Income taxation by valencia chapter 6 (fringe benefit tax)

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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27
Chapter 6: Fringe Benefits Tax

CHAPTER 6

FRINGE BENEFITS TAX
Problem 6 – 1 TRUE OR FALSE
1. True
2. False – These are benefits other than salaries.
3. False – Wage and salaries are not subject to reduction once given regardless of the
financial condition of the employer.
4. True
5. False – This a definition of fringe benefits not of fringe benefit tax.
6. False – The corporate income tax rate is 35% while the fringe benefit tax is a final tax
rate of 32%.
7. True, unless these are deminimis
8. False – FBT is a final tax of the employee.
9. True
10. True
11. True
12. True
13. True
14. True
15. True
16. False – Some housing fringe benefit is not subject to income tax. Ex. Temporary
housing for three months or housing benefit under the employer’s benefit rule.
Problem 6 – 2 TRUE OR FALSE
1. True

2. False – If in the name of an officer employee and reimburse or paid by the employer.
3. False - Fringe benefit which are necessary for the business and required for the convenience of the employer are not
subject to fringe benefit tax.

4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

True
False – Scholarship grants to employees not related to business is taxable.
False – These are among those exempted from fringe benefit tax.
False – Fringe benefits of rank-in-file employee, not mentioned in the exemptions, are
subject to income tax on wages but not subject to fringe benefit tax.
False – Rank-in-file employees’ fringe benefits are subject to income tax on wages.
True
True
False – medical allowance of P750 per semester
False – Daily meal allowance for overtime
True

Problem 6 – 3
1. A
7. A

2. B
8. C
3. B
9. C
4. D
10. A
5. D
11. D
6. D
12. D
Problem 6 – 4A
Case 1: C


28

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 6: Fringe Benefits Tax

Taxable
P240,000

Basic salary
13 th month pay
De minimis within ceiling (P1,500 x 12)
Other benefits - excess of de minimis (P24,000 –
P18,000)
Total

Nontaxable

.

P20,000
18,000
6,000

P240,000

P44,000

Note: The 13 th month pay and other benefits amount only to P26,000 (P20,000 + P6,000),
hence, nontaxable.
Case 2: D
All of the given items of income for MWE are not subject to income tax and within the
prescribed nontaxable ceiling.
Case 3: B
Total basic salary
Overtime pay
Hazard pay
Holiday pay
De minimis:
Nontaxable rice subsidy (P1,500 x 12)
Nontaxable clothing allowance
13th month pay and other benefits:
13 th month pay
Other benefits – excess of de minimis
Rice subsidy (P36,000 – P18,000)

Clothing (P20,000 – P4,000)
Total

Taxable
P108,000
30,000
2,000
1,000

Nontaxable

P18,000
4,000
Nontaxable
P 9,000
18,000
3,000

13,000
P154,000

30,000
P52,000

Taxable
P96,000
20,000

Nontaxable

Case 4: Not in the choices
Total basic salary
Overtime pay
De minimis:
Nontaxable rice subsidy (P1,500 x 12)
13th month pay and other benefits:
13 th month pay
Other benefits – excess of de minimis
Rice subsidy (P24,000 – P18,000)
Rent income
Interest income (P4,000/80%)
Total

P18,000
Nontaxable
P 8,000
6,000

14,000
60,000
5,000
P181,000

.
P32,000

Note: A MWE with other income subject to normal tax is disqualified from tax exemption. The
interest income is subject to final income tax. It should be included as part of the taxable
income as required by the question because such income is taxable. The question did not ask
for income subject to normal tax only.

Problem 6 – 4B
Case 1: Housing benefits
1.
A
GMV (P6,000,000 x 5% x 50%)/68%

P220,588


29

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 6: Fringe Benefits Tax

Multiplied by FBT rate
FBT
2.

32%
P 70,588

B
Down payment
Installments (P1,000,000 x 4 x 0.636)
Acquisition cost, excluding interest

P2,000,000
2,544,000

P4,544,000

GMV (P5,037,300 x 5% x 50%)/68%)
Multiplied by FBT rate
FBT
P2.00 difference is due to rounding off.

P185,195
32%
P 59,262

Present values of installment payments
Year:
1: (P1,000,000 x 0.8928)
2: (P1,000,000 x 0.7972)
3: (P1,000,000 x 0.7118)
4: (P1,000,000 x 0.6355)
Total
Add: Downpayment
Monetary value

P 892,800
797,200
711,800
635,500
P3,037,300
2,000,000
P5,037,300

Case 2: Motor vehicle benefits

1.

2.

