5. Fringe benefit tax PSBA PDF

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Summary

FRINGE BENEFIT TAXFringe Benefit Subject to the Fringe Benefits Tax (FBT)Fringe Benefit means 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 (Sec. 33[B]).Fringe benefits given to managerial or supervisory emp...

Description

FRINGE BENEFIT TAX Fringe Benefit Subject to the Fringe Benefits Tax (FBT) Fringe Benefit means 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 (Sec. 33[B]). Fringe benefits given to managerial or supervisory employees are generally subject to fringe benefits tax; while fringe benefits received by rank-and-file employees are subject to withholding tax on compensation. Tax Treatment of Fringe Benefit Fringe benefits given to: Part of Income Rank and file Managerial or supervisory

Taxable

Compensation

Yes No

Subject to Basic Tax and Creditable Withholding Tax on Compensation Yes No

Subject to FBT

No Yes

Note: Convenience of the employer rule : Whenever allowances such as free meals and lodging are furnished by the employer to his employee as condition for employment and for the convenience of the employer, the allowance furnished are not taxable to the employee.

Different Kinds of Employees Rank and File Employees are those who are not holding managerial or supervisory positions Managerial Employees are those who are 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. Supervisory Employees are 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 Benefits SUBJECT to Fringe Benefit Tax Examples: (LIVE HEHE HM) 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 the actual rate granted (12% benchmark rate); 6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs and similar organizations; 7. Expenses for foreign travel; 8. Holiday and vacation expenses; 9. Educational assistance to the employee or hid dependents; 10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. Fringe Benefits NOT SUBJECT to Fringe Benefit Tax Examples: 1. Fringe benefits which are authorized and exempted from income tax under the Tax Code or under any special law; 2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; 3. Benefits given to rank and file, whether granted under a collective bargaining agreement or not; 4. Benefits granted to employee which are required by the nature of, or necessary to the trade, business or profession of the employer; or 5. Benefits granted for the convenience or advantage of the employer;  In the case of meals, they must be furnished on the business premises of the employer.  In the case of lodging, the lodging must be furnished on the business premises of the employer and the employee must be required to accept such lodging as a condition of his employment in order for the employee to properly perform the duties of his employment. 6. De minimis benefits.

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De Minimis Benefits “De minimis” benefits which are exempt from the income tax on compensation as well as from the FBT shall be limited to facilities or privileges furnished or offered by employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of this employees. De minimis benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees The benefits given in excess of the maximum amount allowed as “de minimis” benefits shall be included as part of “other benefits” which is subject to the P90,000 ceiling. Any amount in excess of the P90,000 shall be subject to income tax, and consequently, to the withholding tax on compensation. 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 12015) a.

b.

Monetized unused vacation leave credits of private employees

d.

Monetized unused vacation and sick leave credits of government employees Medical cash allowance to dependents of employees Rice subsidy

e. f.

Uniforms and clothing allowance Actual medical assistance

c.

Private employees: Vacation leave – exempt up to 10 days

Note: 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) Government employees: Vacation and Sick leave are always tax exempt regardless of the number of days Not exceeding P1,500 per semester or P250 per month (or P3,000 per annum) P2,000 or one sack of 50-kg rice per month amounting to not more than P2,000, (or P24,000 per year) Not exceeding P6,000 per annum medical allowance to cover medical and healthcare needs, annual medical/executive check up, maternity assistance, and routine consultation. Not exceeding P10,000 per annum

g. h.

Laundry allowance Employee achievement awards under an established written plan which does not discriminate in favor of highly paid employees (e.g. for length of service or safety achievement)

Not exceeding P300 per month Employee achievement awards, e.g. for length of service, loyalty, safety achievement, etc. To be exempt – 1. The award must be in the form of tangible personal property other than cash or gift certificates; 2. The annual monetary value must not exceed P10,000; and 3. The award must be given under an established written plan which does not discriminate in favor of highly paid employees.

i.

Gifts given during Christmas and Major Anniversary Celebrations Daily meal allowance for overtime work*

Not exceeding P5,000 per annum

j.

Not exceeding 25% of the basic minimum wage on a per region basis. (RR. 5-2011) Note: *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”.

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k.

Note: a. b.

c.

Benefits received by virtue of Collective Bargaining Agreement (CBA) and productivity incentive scheme

Not exceeding P10,000 per employee per annum (R.R. 1-2015) Note: 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.

