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Lesson-7

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3 views

Lesson-7

Uploaded by

Dracule Mihawk
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Lesson 7

Fringe Benefit Tax


Fringe Benefit
o means any good, service or other benefit furnished or granted in cash or in kind
by an employer to an individual employee (except rank and file employees).

Nature of the Fringe Benefits Tax


1. Final tax
2. Imposed upon the fringe benefits of managerial or supervisory employee
3. Withheld at source; hence, paid by employers
4. Grossed-up tax
5. Quarterly tax

Exempt Fringe Benefits


1. Mandatory fringe benefits
2. De minimis benefits
3. Fringe benefits of rank and file employees
4. Those provided under convenience of the employer rule
5. Those that are necessary to the trade or business of the employer

Classification of fringe benefits


A. Given to rank and file employees
 Taxable Fringe Benefits to Rank and File Employees:
1. Meals furnished or subsidized by employer (except OT meal which is subject a
de minimis benefit)
2. Rental value of quarters furnished an employee.
3. Premium on life insurance of an employee where the insured employee is
directly or indirectly the beneficiary – in essence a form of additional
income for the employee.
4. Fixed or variable transportation, representation and other allowance given an
employee. Advance or reimbursement-type allowance is exempt.
5. Performance bonus, relay station allowance, and danger exposure allowance.
6. Personnel economic relief allowance (PERA) granted to government employees.
7. Salaries and allowances during leaves of absences (vacation and sick leave).
8. Fees received by an employee (including director’s fees) for the performance
of a service for the employer.
9. Dismissal payments (this is different with separation pay).
 Exempt Fringe Benefits to Rank and File Employees:
1. Meals, living quarters, de minimis entertainment, medical services, courtesy
discounts on purchases, sack or rice, etc. given for the convenience of the
employer or for promoting the contentment, health, efficiency or goodwill of
the employee.
2. Reimbursement-type traveling, representation and other allowance. Excess
advances retainable by the employee is taxable
3. Retirement and separation benefits exempt under the law

B. Given to managerial or supervisory employees


1. Housing Benefits
Exception:
a. Housing benefits provided to military officials of the Armed Forces of
the Philippines consisting of officials of the Philippine Army,
Philippine Navy and Philippine Air Force
b. Housing unit which is within or adjacent to the premises of a business
or factory. Adjacent means within 50 meters of the perimeter of the
business premises of the employer.
c. Temporary housing for an employee who stays in a housing unit for three
months or less.
2. Interest on loans at less than market rate or at 0% rate. The differential
interest from 12% (as fixed by regulation) shall be the taxable fringe
benefit.
3. Membership fees, dues, and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations – these
are taxable employee benefits of the employee in full.
4. Expense for foreign business travel
a. First class airplane ticket – 30% of the cost of ticket
b. Lodging cost in a hotel or similar establishment in excess of US$300 per
day.
c. Traveling expense paid by the employer for the travel of the family
members of the employee
In connection with this, there must be a documentary evidence to
support that the foreign travel was for business meetings or
convention; otherwise the entire cost of the ticket including hotel
accommodation and other expenses incidental thereto shouldered by the
employer shall be treated as taxable fringe benefits.

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Fringe Benefit Tax
i. business meetings – to be supported by official communication from
business associates abroad indicating the purpose of the meeting
ii. business conventions – to be supported by invitations or
communications from the host organization or entity abroad
Reasonable foreign travel expenses are exempt under fringe benefit tax;
hence, inland travel expenses such as for food, beverages and local
transportation; cost of economy and business class airplane ticket; and
those within the limits as set out in 4a and b above.
5. Household personnel
If shouldered by the employer the following personal expenses shall be taxable
fringe benefit:
a. Salaries of household help
b. Personal driver of the employee (if not for the convenience of the employer
such as doctor on call)
c. Similar expenses as payment for homeowners’ association duties, garbage
dues, etc.
6. Expense account
General Rule: expenses of the employees that are paid for the employer are
taxable fringe benefit:
a. expenses of a reimbursement type (direct payment by the employer is not
necessary since subsequent reimbursement for the expense of the employee,
makes him the indirect payer of the expense)
b. personal expenses (groceries etc.) even if receipted in the name of the
employer
Exception:
i. Regular fixed entertainment and representation allowance – this is
treated as additional compensation to the employee
ii. Expenses connected with the trade of the employer and is duly
receipted in the name of the employer - these are expenses of the
employer
7. Holiday and vacation expense
If incurred by the employees and shouldered by the employer, this constitute
taxable fringe benefit.
8. Life and Health insurance and other non-life insurance premium or similar
amounts in excess of what the law allows
Exception:
a. contributions of the employer for the benefit of the employee pursuant to
the provision of existing laws, i.e. SSS, GSIS, PhilHealth; etc.
b. the cost of premium by the employer for the group insurance of its
employees
9. Vehicle of any kind
The same rules in housing benefits apply herein.
Exception:
a. Aircraft or helicopter owned and maintained by the employer – are treated
as for business purpose only and hence, not subject to fringe benefit tax.
(Note: it is very impractical to provide managerial or supervisory
personnel with aircraft or helicopter for personal use due to the cost of
maintaining them.)
b. Yacht, whether owned or leased by the employer is considered not for
business purpose (by nature for pleasure), and hence taxable fringe
benefit.
Note: Yacht for purposes of determining the depreciation value is assumed
to have a life of 20 years.
10. Educational assistance granted by employer to
a. the employee – generally, taxable as a fringe benefit
Exception:
i. the education or study involved is directly connected with the
employer’s trade, business or profession; and
ii. there is written contract that the employee is under an obligation to
remain in the employ of the employer for a period of time mutually
agreed upon
b. the dependents of employees – generally, taxable as a fringe benefit
Exception: When the assistance is granted through competitive scheme under
a scholarship program of the company

Benefits not subject to fringe benefit tax (Sec. 33 (C), NIRC):


1. Fringe benefits which are authorized and exempt from tax under special laws
2. Benefits given to rank and file employee, whether given on a Collective Bargaining
Agreement or not
3. Benefits given as required by the nature of, or necessary to the trade, business or
profession of the employer
4. Benefits given for the convenience or advantage of the employer

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Fringe Benefit Tax
5. Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans; and
6. De minimis benefits promulgated by the Bureau of Internal Revenue

Tax Rates for Fringe Benefits


Type of employee Tax Rate Gross-up rate
Resident or citizen 35% 65%
NRA-NETB 25% 75%

Valuation of Taxable Fringe Benefits


1. If granted in money or is directly paid by the employer, the value is the amount of
granted or paid for
2. If furnished by the taxpayer in property and ownership is transferred to the
employee, the value of the fringe benefit shall be the fair market value of the
property transferred.
3. If furnished by the taxpayer in property without transfer of ownership, the value of
the fringe benefit is equal to the depreciation value of the property.
 For this purpose, personal property is assumed a depreciable life of 5 years
(20%) while real property shall have a presumptive life of 20 years (5%)
 Furthermore, since the supervisory or managerial employee cannot reasonably be
expected to use the property all the time, it is assumed that usage is 50% for
business use and 50% for personal use.

Deductible Amount of Fringe Benefits


 General Rule: Deductible amount =taxable fringe benefits + fringe benefit tax
 Exception Rule: Deductible amount = fringe benefit tax paid (If fringe benefit tax
is based on the depreciation value, zonal value or assessed value)

Filing of Return
o The fringe benefit tax withheld by the employer shall be remitted to BIR within
10 days after the end of each calendar quarter; however, for EFPS, 5 days later.

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