FRINGE BENEFIT

TAX
Chapter 3
DEFINITION OF A FRINGE BENEFIT
AND FRINGE BENEFIT TAX
Definition of a Fringe Benefit and Fringe Benefit Tax

 The term "compensation" under Section 2.781 (A) of RR 2-98, as amended, means
all remuneration for services performed by an employee for his employer under an
employer-employee relationship, unless specifically excluded by the Code.
 The name by which the remuneration for services is designated is immaterial
 Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g.
transportation, representation, entertainment and the like), fees including director's
fees if the director is at the same time, an employee of the employer/corporation;
taxable bonuses and fringe benefits except those which are subject to the fringe
benefits tax under Sec. 33 of the Code: taxable pensions and retirement pay, and
other income of a similar nature constitute compensation income
Definition of a Fringe Benefit and Fringe Benefit Tax

 Fringe benefit is defined under Section 2(1) of RR 8-2018 as any goods, service or
other benefits furnished or granted by an employer in cash or in kind, other than the
basic compensation, by an employer to an individual employee except rank and file
employee as defined in Sec. 3(m) of RR 8-2019).
 Under the tax code, fringe benefits subject to fringe benefits tax cover only those
fringe benefits given or furnished to a managerial or supervisory employee. The
regulations do not cover those benefits which are part of taxable compensation in
accordance with RR No. 2-98, as amended. The tax treatment of fringe benefits
given to employees is shown in table 3-1.
Definition of a Fringe Benefit and Fringe Benefit Tax

Table 3-1: Tax Treatment of Fringe Benefits

Fringe benefits Part of Basic Salaries or Subject to Basic Tax and CWT Subject to
given to: *Taxable Compensation on compensation FBT
 Rank & File Yes Yes No
 Supervisory/ No** No Yes
Managerial

*Taxable compensation income in the table refers to salaries/wages presented in the

Income Tax Return of an individual taxpayer.
**FBs given to supervisory and managerial employees are taxable, nonetheless, it is
subject to fringe benefit tax, a final withholding tax, not the graduated tax rate for
compensation income
Definition of a Fringe Benefit and Fringe Benefit Tax

The Labor Code distinguishes a rank-and-file employee from a managerial employee.

It provides that a managerial employee is one who is vested with powers of
prerogatives to lay down and execute management policies and/or to hire, transfer,
suspend, lay-off, recall discharge, assign or discipline employees, or to effectively
recommend such managerial actions. All employees not falling within this definition
are considered rank-and-file employees.
Section 3(m) of RR 8-2018 defines rank and file employee as an employee holding
neither managerial nor supervisory position.
NATURE OF A FRINGE BENEFIT TAX
Nature of a Fringe Benefit Tax

 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 tax imposed on the employee withheld by the employer, computed
at 35% (beginning January 1, 2018 or upon the effectivity of TRAIN Law) on the
grossed-up monetary value (GUMV) of the fringe benefit granted by the employer to
an employee who holds a managerial or supervisory position.
 Being a final tax, the FBT is collected or withheld at source by the employer,
meaning, at the firm's level rather than at the taxpayer's level to facilitate lax
administration. For one, valuation of benefits is easier at the firm's level and the
problem of allocating benefits among individuals is avoided. The Bureau of Internal
Revenue (BIR) has also to contend with fewer corporate tax returns.
Nature of a Fringe Benefit Tax

 FPT 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 government or its instrumentalities.
 FBT shall be withheld and paid by the employer (thus, the employer is the one liable
to pay the FBT) on or before the last day the month following the calendar quarter.
ITEMS OF FRINGE BENEFITS SUBJECT
TO TAX
Items of Fringe Benefits subject to Tax

Unless exempt, the following items of fringe benefits received by a supervisory or

managerial employee shall be subject to fringe benefit tax:
 1) Housing
 2) Expense account
 3) Vehicle of any kind
 4) Household personnel, such as maid, driver and others
 5) Interest on loan at less than market rate to the extent of the difference between
the market rate and actual rate granted
 6) Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs and similar organizations
Items of Fringe Benefits subject to Tax

 7) Expenses for foreign travel

 8) Holiday and vacation expenses
 9) Educational assistance to the employee or his dependents
 10) Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.
TAX EXEMPT FRINGE BENEFITS
Tax Exempt Fringe Benefits

The following fringe benefits shall not be subject to basic tax or fringe benefit
tax:
1. Fringe benefits which are authorized and exempted from income tax under
any special law such as:
 Contributions required under SSS law
 Contributions required under GSIS law
 Similar contributions under an existing law
 Premiums for group insurance of employees
2. If the grant of fringe benefits to the employee is required by the nature of, or
necessary to the trade, business or profession of the employer.
Tax Exempt Fringe Benefits

