16. Fringe benefit tax - Lecture notes 16 PDF

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TAXATIONFAR EASTERN UNIVERSITY – MANILAFRINGE BENEFIT TAX (1601)GROSS TAXABLE COMPENSATION INCOME**Classification of gross taxable compensation income Regular compensation** The fixed amount of remuneration received by the employee every payroll period2. Supplemental compensationOther performance ba...

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TAXATION FAR EASTERN UNIVERSITY – MANILA FRINGE BENEFIT TAX (1601) GROSS TAXABLE COMPENSATION INCOME Classification of gross taxable compensation income 1. Regular The fixed amount of remuneration received by the employee every payroll period compensation 2. Supplemental Other performance based pay to employees with or without regard to the payroll period compensation 3. 13 th month pay and A residual category which generally includes all other taxable benefits other benefit 1. The amount of 13th month pay and other benefit not exceeding P90,000 is an exclusion from gross income. 2. The amount of 13th month pay and other benefit exceeding P90,000 is considered as supplemental compensation FRINGE BENEFIT Fringe benefit The following fringe benefit are taxable:

Rank and file employees Managerial employees

Supervisory employees

Final tax Imposed on the grossed-up monetary value Withheld by employer

Tax base and tax rate

An employee’s benefit supplementing a money wage or salary Any good and other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries to employees (except rank and file) such as, but not limited to the following: 1. Housing 2. Expense account 3. Vehicle of any kind 4. Housing 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 the actual (12% benchmark rate) 6. Membership fee to professional organization (social and athletic club or other similar organizations) 7. Expenses for foreign travel 8. Holiday and vacation expense 9. Educational assistance to the employee or his dependents 10. Life or health insurance and other non-life insurance premium or similar amounts in excess of what the law allows All employees who are holding neither managerial nor supervisory position. One who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees. Those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgment. Fringe benefit tax is a final tax Fringe benefit tax is imposed on the grossed-up monetary value of fringe benefits furnished granted or paid by employer to employee except rank and file employees. Fringe benefit tax shall be treated as a final tax on the employee, which shall be withheld and paid by the employer on a calendar quarterly basis. Tax Treatment of Fringe Benefit Fringe benefits Part of Taxable Subject to Basic Tax Subject to given to: Compensation and Creditable FBT Income Withholding Tax on Compensation Rank and file Yes Yes No Managerial or No No Yes supervisory Fringe benefit Employees other NRA-NETB Tax base and than rank and file Rate Monetary value PXX PXX 65% 75% Divide by Gross monetary value factor Grossed-up PXX PXX monetary value X FBT Rate 35% 25% Fringe Benefit Tax Pxxx Pxxx

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De minimis benefit Examples: The foregoing lists of de minimis benefits are all inclusive. Meaning, all other benefits given by employers which are not included in the enumeration (A-K) on the right side shall not be considered de minimis benefits (RR 8-2012; RR 1-2015)

De minimis benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees

*RR 5-2011 (The grant of meal allowance, if not for overtime work or night/graveyard shift, shall cease to be considered as de minimis benefit and should be subject to income tax.) Tax exempt meals and lodging: 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”.