A
GMV [(P1,000,000/5) x 50%]/68%
Multiplied by FBT rate
FBT

P147,059
32%
P 47,059

C
GMV [(P1,000,000/5)/68%]
Multiplied by FBT rate
FBT

P294,118
32%
P 94,118

Correction of Page 270: Motor vehicle formula No. 3:
3. Purchase of car on installment basis,
the ownership of which is place in the
name of the employee.
Not “employer”

MV = AC/5
Where:

AC = Acquisition cost, exclusive of interest

Problem 6 – 5
1. C = P170,000
Monetary value of FB (P80,000/32%) x 68%

P170,000

2. B = P250,000
Grossed-up monetary value (P80,000/32%)

P250,000

3. D = P – 0 A fringe benefit tax is not an income tax of
employer.
Problem 6 – 6
A
Deductible from business income (P136,000/68%)

P - 0 -

P 200,000


30

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 6: Fringe Benefits Tax

Problem 6 – 7
A
None, because fringe benefit tax is a final tax and no deduction is allowed from gross
compensation income except personal exemptions and health or hospitalization insurance
actually paid if the family income does not exceed P250,000.
Problem 6 – 8

D

Zero. No Fringe benefit tax is to be imposed on fringe benefit of rank-in-file
employee. Mr. Estrada is a company messenger. His fringe benefit is subject to
withholding tax on wages.
Problem 6 – 9
C
Fringe benefit tax (P102,000/68%) x 32%
Income tax:
Net income before tax (P1,750,000/70%)
Add: Fringe benefits charge to miscellaneous expense
Total
Multiplied by corporate income tax rate
Corporate income tax
Less: Income tax already paid (P2,500,000 – P1,750,000)
Tax recovered by the government

P48,000
P2,500,000
102,000
P2,602,000
30%

P 780,600
750,000

30,600
P78,600

Note: The fringe benefit tax expense is not deductible because the related
withholding tax was not withheld and paid until the tax evasion was discovered by
the BIR.
Problem 6 – 10
B
Acquisition cost = fair market value (higher than zonal
value)
Monthly fringe benefit [(P2,040,000 x 5% x 50%)/12]/68%
Problem 6 – 11

P2,040,000
P 6,250

A

Zero. Jean’s used of the condominium is not for her benefit but for the benefit of B
Corporation as the former conducts investigation for inventory fraud.
Problem 6 – 12
A
Grossed-up monetary value (P17,000 + P6,800)/68%
Multiplied by FBT rate
Problem 6 – 13
FB expense (P476,000 x 75%)/68%

P30,000
32%
P 9,600
P525,000

Problem 6 – 14
D
Fringe benefit tax (P16,320/68%) x 32%

P 7,680

Problem 6 – 15
C
Fringe benefit tax (P57,800/68%) x 32%

P27,200

Problem 6 – 16
B
1.
D
There is no FBT for rank-in-file employee.
2.


31

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 6: Fringe Benefits Tax

Benchmark interest (P88,400 x 12%)
Less: Actual interest charge (P88,400 x 3%)
Difference

P10,608
2,652
P 7,956

FBT (P7,956/68%) x 32%

P 3,744

Problem 6 – 17
Goma golf club
Baguio Country Club
Total taxable fringe benefits

B
P 68,000
340,000
P408,000

FBT (P408,000/68%) x 32%

P192,000

Problem 6 – 18
A

Hotel accommodation [($1,600- ($300 x 4)] x P50/$1
Personal expenses ($280 x P50/$1)
Total amount of fringe benefits

P 20,000
14,000
P 34,000

Fringe benefit expense (P34,000/68%)

P 50,000

Problem 6 – 19
C
Fringe benefit tax [(P54,400 x 30%) / 68%] x 32%
Problem 6 – 20
B
Fringe benefit expense (P408,000/68%)
Problem 6 – 21

P 7,680
P600,000

A

Zero. The scholarship was obtained through competitive examination.
Problem 6 – 22
1. D
None. Exempt because the educational benefit is related to work. (Employer’s benefit
rule)

2.

B
P65,280 – Only the monetary value is deductible because the benefit is tax-exempt.

Problem 6 – 23
1.
Rice subsidy
Nontaxable uniform and clothing allowance
Employees achievement award
Nontaxable medical allowance to dependents (P125 x 12)
Laundry allowance
Actual medical benefits
Total nontaxable fringe benefits
2.

Car
Uniform and clothing allowance (P6,800 – P3,000)
Medical allowance to dependents (P8,500 – P1,500)
Total monetary value
Divided by grossed-up rate
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax

P12,000
3,000
10,000
1,500
3,600

10,000
P40,100
P214,000
3,800
7,000
P224,800
68%
P330,588
32%
P105,788


INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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32
Chapter 6: Fringe Benefits Tax

Note: The new BIR interpretation is that the excess of the actual fringe benefit given
shall be taxable after deducting the maximum de – minimis threshold amount.
Problem 6 – 24
1.
Housing benefit (P12,240 x 110%)
Lions Club membership fee
Total
Divided by grossed-up rate
Taxable amount of FB

P13,464
20,400

P33,864
68%
P49,800

2.