ILLUSTRATION 2:
“Outstation Allowance (covers meals and trip-related expenses)” are
granted to the managerial and supervisory employees of Philippine
Gaming Management Corporation (PGMC) who will be away from the
office site for at least 8 hours to visit lotto franchise holders for repairs
and/or inspection of equipment leased by PGMC from Philippine Charity
Sweepstakes Office (PCSO). Should the aforementioned allowance be
subjected to tax?
Tax Exempt Fringe Benefits

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 aforestated allowance which
may be incurred or expected to be incurred by the managerial and supervisory
employees in the performance of their duties cannot be considered as part of
compensation subject to withholding tax even if the employees fail to
account/liquidate the same considering that said expenses are pre-computed
on a daily basis and are paid to employees while on an assignment or duty
(BIR Ruling No. 013-2002 dated April 5, 2002).
Tax Exempt Fringe Benefits

3. De minimis benefits (refer to page 154)

4.If the grant of benefits is for the convenience or advantage of the employer.

ILLUSTRATION 3:

CASE A. Use the same data in illustration # 1.

Question 1:

Is the fair market value of the use of the condo unit by Ana a “compensation income” that is
subject to basic tax under Section 24A of the Tax Code and consequently to creditable
withholding tax on compensation income?

Answer: No.

The condo unit is provided for the convenience of the employer, hence does not constitute a
taxable fringe benefit. Being his personal secretary, it is necessary for Ana to be accessible to
Earl anytime. 
Tax Exempt Fringe Benefits

Question 2:
Assuming Ana is a managerial or supervisory employee, is the fair
market value of the use of the condo by Ana a “fringe benefit” subject
to FBT?

Answer: No.
As explained in question #1, if the grant of benefits is for the
convenience or advantage of the employer, irrespective of the
employee’s rank, the benefit shall not be subject to fringe benefit tax
and basic tax on compensation income.
Tax Exempt Fringe Benefits

CASE B:
 Arthur Henderson and Marie Henderson filed their annual income tax with the BIR. Arthur
is president of American International Underwriters for the Philippines, Inc., which is a
domestic corporation engaged in the business of general non-life insurance, and
represents a group of American insurance companies engaged in the business of general
non-life insurance:
 The BIR demanded payment for alleged deficiency taxes. In their computation, the BIR
included as part of taxable income:
 Arthur’s allowances for rental, residential expenses, subsistence, water, electricity and
telephone expenses
 Entrance fee to the Marikina Gun and Country Club which was paid by his employer for his
account, and
 Travelling allowance of his wife
Tax Exempt Fringe Benefits

The taxpayer’s justifications are as follows:

 As to allowance for rental and utilities, Arthur did not receive money for the
allowance. Instead, the apartment is furnished and paid for by his employer-
corporation (the mother company of American International), for the employer
corporation’s purposes. The spouses had no choice but to live in the expensive
apartment, since the company used it to entertain guests, to accommodate
officials, and to entertain customers.
 The entrance fee should not be considered income since it is an expense of his
employer, and membership therein is merely incidental to his duties of increasing
and sustaining the business of his employer.
 His wife merely accompanied him to New York on a business trip as his secretary,
and at the employer-corporation’s request, for the wife to look at details of the
plans of a building that his employer intended to construct. Such must not be
considered taxable income.
Tax Exempt Fringe Benefits

Ruling:
 The Supreme Court ruled that the claims are not part of taxable income
because no part of the allowances in question redounded to their
personal benefit, nor were such amounts retained by them. The bills were
paid directly by the employer-corporation to the creditors. The rental
expenses and subsistence allowances are to be considered not subject to
income tax. The taxpayer’s high executive position and social standing,
demanded and compelled the couple to live in a more spacious and
expensive quarters. Such “subsistence allowance” was a separate account
from the account for salaries and wages of employees. The company did
not charge rentals as deductible from the salaries of the employees.
These expenses are company expenses, not income by employees which
are subject to tax (Collector vs Henderson).
Computation of Fringe Benefit Tax

 In general, fringe benefit tax rate is 35% (beginning January 1, 2018 or

upon the effectivity of TRAIN Law). However, FBT rate for nonresident
alien not-engaged not engaged in trade or business is 25%. The
computation of the fringe benefits tax is done by:
 Evaluating the value of the benefit granted or determining the monetary
value.
 Determining the proportion or percentage (gross monetary factor) of the
benefit which is subject to the FBT.
 Determining the grossed-up monetary value of the fringe benefit by
dividing the monetary value of the fringe benefit by the gross monetary
value factor; and
 Multiplying the grossed-up monetary value factor by the FBT rate.
FBT RATES

