent. last will and testament was executed by the
decedent prior to his death assigning GJ as the
ADMINISTRATION OR SETTLEMENT executor. In 2019, while under administration,
PERIOD the state earned ₱4,750,000 (net of 5% CWT on
rent)and incurred operating expenses of
✓ Period when title to the properties left by a ₱2,000,000.
decedent is not finally transferred to the a. How much is the taxable income of the
heirs/beneficiaries. Estate of Juan Dela Cruz in 2018?
b. How much is the taxable income of the
Classification of Estates under settlement of Estate of Juan Dela Cruz in 2019?
administration ANSWERS:
a. None. Under the tax code, when an
✓ Estate under judicial administration individual taxpayer dies during the year it shall
Fiduciary/trustee (administrator /executor) be assumed that as if he died at the close of
files the income tax return and pays the tax such year. Consequently, the taxpayer identified
due thereon. in the income tax return for 2018 taxable year
✓ Estates not under judicial administration shall still be “Juan de la Cruz” instead of
Heirs and beneficiaries file the ITR of the “Estate of Juan de la Cruz”
estate and pay the tax due thereon.
b. Gross rental income
(4,750,000 / 95%) ₱5,000,000
Allowable deductions
5 [GUTIERREZ]
 (2,000,000) On November 1, 2017, Juan dela Cruz died
Taxable Income leaving various property worth ₱30,000,000 to
₱3,000,000 his heirs; Pedro, Ana and Lorna. The properties
Tax due (using the graduated tax rate) are income producing properties deriving rental
1st ₱2,000,000 ₱490,000 income. The net income from rentals for
In excess of ₱2,000,000 2017 amounted to ₱2,500,000. A last will and
(₱1,000,000 x 32%) ₱320,000 testament was executed by the decedent prior to
Income Tax due ₱810,000 his death assigning GJ as the executor.
Less: CWT on rentals
(250,000) In 2018, while under administration, the state
Income Tax Payable ₱560,000 earned ₱4,750,000 (net of 5% CWT on rent)and
incurred operating expenses of ₱2,000,000.
DEDUCTION FROM ESTATE’S GROSS
INCOME During 2018, Pedro (one of the lawful
heirs)received ₱200,000 from the income of the
✓ Deductions form the estate’s gross income are estate. Pedro’s other income and expenses were
the same items of deductions (business expense) as follows:
allowed for individual taxpayers. Compensation Income ₱800,000
✓ In addition to the usual allowable business Business income 1,500,000
expense, the amount of income of the estate for Business expenses 600,000
the taxable year which is properly paid or 1) Assume that the estate is still under
credited during such year to any legatee, heir or administration, how much is the taxable income
beneficiary should be deducted (also known as of the
special deduction) in the determination of the estate in 2018?
estate’s taxable income. a. Solution
Gross rental income(₱4,750,000/95%) ₱5,000,000
Taxable Income of the Estate Allowable business expenses
(2,000,000)
Gross Income ₱Xxx (200,000)
Distribution of income to Pedro (heir)
Less: Deductions Taxable income ₱2,800,000
Business expenses ₱Xxx 2) How much is the taxable income of Pedro?
Special deduction: b. Solution
Distribution of estate’s Compensation income ₱800,000
income to beneficiaries Xxx Business income ₱1,500,000
Taxable income of the Estate ₱Xxx Business expenses (600,000)
Tax Due (Graduated Tax Rate) ₱xxx Amount received from the
income of the estate. 200,000
Taxable Income of the Beneficiary Taxable income ₱1,900,000

Compensation Income (if any)

Net income of the beneficiary TRUST
from the business and/or practice
of profession ₱Xxx ✓ A right on property, real or personal, held by
Add: one party for the benefit of another. Trust
Amount received from the agreement allows individuals to create sustained
income of the estate ₱Xxx benefits for an individual or entity
Taxable income ₱Xxx
Tax Due (Graduated Tax Rate) ₱xxx PARTIES TO A TRUST

Trustor – person who establishes a trust

Trustee – one in whom confidence is reposed as
CASE 3 regards property for the benefit of another person.