Small value offer by employer to his employee, means of promoting the health, goodwill, contentment or efficiency of his employee. The following are the example of De Minimis Benefit: a. Monetized unused vacation Private employees: Vacation leave – exempt leave credits of private up to 10 days employees Vacation leave 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 shall be subject to basic and creditable withholding tax on compensation income (R.R. No. 8-2000) b. Monetized unused vacation Government employees: Vacation and Sick and sick leave credits of leave are always tax exempt regardless of the government employees number of days c. Medical cash allowance to Not exceeding P750 per semester or P125 per dependents of employees month d. Rice subsidy P1,500 or one sack of 50-kg rice per month amounting to not more than P1,500 e. Uniforms and clothing Not exceeding P5,000 per annum (R.R. 8-2012) allowance f. Actual medical assistance, Not exceeding P10,000 per annum e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check up, maternity assistance, and routine consultation g. Laundry allowance Not exceeding P300 per month h. Employee achievement In the form of tangible personal property other awards under an established than cash or gift certificate with an annual written plan which does not monetary value not exceeding P10,000 discriminate in favor of highly paid employees (e.g. for length of service or safety achievement) i. Gifts given during Christmas Not exceeding P5,000 per employee per annum and Major Anniversary Celebrations j. Daily meal allowance for Not exceeding 25% of the basic minimum wage overtime work* on a per region basis. (RR. 5-2011) k. Benefits received by virtue of Not exceeding P10,000 per employee per annum Collective Bargaining (R.R. 1-2015) Agreement (CBA) and productivity incentive scheme It does seem more likely that the “productivity incentive scheme” could refer to something that is not captured under the “productivity incentives and christmas bonuses” covered by the P90,000 ceiling. The term “Productivity Incentives Program (PIP)” was defined as a formal agreement established by the labor-management committee containing a process that will promote gainful employment, improve working conditions and result in increased productivity, including cost savings, whereby the employees are granted salary bonuses proportionate to increases in current productivity over the average for the preceding three (3) consecutive years. The agreement shall be ratified by at least a majority of the employees who have rendered at least six (6) months of continuous service.

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Basic Rules on Fringe Benefit and Fringe Benefit Tax are:

Fringe benefit given to rank and file employee (whether under a collective bargaining agreement or not) is not subject to fringe benefit tax.  Fringe benefit given to a supervisory or managerial employee is subject to fringe benefit tax.  De minimis benefit, whether given to rank and file or to a supervisory or managerial is not subject to the fringe benefit tax.  Any excess in de minimis benefit, whether given to rank and file or to a supervisory or managerial part of other 13 th month pay and other benefits. Basic Rules on the Imposition of Fringe Benefit tax Fringe benefit (Supervisory and Fringe benefit (Rank and File) Managerial) De minimis? De minimis? No subject to basic and creditable No subject to fringe benefit tax withholding tax 

Yes conforming to the ceiling of De minimis benefits?  Nopart of other 13th month pay and other benefits.  Yes Exempt from tax and creditable withholding tax

Employer Gives Beyond the Ceiling

 

13th Month Pay Other Benefits

and

 

Yes conforming to the ceiling of De minimis benefits?  No part of other 13th month pay and other benefits.  YesExempt from tax and creditable withholding tax

The amount of de minimis benefits conforming to the ceilings herein prescribed shall not be considered in determining the P90,000 of other benefits. However, if the employer pays more than the ceiling, the excess shall be taxable to the employee if such excess is beyond P90,000. (First) Not over P90,000 (13 th month pay and other benefits) Exclusion from gross income In Excess of P90,000 Inclusion from gross income

“Other    

Valuation benefits

of

fringe

Deductible expense of the employer

benefits” include: 1. Christmas bonus 2. Productivity incentive bonus 3. Loyalty awards 4. Gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices RR 3-2015, emphasized that this exclusion from gross income is not applicable: 1. Self-employed individuals; and 2. Income generated from business  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.  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.  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 fringe benefit tax.

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PROBLEMS Problem 1: In the blank provided for, indidicate whether the specified benefit or remuneration is an item of: RC- regular compensation FB – fringe benefit SC – supplemental compensation OB – 13th month pay and other benefits DM – de minimis benefits EB – exempt or non-taxable benefits

Benefits or remuneration

Rank and file employee

Manager Supervisor

1

Basic salary

RC

RC

2

Commissions

SC

SC

3

Emoluments and honoraria

SC

SC

4

Stock bonus

SC

SC

5

Medical benefits

DM

DM

6

Excess de minimimis benefits

OB

fb???? (oB)

7

OB

OB

8

13th month pay Excess 13th month pay and other benefit over P90,000

SC

SC

9

Used sick leave credit

RC

RC

10

Monetized unused sick leave-private

OB

fb???? (oB)

11

Monetized unused sick leave-government

12

Monetized unused vacation leave- private

EB EB and ob excess

EB eb and Fb??? (0b)