The rates of fringe benefit tax vary depending on how the employees are taxed. The
reason is that the FBT tends to recover the income tax of the employee so the rate
follows the income taxation of such employees shown in table 3-2 below:
TABLE 3-2: FRINGE BENEFIT TAX BASE AND RATE
Classification of Taxpayers CIT.,RA,NRAET NRA-NETB
Monetary value Pxx Pxx
Divide by gross monetary value factor 65%* 75%
Grossed-up monetary value Pxx Pxx
x FBT Rate 35%* 25%
Fringe Benefit Tax (FBT) Pxx Pxx

NOTE:
Prior to Jan. 1, 2018, the FBT rate was 32%
FBT RATES

ILLUSTRATION 4:
 Determine the grossed-up monetary value and the fringe benefit tax of the
following (if applicable) for 2018 taxable year:
 P39 grocery allowance for the personal consumption of an executive of
ABC Corporation.
 P40,800 expenses paid by an executive of ABC Corporation duly receipted
for in the name of ABC Corporation and is not in the nature of personal
expense.
 P40,800 expenses incurred by an executive of ABC Corporation in
connection with attending business meeting or convention.
 P40,800 grocery allowance for the personal consumption of one of ABC
Corporation’s rank and file employees.
FBT RATES

Answers:
 GUMV=P39k/65%x35%=P21,000
 GUMV= P40,800**; FBT = P0
 **The expenditure is not in the nature of personal expense of the
company’s executive, hence, it is not a fringe benefit taxable to the
employee. It is an ordinary business expenditure of ABC Corporation.
 GUMV = P40,800; FBT = P0; same explanation with #2
 GUMV = P40,800 same with monetary value
 FBT = P0** ; subject to basic tax
The grossing up of fringe benefits was adopted in order to align the
tax treatment of fringe benefits with salaries and wages.
Compensation incomes presented in the income tax returns of
individual taxpayers are at gross amounts, meaning, the income tax
payable on it are included in the computation. The fringe benefits
are therefore grossed-up so that the income tax is also considered
as part of the total benefit. The grossed-up monetary value of the
fringe benefit represents the entire income earned by the employee. This
includes the net amount of money received or the net monetary value of
any property received (known as “monetary value”) and the amount of FBT
received by the employee from the employer.
Valuation of fringe benefits

 If granted in money, the value is the amount

granted.
 If granted in property and ownership is transferred
to the employee, the value is the fair market value
of the property.
 If granted in property but ownership is not
transferred to the employee, the value is equal to
the depreciation value of the property.
Deductible expense of the employer

If 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 the
monetary value of the fringe benefit. On the other hand, if
the fringe benefit is given to a supervisory or managerial
employee and is subject to fringe benefit tax, the deduction is
the grossed-up monetary value of the fringe benefit which
compose of the fringe benefit expense and the fringe benefit
tax.
DE MINIMIS BENEFITS

Facilities and Privileges such as entertainment, medical

services, or so called "courtesy" discounts on purchases,
otherwise known as "De Minimis Benefits," furnished or
offered by an employer to his employees, are not considered
as compensation subject to income tax and consequently to
withholding tax, if such facilities or privileges are of relatively
small value and are offered or furnished by the employer
merely as means of promoting the health, goodwill,
contentment or efficiency of his employees [Section 2.78.1
(A)(3) of RR 2-98 RR 10-2008 as amended by RR 5-2011, RR
8-2012 and RR 1-2015].
The following shall be considered de minimis benefits not subject to income tax
as well as withholding tax on compensation income of both managerial and
rank and file employees:

1. Monetized unused vacation leave credits of private employees not exceeding "10
days" during the year.
 Payment of monetized unused "vacation" leave credits exceeding 10 days as well
as payment of "sick" leave, regardless of number of days shall be added to "other
benefits" with a P90,000 ceiling. Any amount exceeding the P90,000 ceiling
discussed in page 156 shall be subject to basic and creditable withholding tax on
compensation income (R.R. No. 8- 2018)
 
