Chapter 11: Discussion Questions
- Regular compensation – remuneration received by the employee payroll period.
- Supplemental compensation – other performance-based pays to employees with or without
regard to the payroll period.
- 13th-month pay and other benefits – incentive pays and all other taxable employee
benefits not classifiable as regular or supplemental. Exclusion is up to 90,000, and excess is added to
supplemental compensation.
- Management perquisite benefits - “perks” that are non-performance based
- Employee personal expenses shouldered - personal expense paid or shouldered by the employer, even
if receipted in the name of the employer
- Taxable de minimis - excess over the regulatory limits & other petty benefits not listed as de minimis
benefits
Under the current tax rules, items of fringe benefits in the strict sense are treated differently depending
on their nature:
Fixed–Regular compensation
Performance-based–supplemental compensation
Incentives–13th month pay and other benefits
Employer’s necessity or convenience –exempt
The fringe benefit tax covers only the taxable fringe benefits of managerial or supervisory employees.
When the employer incurs expenses which are purported partly for business and partly for employee’s
incentive, only 50% of the expense representing the employee incentive is subject to the fringe benefit
tax.
When an employer leases a residential unit for the use of the employee and the business, the rental
expense is deemed half business expense and half fringe benefit to the employee. When the employer
allows its employee to use business properties, the rental value or depreciation value of the business
property over the period of usage is deemed half business expense and half fringe benefit to the
employee.
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
granted under collective bargaining agreement
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
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
1. Final tax - withheld by the employer at source
2. Tax upon the fringe benefits of managerial or supervisory employees - fringe benefit tax is not a tax to
the employer, but a tax to the employee
3. Paid by the employer - as a final tax, the tax is presumed withheld at source and remitted by the
employer to the government
4. Grossed-up tax - the monetary value or the amount of fringe benefit realized or taken home by the
employee is effectively net of the final tax which is to be withheld at source.
5. Due quarterly - it is due for remittance quarterly based on the accounting period (fiscal or calendar)
selected by the employer
1. Determine the monetary value -the amount taken home or realized by the employee 2. Determine
the gross-up rate and FBT rate applicable - The gross-up rate is the complement of the FBT rate
3. Determine the gross-up monetary value -MV/Gross-up Rate
4. Determine the fringe benefits tax -Grossed-up MV / FBT Rate
1. Cash–amount paid for in cash
*Payment of rent of the residence of employee–50% of the payment
2.Kind–whichever is higher of the fair value or book value
3.Free use–depreciation value of the property -without transfer of ownership
-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.
- employee is a citizen/resident alien/non-resident alien engaged in trade or business within the
Philippines - thirty-five percent
- employee is a non-resident alien not engaged in a trade or business within the Philippines - Twenty-five
percent
*To determine the grossed-up value/tax base of the fringe benefit, the actual monetary value or the
actual amount of benefit furnished, granted or paid shall be divided by sixty-five percent (65%) subject
to 35% Fringe Benefit Tax (FBT) or the divisor shall be seventy-five percent (75%) subject to 25% FBT.
To record the fringe benefit transactions in the book:
Fringe benefit expense xx
Fringe benefit tax expense xx
Cash xx
Fringe benefit payable xx
Fringe benefit tax expense xx
Fringe benefit tax payable xx