The abovementioned eleven (11) items are not only exempt from FBT but also from the withholding tax on compensation income of managerial, supervisory, and rank and file employees. The amount of “de minimis” benefits conforming to the abovementioned prescribed ceilings shall not be considered in determining the P90,000 ceiling of “13 th month pay and other benefits” excluded from gross income under Section 32 (B)(7)€ of the Tax Code. Provided that, the excess of the “de minimis” benefits over their respective ceilings shall be considered as part of th “13 month pay and other benefits” and the employee receiving it will be subject to tax only on the excess over the P90,000 ceiling. Minimum wage earners (MWEs) receiving “13 th month pay and other benefits” exceeding the P90,000 limit shall be taxable on the excess benefits over P90,000

Valuation of Taxable Fringe Benefits 1. 2.

If the fringe benefit is granted in money, or is directly paid for by the employer, then the value is the amount granted or paid for. If the fringe benefit is granted or furnished by the employer in property and ownership is transferred to the employee, then the value of the fringe benefit shall be equal to the fair market value (FMV) of the property. Note: The FMV of real property is the FMV determined by the BIR Commissioner or the FMV determined by the Provincial or City Assessor, whichever is higher.

3.

-

If the fringe benefit is granted or furnished by the employer in property but the ownership is not transferred to the employee (i.e., only the “usufruct” or the right to use the property is transferred), 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.

If the property is not owned by the employer but being leased out to the employer, the value of the fringe benefit is equal to the rental or lease payment of the employer. KIND OF FRINGE BENEFIT VALUATION Money Amount of money Non-cash property and ownership is Fair Market Value vs. Zonal Value (whichever is higher), if transferred applicable Non-cash property and ownership is not Depreciation value of the property transferred Exception to the rule: Benefit Rental use of the employee Non-cash property with transfer of ownership

Monetary Value Rental paid x 50% Real property: Acquisition cost vs FMV, whichever is higher

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Non-cash property transferred)

(ownership

is

not

Vehicle: Acquisition cost x 100% Depreciation value: Real Property, FMV÷ 20 years x 50% Vehicle, Acquisition cost ÷ 5 years x50%

Rate of Tax and Tax Base The final tax rates that apply to the gross-up monetary amount of the taxable fringe benefit with the corresponding grossup percentage are as follow: If the employer paying the fringe benefit is a regular domestic or resident corporation: Final Tax Gross-up rate Effective January 1, 2018 35% 65% If the taxpayer is subject to preferential rate: 1. NRA-NETB is subject to 25% of the gross up value of the benefits (i.e.: benefits / (100%-25%)) Fringe Benefits Tax is 35% effective January 1, 2018. Fringe benefits tax is paid by the employer and is considered a final tax. Accordingly, the fringe benefits received by the employee is no longer included in his taxable income subject to income tax. The employer is liable for FBT regardless of whether he is taxable or not since he is considered to be the withholding agent. The gross-up monetary value shall be an expense deductible on the part of the employer, computed as follows: Fringe benefit Tax base and Rate Employees other than rank and file NRA-NETB Monetary value PXX PXX ÷ Gross monetary value factor 65% 75% Grossed-up monetary value PXX PXX X FBT Rate 35% 25% Fringe Benefit Tax Pxxx Pxxx Imposed on the grossed-up monetary value Withheld by employer

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.

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) Limitation on deductibility: The benefit cannot be claimed as FRINGE BENEFIT EXPENSE for computation of the taxable income if the house/vehicle or depreciable asset is already subjected to DEPRECIATION and such is claimed as a deduction already. Note: 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.  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.

a. b.

The final tax is imposed whether the employer is an individual, partnership, or corporation, regardless of whether the employer is taxable or not, or the government and its instrumentalities. The fringe benefit tax is a tax of the employee. It is a tax on the income or benefit received by the employee. However, for convenience, the tax is imposed on the employer. The employer is required by law to pay the tax for and in behalf of the employee

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Tax Accounting for FB Expense and FB Tax 1.

The “fringe benefit expense” and “fringe benefit tax” shall constitute allowable deductions from gross income of the employer. Example: The fringe benefit expense of P35,000 and fringe benefit tax of P18,846 are deductible from gross income of the employer, and shall be taken up in the employer’s books of accounts as follows: Fringe benefit expense P35,000 Fringe benefit tax expense 18,846 Cash P53,846

2.

If the basis of the computation of the fringe benefits (FB) tax is the depreciation value of the property, only the FBT shall constitute a deductible expense of the employer. Provided, however, if the zonal value or FMV of the said property is greater than its cost subject to depreciation, the excess amount shall be allowed as a deduction from employer’s gross income as a fringe benefit expense.

Classification: 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 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 Benefits subject to final tax: 1. Housing Benefits Exception: 1. 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 2. 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. 3. 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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1.

business meetings – to be supported by official communication from business associates abroad indicating the purpose of the meeting 2. 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 4 a and b above. 5.

6.

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. 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: a. Regular fixed entertainment and representation allowance – this is treated as additional compensation to the employee b. 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 t...