2. Monetized value of vacation and sick leave credits paid to government officials
and employees.
 Compared to employees in the private sector, payment of monetized unused
"vacation and sick" leave credits to government officials/employees regardless of
the number of days shall be exempt from tax on compensation income.
3. Medical cash allowance to dependents of employees not exceeding P1 ,
500 per semester or P250 a month.
4. Rice subsidy of not more than P2.000 per month or 1 sack (50kg.) rice per
month.
5. Uniforms given to employees by the employer not exceeding P6,000 per
annum (as amended by RR 8-2018).
6. Actual medical assistance given not exceeding P10,000 per annum such
as medical allowance to cover medical and healthcare needs, annual
medical/executive check-up, maternity assistance and routine consultations.
7. Laundry allowance not exceeding P300 per month.
8. Employees 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
exceeding P10,000 under an established written plan which does not
discriminate in favor of highly paid employees).
9. Gifts given during Christmas and major anniversary celebrations not
exceeding P5,000 per employee per annum (RR 8-2012).
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding
25% of the basic minimum wage on a per region basis provided such benefit is given
on account of overtime work or if given to employees on night/graveyard shift.
The grant of meal allowance, if not for overtime work or night/graveyard shift, should
be subject to income tax (RR 05-2011). However, meal allowance and lodging
furnished by the employer to the employees are exempt from tax if furnished for the
"advantage or convenience of the employer”. Meal allowance, in this particular case,
should be furnished within the premises of the employer.

11. Benefits received by an employee by virtue of a collective bargaining agreement

(CBA) and Productivity incentive schemes provided that the total annual monetary
value received from the two (2) items above combined, do not exceed P10,000 per
employee per taxable year (RR 1-2015).
BIR RULING No. 293-2015 (CBA/CNA and Productivity
Incentive Pay):

 If not more than P10,000 – considered as de minimis

 If more than P10,000 – the entire amount shall be included in the “other
benefits” with P90,000 ceiling.
NOTE:
 This ruling shall apply only to benefits under CBA and productivity incentive
schemes. CBA may also be referred to as CAN (collective negotiation
agreement).
The foregoing list of de minimis benefits are all inclusive. Meaning, all
other benefits given by employers which are not included in the enumerations
above shall not be considered de minimis benefits (RR 8-2012; RR 1-2015).
P90.000 Ceiling for 13th month pay/bonuses and "Other Benefits”

Section 32(B)(7) of the Tax code in relation to PD 851 as amended by RA10653

provides that 13th month pay and other benefits received by officials and
employees of public and private entities are exempt from income tax and
creditable withholding tax on compensation, provided, however, that beginning
January 1, 2018, the total exclusion shall not exceed P90,000 (RA 10963-TRAIN
Law). Otherwise, the excess would form part of an individual's gross income and
would be subject to income tax and applicable creditable withholding taxes.
RR 3-2015, as amended, provides that the amount of P90,000 exclusion (as
amended) shall "only" apply to "13th month pay and other benefits" prescribed
under the provisions of 2.78.1(B)(11 "a" and “b”) of RR 2-98 (as amended) and
shall not apply to other compensation received by an employee under an
employer-employee relationship such as basic salary and other allowances.
Other Benefits- under these regulations include:

 Christmas bonus
 Productivity incentive bonus
 Loyalty awards
 Gifts in cash or in kind and other benefits of similar nature actually
received by officials and employees of both government and private
offices
Further, RR 3-2015 emphasized that this exclusion from gross
income is not applicable to:

(1)Self-employee individuals; and

(2)Income generated from business
Excess of de minimis benefits over their respective ceilings.

The amount of de minimis benefits conforming to the ceiling of the ceiling of de

minimis benefits shall not be considered in determining the P90,000 ceiling of “other
benefits” excluded from the gross income under Section 32B(7)(e) of the Code as
amended by RA10963 – TRAIN Law. On the other hand, the other hand, the excess of
the de minimis benefits over their respective ceilings prescribed under this regulation
shall be considered as part of other benefits subject to tax only on the excess over the
P90,000 ceiling.
All other benefits given by employers which are not included in the enumeration of
de minimis benefits shall not be considered de minimis benefits but should fall under
the classification of “other benefits” and is therefore subject to the P90,000 ceiling. The
excess of the benefits over the P90,000 limit would from part of an individual’s gross
income and would be subject to income tax and applicable creditable withholding taxes.
Refer also to Table 3-3 for the applicable tax on fringe benefits and de minimis benefits.
Fixed or Variable allowances