6 [GUTIERREZ]
Beneficiary – person for whose benefit trust is accumulated and held for distribution to the
created. beneficiaries.
Fiduciary- any person or corporation that holds in ✓ Ordinary trust is any of the following trusts;
trust an estate of another person or persons. A ✓A trust where the income is:
fiduciary may exist only if a legal trust is created. >Accumulated or held for future
distribution under the terms of a will trust.
Taxability of Income Trusts >To be distributed currently by the
fiduciary to the beneficiaries.
Trustee – if the income is to be accumulated or >Accumulated for the benefit of unborn or
held for future distribution, whether ordinary unascertained person or persons with
income or gain from sale of assets included in the contingent interest
corpus of the trust. >Collected by the guardian of an infant is
Grantor/Trustor – if under the term of the trust, held or distributed as the court may direct
the title to any part of the corpus or principal of >At the discretion of fiduciary, may be
the trust may be revested to the grantor, the either distributed to the beneficiaries or
income of the trust may be distributed for the accumulated.
benefit of the grantor, or under the term of the
trust, the income of the trust shall be applied for Revocable Trust
the benefit of the grantor.
Beneficiary – if the income is to be distributed to ✓ A trust where at any time, the power to revest
the beneficiaries. in the grantor, title to any part of the following
corpus of the trust is vested:
Taxable Income of the Trust > in the grantor either alone or in conjunction
with any person not having a substantial adverse
Gross Income ₱Xxx interest in the disposition of such part of the
Less: Deductions corpus of the income therefrom; or
Business expenses. ₱Xxx > In any person not having a substantial adverse
Special deduction: interest in the disposition of such part of the
Distribution of trust’s corpus or the income therefrom.
income to beneficiaries Xxx
Taxable income of the Trust ₱Xxx Employees’ Trust
Tax Due (Graduated Tax Rate) ₱xxx
✓ Income tax shall not apply to employee’s trust
Taxable Income of the Beneficiary which forms part of pension, stock bonus, or
profit sharing plan of an employer for the benefit
Compensation Income (if any) of some or all of his employees.
Net income of the beneficiary from ✓ The income of an employees’ trust is likewise
the business and/or practice of exempt from the payment of final taxes as well as
profession ₱Xxx income derived from the sale of real property
Add: whose funds are sourced from the employees’
Amount received from the trust fund.
income of the trust ₱Xxx
Taxable income of the beneficiary ₱Xxx Requisites or Conditions for Exemption of
Tax Due (Graduated Tax Rate) ₱xxx Employees’ Trust

✓ The employee’s trust must form part of a

CLASSIFICATION OF THE TRUST pension, stock bonus or profit-sharing plan of an
employer for the benefit of some or all of his
Ordinary Trust employees;
✓ Contributions are made to the trust by such
✓ The income and corpus of the trust do not employer, or employees, or both.
revert to the grantor. The trust income is

7 [GUTIERREZ]
✓ The contributions are made for the purpose of
distributing to such employees the earnings and
principal of the fund accumulated by the trust
in accordance with such plan;
✓ Under the trust instrument, it is impossible at
any time prior to the satisfaction of all liabilities
with respect to employees under the trust, for any
part of the corpus or income to be (within the
taxable year or thereafter) used for or diverted to
purposes other than for the exclusive benefit of his
employees.

Consolidated Income Tax Returns (two

or more trusts)
FILING OF INCOME TAX RETURNS
1. The taxable income of all the trusts shall be
consolidated and the tax computed on such ✓ The following persons acting in any fiduciary
consolidated income. The tax computed on the capacity shall file the income tax return for an
consolidated income shall be apportioned to estate or trust:
the different trusts, such that each trust shall have - Guardians
a share in the income tax on consolidated - Trustees
income. - Executors/administrators
- Receivers
The format of computation follows (tax - Conservators
apportionment): - All other persons or corporations acting in
any fiduciary capacity
✓ In case of two or more joint fiduciaries, return
filed by one of them shall be a sufficient
compliance.

The return maybe filed in :

2. Such proportion of said tax shall be assessed - Authorized agent banks
and collected from each trustee which the taxable - Revenue district officer
income of the trust administered by him bears to - Collection agent
the consolidated income of the several trusts. Each - Duly authorized city or municipal treasurer
trust shall pay an income tax still due or payable in which the taxpayer has his legal
computed as follows: residence or principal place of business

Income Tax apportioned to a Trust. Pxxx

Less: Income tax already paid. (xxx)
Income Tax Payable Pxxx

8 [GUTIERREZ]