Chapter 11_fringe Benefits.pdf

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FRINGE BENEFITS  Pertain to other benefits or incentives on the top of the basic pay.  Pertain to goods or services or other benefits furnished by the employer to employee

RULES ON FRINGE BENEFITS

FRINGE BENEFIT TAX (FBT)

 Rank and File employees – considered not taxable under 13th month pay and other benefits  Managerial and Supervisory employee – excluded in compensation income but subject to fringe benefit tax

 Covers only the taxable fringe benefits of managerial and supervisory employees.  This is a final tax and not a regular compensation tax.

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EXEMPT FRINGE BENEFITS

CONVENIENCE AND NECESSITY

 Exempt under special laws (SSS, PHIC,HDMF)  Required by the nature of, or necessary to the trade, business or profession  Benefit given for the convenience of the employer  Benefits given to rank and file  De minimis benefits

 It is an expense necessary for the trade  Furnished principally for the employer’s convenience  It is an ordinary expense  Personal advantage of the employee is mere incidental.

EXAMPLES OF CONVENIENCE

EXAMPLES OF CONVENIENCE

NECESSITY

AND

 Scholarship program for advancement  Car incentives to medical doctors to expedite presence in emergency cases  Free transportation services working at distant places  Mobile phone allowances  Sleeping quarters

   

NECESSITY

AND

Helicopters assigned to fishing employees Personal aircraft to CEOs Car incentives to travelling salesmen Housing units near the employer’s place

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FRINGE BENEFIT TAX

FBT COMPUTATION (PROCEDURE 1)

 Final tax withheld by the employer at source  Employee need not report the fringe benefits in his income tax return  Tax upon managerial and supervisory employee  Paid by the employer  Due quarterly (every 10th /15th of month after every quarter) through BIR Form 1603

 Determine the monetary value

FBT COMPUTATION (PROCEDURE 2)

FBT COMPUTATION (PROCEDURE 3)

 Determine the gross-up rate and fringe benefit tax rate

 Determine the grossed-up monetary value by dividing the monetary value by the gross-up rate.  Considered to be the deductible fringe benefit expense of the employer.

 If tax rate is 32%, then gross up is 68%

 This refers to the taxable amount of benefits and it is presumed net of final tax.

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FBT COMPUTATION (PROCEDURE 4)

ILLUSTRATION 3

 Determine the fringe benefit tax by multiplying the fringe benefit tax rate to the grossed-up monetary value.

 1. 2. 3.

ANSWER TO ILLUSTRATION 3

EXAMPLES OF FRINGE BENEFITS

Determine the following: Taxable amount of fringe benefit income Fringe benefit tax Deductible fringe benefit expenses of the employer  Cash payment by employer for personal expenses of the manager (resident citizen) amounting to Php 170,000.

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Housing benefits



Expense account

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Vehicles of any kind

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Household personnel (maid & drivers)

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Interest

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Membership fees

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Expense for foreign travels

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Holiday and vacation expenses

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Educational assistance

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Life or non-health and other non-life insurance premiums

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VALUATION OF FRINGE BENEFITS

VALUATION OF FRINGE BENEFITS

 When paid in cash or paid for in cash the monetary value is the amount paid for in cash.  When benefit is paid in kind the monetary value is the FV or BV, whichever is higher

 When benefit is given in the form of free use a. the monetary value is 50% of rental value b. if no rental value, the depreciation value is used.  20 years for real properties  5 years for movable  When there is transfer of property, the whole FV or BV is the monetary value

ILLUSTRATION 4

ANSWER TO ILLUSTRATION 4

 Compute for the monetary value, FBT and deductible expense of the following benefits to a Filipino citizen: a. Free use of condo unit with a rental value of Php 500,000 b. Free use of residential unit with FMV of Php 2M c. Transfer of Toyota Fortuner with FMV of Php 1.2 M