In generals, fixed or variable allowances which are received by a public

officer or employee or officer or employee of a private entity, in addition to the
regular compensation, fixed for his position or office, is compensation subject
to income tax and consequently, creditable withholding tax on compensation
income [Section 2.78.1 (A) of RR 2-98 as amended by RR 10-2008]. Example of
fixed or variable allowances are transportation allowance, representation
allowance, communication allowance, living away from home allowance
(LAFHA), and the like.
Reasonable amounts of reimbursements/advances for travelling and
entertainment expenses which are pre-computed on a daily basis and are paid
to an employee while he is on an assignment or duty need not be subject to
be requirement of substantiation and to withholding.
Business related expenses/ Allowances subject to liquidation

Any amount paid specifically, either as advances or reimbursements

for travelling, representation and other bona fide ordinary and
necessary expenses incurred or reasonably expected to be incurred by
the employee in the performance of his duties are not compensation
subject to withholding, if the following conditions are satisfied:
 It is for ordinary and necessary travelling and representation or
entertainment expenses paid or incurred by the employee in the in
the pursuit of the trade, business profession; and
 The employee is required to account/liquidate for the foregoing
expenses in accordance with the specific requirements of
substantiation for each category of expenses pursuant to Sec.34 of
the tax code.
Representation and Transportation Allowance

Representation and Transportation Allowances (RATA) granted under Section 34 of

the General Application Act to certain officials and employees of the government are
considered reimbursements for the expenses incurred in the performance one’s duties
rather than as additional compensation. However, the excess of RATA, if not returned
to the employer, constitutes taxable compensation income of the employee.
Under several rulings issued by BIR (i.e., BIR Ruling No. DA- 250-04), the foregoing
rule shall likewise apply to reasonable amounts of reimbursements or advances for
travelling and representation of private employees which are pre-computed on a daily
basis and which are paid to any employee while on assignment or duty. Such
allowance should not be considered compensation subject to withholding tax. On the
other hand, transportation and representation allowances which are fix in amounts
and are regularly received by the employees as part of their monthly compensation
are subject to basic tax.
Communication Allowance

Communication allowance (phone allowance)

granted to employees are not subject from fringe
benefit tax and tax on compensation on the basis
that communication allowance is deemed
required by the nature of the job of the
employees and deemed necessary to business
and redounds to the convenience benefit.
 ** Annual Benefit = FMV or Zonal, whichever is higher x 5%
Monetary value of the benefit = FMV or Zonal, whichever is higher x5% x
50%
*** Annual Benefit = Acquisition cost exclusive of interest x 5%
Monetary value of benefit = Acquisition cost exclusive of interest x 5% x 5%
 ILLUSTRATION 6
(SPECIAL RULES IN COMPUTING MONETARY VALUE)

CASE A:
In 2018, a domestic corporation paid for the monthly rental of a residential house
of its branch manager, Mr. Juan Dela Cruz, amounting to P156,000. (Assume there is
no transfer of ownership)
 Question 1: What is the monetary value of the benefit?
 Question 2: What is the grossed-up monetary value of the benefit?
 Question 3: How much is the fringe benefit tax?
 Question 4: Total amount deductible by the employer from its gross income?
 Question 5: What is the appropriate journal entry to record the provision of the
above benefit?
Answers:

 Question 1: P78,000
 Question 2: P120,000
 Question 3: P42,000
 Question 4: P198,000
 Question 5: Too record the transaction, the following journal entries should be made
by the employer for the month:
Fringe benefit expenses P156,000
Fringe benefit tax expenses 42,000
Cash (Rental payment) P156,000
F.B. Tax Payable 42,000
Solution:

Rental Payment P156,000

X 50%
Monetary value P78,000
Divide by 65%
GUMV P120,000
X Fringe benefit tax rate 35%
Monthly Fringe benefit tax expense P42,000
Add: Rentals paid P156,000
Total Deductible Expense P198,000
NOTE:

 Although the monetary value of the benefit is 50% only

of the rental payment, the total deductible amount of
the employer is the total of the actual rental payment
and the applicable fringe benefit tax. The entire amount
(P198,000) is considered as total compensation
expense incurred by the employer. Therefore, the
special rules in computing the monetary value of the
benefit should be taken into consideration only for
purposes of computing the fringe benefit tax.
CASE B:
A domestic corporation owns a condominium unit. In 2018, the said
corporation furnished and granted the said property for the residential use of
its assistant Vice President. The fair market value of the property per BIR
assessment amounts to P10,000,000, while its fair market value as shown in its
current Real Property Declaration amounts to P8,000,000. Determine the
following:

1: Monthly Monetary value of the benefit?