13

Monetized unused vacation leave-government

EB

EB

14

Christmas bonus - government

OB

OB

15

Christmas gift - private

DM

DM

16

Anniversarry gift

DM

DM

17

Rice allowance

DM

DM

18

Uniform allowance

DM

DM

19

Fixed monthly RATA - government

RC

RC

20

Additional compensation allowance-government

OB

OB

21

EB

EB

22

Shuttle allowance for distant facilities Educational assistance to employee under employment bond

EB

EB

23

Profit sharing and performance bonus

SC

SC

24

Productivity incentive

DM

DM

25

Other employee personal expenses paid by employer

OB

FB

or

Problem 2: A Corp., a regional operating headquarters of a multinational corp. established in the Phils. Provided its employees cash and non-cash fringe benefits in 20X1 as follows: Total amount of fringe benefits P1,000,000 60% of said amount was given to rank and file employees 40% of said amount was given to corporate officers as follow: To resident citizens 45% To non resident aliens not engaged in business in the Phils 55% Required: The fringe benefits tax due is_____ Problem 3: (Journal Entry) The books of accounts of ABC Company showed the following: Fringe benefits expense P250,000 Fringe benefits tax expense 25,490 Required: 1. How much is the grossed-up monetary value of the fringe benefits given to managers and supervisors? 2. How much is the monetary value of fringe benefits given to managers and supervisors? 3. How much is the value of the fringe benefits given to rank and file? 4. How much is the total amount of deductions?

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Problem 4: Assuming that the employee is a private employee with a basic salary of P300 per day in a region with a minimum wage of P250 per day, indicate the annual limit and compute the annual excess de minimis benefits in the space provided for. De minimis benefits Limit Exces De minimis benefits Limit Excess 1. P8,000 monetized value of 15 0 6,000 6. P2,000 quarterly uniform 5,000 3,000 allowance days sick leave creadits 2. P8,000 monetized value of 15 7. P500 monthly laundry allowance 500 3,000 days vacation leave 3. P2,000 monthly rice allowance 1,500 6,000 8. P10,000 achievement award in 0 10,000 cash 4. P15,000 medical benefits 10,000 5,000 9. P4,000 anniversary gift and 5,000 4,000 P5,000 christmas ift 5. P1,000 monthly medical 125 10,500 10. P100 per meal for 158 62.5 5925 allowance to dependents of overtime days during the year employees

Expense Account Taxable as fringe benefits

Not taxable benefits

as

fringe

Not treated as taxable fringe benefits but taxable as compensation income under Sec. 24 (A)

Representation and Transportation Allowance (RATA)

1. Expenses incurred by employees but paid by employer 2. Expenses by employees reimbursed by employer 3. Personal expenses of the employee (e.g. groceries) paid for or reimbursed by employer whether or not receipted in the name of the employer Items 1 and 2 above are not taxable as fringe benefits when receipted in the name of the employer and do not partake the nature of personal expense attributable to employee Representation and transportation allowance given regularly on a monthly basis **BIR Ruling No. DA-250-04: pre-computed on a daily basis and which are paid to any employees while on assignment or duty. Such allowance should not be considered compensation subject to withholding tax.

For employees:

private

It's generally taxable as part of their gross compensation income. It doesn't matter if the allowance is fixed or not. It is, however, exempt from tax if the following conditions are present: 1.) The expenses are ordinary and necessary in the pursuit of trade, business or profession. 2.) The employee is required to account/liquidate for the said expenses.

For government employees:

The excess of the actual payments over the advances are taxable if they're not returned to the owner. Also, reasonable amounts of reimbursements or advances computed daily and paid to the employee while on assignment/duty don't need to be subjected to substantiation requirements and withholding. The RATA (Representation and Transportation Allowance) and PERA (Personnel Economic Relief Allowance) of government personnel are considered reimbursement for expenses incurred while performing government duties and are therefore income tax-exempt. RATA granted under section 34 of the General Appropriation Act to certain officials and employees of the government: 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,

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