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ILLUSTRATION 5

INDEPENDENT CONDITIONS

 Maribago Company purchased a residential condo unit with FMV of Php 2M, zonal value of Php 1.5 M and acquisition cost of Php 1.8 M. Assume the following independent conditions (on the next slide). The said benefit is furnished to a resident comptroller.  Compute for the monetary value, FBT and deductible expense during the year.

a. Rental income per month is Php 200,000 b. Assignment of condo unit c. Transfer of ownership

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RENTAL INCOME PER MONTH IS PHP 200,000    

Determine the monetary value Determine the grossed-up monetary value Compute for Fringe benefit tax Compute for the deductible fringe benefit expense

TRANSFER OF OWNERSHIP    

Determine the monetary value Determine the grossed-up monetary value Compute for Fringe benefit tax Compute for the deductible fringe benefit expense

ASSIGNMENT OF REAL PROPERTY    

Determine the monetary value Determine the grossed-up monetary value Compute for Fringe benefit tax Compute for the deductible fringe benefit expense

EXEMPT HOUSING PRIVILEGES  Military officials of AFP, PAF, PNP  Housing unit adjacent to the premises of the business (within 50 meters)  Temporary housing for an employee

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SPECIAL GUIDELINES ON EXPENSE ACCOUNT

DOCUMENTED PERSONAL EXPENSE

 Expense incurred by an employee but which are paid by his employer or paid by employee subject to reimbursement are taxable fringe benefits.  Monetary value is 100% paid by the employer

 When the receipt is under the name of employer and not a personal expense, it is considered a business expense.  Personal expenses of the employee such as groceries, personal consumption are taxable regardless of the name of the receipt.

ILLUSTRATION 6 – DETERMINE MV

ANSWER TO ILLUSTRATION 6

 The following expenses are liquidated by a managerial resident citizen:

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ILLUSTRATION 7  NJ Company purchased a heavy dump truck on installment amounting to Php 1.5 million inclusive of interest charges of Php 300,000. This equipment is placed in the name of their Chief Operations Officer.  Determine the MV, GMV and FBT of the above transaction during the year.

 Aircrafts including helicopters are deemed solely for business use  Monetary value is zero, not subject to fringe benefit tax.

ILLUSTRATION 7.1  Yachts whether owned and maintained or leased are presumed not for business use.

 The following properties owned by Hello Corporation and are used by Vice President Admin of the Bank. Determine the MV, FBT and deductible expense.

• Monetary value is acquisition cost multiplied by 5%.

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HOUSEHOLD EXPENSES

INTEREST ON LOAN AT LESS THAN MARKET VALUE

 Employee expenses borne by the employer for household personnel, salaries of maid, personal driver, association dues.

 The interest foregone by the employer representing the difference between 12% and the actual interest charged is a taxable fringe benefit.

Monetary value is the amount paid.

ILLUSTRATION 8

MEMBERSHIP FEES, DUES IN SOCIAL CLUBS

 Mr. NJ Chan lends Php 50,000 to its VP Operations with an interest rate of 5%.

 Monetary value is the amount paid.

 Compute for the MV, FBT and deductible expense.

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FOREIGN TRAVEL EXPENSES

HOLIDAY AND VACATION EXPENSE

 Business travels for attending business meetings and conventions are exempt, except.  Land travel expense – food, beverage, local transportation amounting to average of $300 or less is exempt  Economy and business class – exempt  First class ticket – 30% of ticket cost is presumed fringe benefit.

 These are taxable fringe benefit  The monetary value is the amount paid or shouldered by the employer

EDUCATIONAL ASSISTANCE TO THE EMPLOYEE OR HIS DEPENDENTS

LIFE OR HEALTH INSURANCE

 Generally taxable, except when incurred for the convenience of the employer’s business.

 These are taxable fringe benefits except the following insurance: a. Contributions of the employer for the benefit of the employee such as SSS, PHIC and HDMF b. Cost of premium of group insurance

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END OF PRESENTATION

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