2: Monthly Grossed-up monetary value of the benefit?
3: Monthly Fringe benefit expense?
4: Total amount deductible by the employer for the month?
5: Journal entry to record the provision of the above benefit?
 Answers:

 1: P20,833
 2: P32,051
 3: P0
 4: P11,218
 5: P11,218
Solution:

FMV per BIR assessment (Higher) P10,000,000

X 5%
Value of the benefit 500,000
X 50%
Annual Monetary value P250,000
Divide by 12 months
Monthly monetary value P20,833
Divide by 65%
Grossed-up monetary value (annual) P32,051
X Fringe benefit tax rate 35%
Fringe benefit tax for the year P11,218
Deductible by the employer for the year P11,218
NOTE:

 Fringe benefit expense is P0

The “Fringe benefit tax expense” in this case is already
the amount deductible from the employer’s gross income
as fringe benefits expense. The employer, shall not
further claim other deduction such as the monetary value
of the benefit because of the cost for the use of the
residential property has been or will be recovered as
deduction from its gross income under “Depreciation
expense” (RR 3-98).
To record the transaction, the following journal entries should
be made:

Fringe benefit tax expense P11,218

Fringe benefit tax payable P11,218
CASE C:
Using the same data in Case B and assuming that the
acquisition cost of the property is P5,000,000 with a remaining
useful life of ten (10) years. How much is the monthly fringe
benefit expense?
Answers: P41,667 computed as follows:

FMV per BIR assessment (Higher) P10,000,000

Less: cost (5,000,000)
Excess of FMV over cost 5,000,000
Divide by its remaining life 10 years
Fringe benefit expense (for the year) 500,000
Divide by 12 months
Monthly fringe benefit expense P41,667
NOTE:

 Fringe benefit expense for the month is P41,667

If the zonal value or fair market value of the said property

is greater than its cost subject to depreciation, the excess
amount shall be used in computing additional
depreciation expense allowed as a deduction from the
employer’s gross income as fringe benefit expense and
shall be amortized throughout the remaining useful life
(RR 3-98).
The journal entry for the month in this case as provided in the
foregoing revenue regulation shall be:

Fringe benefit expense P41,667

Fringe benefit tax expense 11,218
Income constructively realized P41,667
Fringe benefit tax payable 11,218
NON-TAXABLE HOUSING BENEFITS

The following housing benefits shall not be considered taxable fringe benefits (Section 33 – tax
code):
1. Housing unit inside or adjacent (within 50 meters) from the
perimeter of the business premises.

 A housing unit which is situated “inside or adjacent” to the premises

of a business shall not be considered as a taxable fringe benefit.
 A housing unit is considered adjacent to the premises of the business
if it is located within the maximum of fifty (50) meters from the
perimeter of the business.
 A housing unit shall be considered to be for the “convenience or
advantage of the employer” if the same is within fifty (50) meters
from the perimeter of the business premises and the employees are
required to be on-call due to the nature of the employer’s operation
(BIR Ruling No. DA-635-04, December 15, 2004 issued to Foreign
Holiday Philippines, Inc. and BIR Ruling No. DA-241-04, May 4 , 2004
issued to Sohbi Koghei (Phils.), Inc.)
2. Temporary housing for a stay in the housing
unit for three (3) months or less.
3. Housing privilege of military officials of the
Armed Forces of the Philippines
OTHER FRINGE BENEFITS

Under this category, the value of the benefit representing the amount given or paid by the
employer should also be the “monetary” value of the benefit.
Expense account

Expense account may be taxable as fringe

benefits or treated as compensation income
depending on the nature of the expense account
provided to employees.
Taxable as fringe benefits
 Expense accounts paid for or reimbursed by employer
(such as personal expenses like groceries) are taxable
fringe benefits. However, if the expenses were receipted
in the name of the employer and do not partake the
nature of “personal expenses” attributable to
employees, such expense accounts should not be
taxable as fringe benefits.
 It should neither be included in the determination of
the individual taxpayers’ taxable compensation income.
Not treated as taxable fringe benefits
 Representation and transportation allowance given
regularly (Page 163) on a monthly basis are not taxable
fringe benefits but taxable as compensation income
subject to basic tax under Sec. 24 (A) of the tax code.
 2. Expenses for Foreign Travel
 Expenses in connection with attending business meeting or
convention (inland travel expenses) such as food, beverages and
transportation during foreign travel (except lodging cost in a hotel) at
an average of $300 per day are considered reasonable expenses and
shall not be subject to fringe benefit tax.
 The cost of economy and business class airplane ticket shall be
subject to fringe benefit tax. However, 30% of the cost of first class
airplane ticket shall be subject to fringe benefit tax.
 Traveling expense of family members of employees paid for by
employer shall be treated as taxable fringe benefit.
3. Educational assistance to the employee or his dependents

 In general, cost of educational assistance is treated as taxable

fringe benefit except:
a. When the study is directly connected with
the employer’s trade, business or profession and there is 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.
b. When given to employees dependents
through a competitive scheme under scholarship program of the
company.
 4. Membership dues or fees of employees borne
by employer in social and athletic clubs or other
similar organizations.
 5) Life or health insurance and other non-life
insurance premiums are treated as taxable
benefits.
The following shall not be treated as taxable fringe benefits:

a. Fringe benefits which are authorized and exempted from income tax
under Tax Code or under any special law (Page 155).
b. The fringe benefit is required by the nature of or necessary to the
trade, business or profession of the employer (Page 155).
c. When the fringe benefit is for the convenience or advantage of the
employer (Page 166).
d. Contributions of the employer for the benefit of the employee to
retirement, insurance and hospitalization benefit plans.
e. Benefits given to rank and file employees.
f. Non-taxable housing benefits discussed in Page 170.
g. Other non-taxable benefits discussed in this chapter.
Use of Craft and Helicopters

 The Use of aircraft and helicopters owned and

maintained by the employer is not a taxable
fringe benefit but treated as business expense
of the employer.
 FILING OF RETURNS

 The tax return shall be filed and tax paid/remitted not later
than the last day of the month following the close of the
quarter during which withholding was made (TRAIN LAW RR
11-2018).
ILLUSTRATION 5:
 Assume an employer furnished cash fringe benefit subject
to fringe benefit tax amounting to P975, 000 during the
first quarter of 2020 taxable year.
 What should be the appropriate journal entry in the books
of the employer?
 Answer:
Fringe benefit expense.
P975, 000
(monetary value)
 Fringe benefit tax expense
P525, 000
(P975, 000/65%) x 35%

Cash (GUMV) ***(P975, 000/65%). P1, 500,000

***The P1, 500,000 grossed-up monetary value is composed of P975, 000 paid to the
employee and P525, 000 paid/remitted to the BIR.
BIR Form No. 1603Q
P3.1. Determine if the following incomes are subject to basic tax, fringe benefit tax or
exempt from tax by putting a check mark in the column provided below. If the value of
the benefit is provided, indicate the correct amount.

AMOUNT SUBJECT TO SUBJECT TO EXEMPT

FBT BASIC TAX
1. Officer’s expense P120,000
account not subject
to liquidation
 
2. Officer's expense 80,000
account subject to
liquidation
 
3.Personal expenses 50,000
of the company
officers, paid for or
reimbursed by the
company- employer
 
4. Annual uniform 6,000
allowances granted
P3.1. Determine if the following incomes are subject to basic tax, fringe benefit tax or
exempt from tax by putting a check mark in the column provided below. If the value of
the benefit is provided, indicate the correct amount.

AMOUNT SUBJECT TO SUBJECT TO EXEMPT

FBT BASIC TAX
5. Housing benefits 360,000
of officials of the
Philippine Army
 
6. Housing benefits 250,000
of officials of a
domestic
corporation
 
7. Housing unit 45,000
furnished to an
employee, where said
unit was situated
inside or adjacent to
8. the premises of
the business
P3.1. Determine if the following incomes are subject to basic tax, fringe benefit tax or
exempt from tax by putting a check mark in the column provided below. If the value of
the benefit is provided, indicate the correct amount.

AMOUNT SUBJECT TO SUBJECT TO EXEMPT

FBT BASIC TAX
9. Monetized unused 15,000
vacation leave credits
not exceeding 10
days.
 
10. Household 60,000
personnel benefit
by an officer of a
domestic
corporation.
 
11. Annual medical 1,500
cash allowance to
dependents
P3.2. In 2020, Garcia Realty Corporation paid P325,000 to Wilderness Resort,
representing vacation expenses of Mike, an executive of Garcia company. Answer the
following?

a) Is this a taxable fringe benefit?

b) How much is the tax base of the fringe benefit?
c) Should the taxable fringe benefit be included in the returnable income of Mike for
the year?
d) How much is the fringe benefit tax collected?
e) When is the fringe benefit tax remitted?
f) Assuming Mike is a rank and file employee, is the fringe benefit subject to fringe
benefit tax?
P3.3. LJ is a resident citizen employed by Chris Sports, Incorporated.
He received the following from his employer during 2020:

Basic compensation income P900,000

13th month pay 75,000
P3,000 monthly transportation allowance 36,000
Productivity incentive pay 10,000
Christmas bonus 25,000
Uniform allowance 16,000
Actual medical allowance 10,000
Rice subsidy 36,000
Required: Determine LJ's taxable net income
P3.4. Assume the same data in P3.3 except that the productivity
incentive pay amounted to P20,000.
Required: Determine LJ's taxable net income
P.3.5 A rank and file employee received the following compensation and benefits
received during 2020:

Basic compensation income P540,000

13th month pay 45,000
Mid-year bonus 22,500
Christmas gift 10,000
Uniform allowance 7,500
Actual medical allowance 15,000
Medical allowance to dependents 2,000
Rice subsidy 18,000
Monetized vacation leave for 12 days (P2,000/day) 24,000
Required: Determine the employee's taxable net income.
P3.6. SPECIAL RULES IN COMPUTING THE MONETARY VALUE OF
FRINGE BENEFITS

1. XYZ Co. leased a residential house for the use of its branch manager. The rent per
agreement was PI 65,000 per month.

a) How much is the monetary value of the benefit for the month?

b) How much is the fringe benefit tax for the month?

2. XYZ Company owns a residential area which is assigned to its officer for use. The
following data pertain to the residential property

Cost P5,000,000

Fair market value per BIR 4,500,000

Fair market value per Assessor’s office 3,000,000

c) How much is the monetary value of the benefit for the quarter?

d) How much is the fringe benefit tax for the quarter?

P3.6. SPECIAL RULES IN COMPUTING THE MONETARY VALUE OF
FRINGE BENEFITS

3. Using the same data in no. 2, and assuming that XYZ Company transferred the
ownership of the residential property in the name of the officer, answer the following:
a) How much is monetary value of the benefit?
b) How much is the fringe benefit tax?

4. Chen Company purchased a motor vehicle for the use of its manager. The vehicle
was registered in manager's name. The cost of the vehicle was P1,200,000 used partly
for personal purposes and partly for the benefit of the company. Compute the
following.
c) Monetary value of the benefit
d) Fringe benefit tax
P3.6. SPECIAL RULES IN COMPUTING THE MONETARY VALUE OF
FRINGE BENEFITS

5. Using the same data in no. 4 and assuming that Chen shouldered only a portion of
the cost of the car in the amount of P800,000 and the balance paid by the manager,
determine the following:
a) Monetary value of the benefit
b) Fringe benefit tax
 
6. Using the same data in no. 4 and assuming that Chen purchased the car in the
name of the manager on installment basis. Determine the following:
c) Monetary value of the benefit
d) Fringe benefit tax
TRUE OR FALSE
Write True if the statement is correct, otherwise, write False

1. A fringe benefit is any goods, service or other benefits furnished or granted by an

employer in cash or in kind, including basic salaries to individual employees.
2. A fringe benefit which is subject to the fringe benefit tax is taxable income of the
employee.
3. A fringe benefit which is not subject to the fringe benefit tax is taxable income of
the employee.

4. Fringe benefits subject to fringe benefit tax cover only those fringe benefits given
or furnished to a managerial or supervisory employee.
5. Fringe benefit tax shall be treated as a final income tax on the employee withheld
and paid by the employer on a quarterly basis.
TRUE OR FALSE
Write True if the statement is correct, otherwise, write False

6. The grossed-up monetary value of the fringe benefit is the actual amount received by the
employee.

7. The grossed-up monetary value of the fringe benefit shall be determined by dividing the
monetary value of fringe benefit by the grossed up monetary value factor.

8. The person liable for fringe benefit tax is the employer, whether he is an individual,
professional partnership or a corporation regardless of whether the corporation is taxable
or not or the government and its instrumentalities

9. A managerial employee is one who is vested with powers of prerogatives to lay down and
execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge,
assign or discipline employees, or to effectively recommend such managerial actions.

10. The grant of fringe benefits to the employee is exempt from tax if such grant is required by
the nature of, or necessary to the trade, business or profession of the employer.
TRUE OR FALSE
Write True if the statement is correct, otherwise, write False

11. The amount on which the fringe benefit tax rate is applied is the monetary value of
the fringe benefit.
12. The amount on which the fringe benefit tax rate is applied is the amount
deductible by the employer from its gross income.

13. Grossed-up monetary value is reflected in the books of accounts as fringe benefit
expense and fringe benefit tax expense.
14. Failure to withhold the required tax on salary is collectible from the employer.
15. Failure to withhold the correct amount due to false information supplied by the
employee shall be the liability of the employee.