Fringe benefit tax (P49,800 x 32%)

P15,936

3.

Violeta Vicente cannot deduct the FBT from her gross income.
San Miguel Corporation, however, can deduct the entire amount
of grossed-up monetary value amounting to P49,800 from the
gross income of the corporation as fringe benefit expense.

Problem 6 – 25

1.

Assuming that Mr. Wong is an alien not engaged in trade or business in the
Philippines, the determination of fringe benefit tax due would involve the
following computations:
Total value of fringe benefits
Divided by GMV divisor
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax due

P112,500
75%
P150,000
25%
P 37,500

2. Assume that Mr. Wong is a Filipino employed as manager of an offshore banking
unit of a foreign bank. The determination of the fringe benefit tax due would be
as follows:
Total value of fringe benefits
Divided y GMV divisor
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax due

3.

P112,500
85%
P132,353
15%
P 19,853

Assuming that Mr. Wong is a Filipino employed as manager of Clark Special
Economic Zone (CSEZ), the computation of the fringe benefit tax due based on
25% fringe benefit tax would be:
Total value of fringe benefits
Divided by GMV divisor
Grossed-up monetary value
Multiplied by FBT rate

Fringe benefit tax due

Problem 6 – 26
1.
Minimum wage earner
Taxable compensation income
The MWE qualifies for tax exemption because his

P112,500
75%
P150,000
25%
P 37,500

P - 0 -


33

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 6: Fringe Benefits Tax

13 th month pay and other benefits does not exceed
P30,000, computed as follows:
13 th month pay
Rice subsidy (P24,000 – P18,000)
Actual hospitalization payments (P15,000 – P10,000)
Clothing allowance (P5,000 – P4,000)

13 th month pay and other benefits – nontaxable
2.

Not a minimum wage earner
Gross compensation income
Less: SSS premium contribution
Philhealth premium contribution
Taxable compensation

P 9,100
6,000
5,000
1,000
P21,100
P109,200
P2,400
3,000

5,400
P103,800

Note: Temporary housing for 3 months is not taxable.
Problem 6 – 27
1.
Minimum wage earner
Gross compensation income
Less: SSS premium contribution
Philhealth premium contribution
Net taxable compensation
2.

Not a minimum wage earner
Gross compensation income
Less: SSS premium contribution
Philhealth premium contribution
Net taxable compensation

P128,000
P2,400
3,000

5,400
P122,600
P128,000

P2,400
3,000

5,400
P122,600

Notes:
1. The MWE is disqualified from tax exemption once he has other
other income subject to normal tax aside from his compensation
income.
2. The rent income is not included in the solutin amount because
the requirement is only taxable compensation income.
3. Nontaxable 13 th month pay and other benefits:
13 th month pay
Add: Excess DM:

actual hospitalization (P20,000 – P10,000)
food overtime allow (P1,500 – (P10,600/30) x 25% x
10)
Total nontaxable 13 th month pay and other benefits

P10,600
P10,000
617

P21,217

Problem 6 – 28
A.
1. Monetary value

B.

2.

FBT (P68,000/68%) x 32%

1.

Down payment
Add: Present value of P180,000 installment at 18% per
year:
Yr. 1: (P180,000 x 0.8475)
Yr. 2: (P180,000 x 0.7182)

10,617

P68,000
P32,000
P200,000
152,550
129,276


34

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 6: Fringe Benefits Tax

Yr. 3: (P180,000 x 0.6086)
Yr. 4: (P180,000 x 0.5158)
Yr. 5: (P180,000 x 0.4371)
Acquisition cost
Divided by
Monetary value

C.

D.

E.

F.

109,548
92,844
78,678

562,896
P762,896
5
P152,579

2.

FBT (P152,579/68%) x 32%

P 71,802

1.

Monetary value (P816,000 x 150%)

P1,224,000

2.

FBT (P1,224,000/68%) x 32%

P 576,000

1.

Annual monetary value = annual depreciation (P1,020,000/25)

P

40,800

2.

FBT (P40,800/68%) x 32%

P

19,200

1.

Monetary value (P244,000 x 50%)

P 122,000

2.

FBT (P122,000/68%) x 32%

1.

Monetary value (P1,360,000 x 5% x 50%)

P 34,000

2.

FBT (P34,000/68%) x 32%

P 16,000

P

57,412

Problem 6 – 29
1.

2.

FBT – condominium [(P8,000,000 x 5% x 50%)/68%] x 32%
FBT – car:
Down payment
Present value of P240,000 yearly installment at 12%
(P240,000 x 3.605)
Acquisition cost
Divided by
Monetary value
FBT – car (P233,040/68%) x 32%
Journal entries:
FB expense
Cash / FBT payable
FB expense
Car
Cash / FBT payable

P

94,118

P 300,000
865,200
P1,165,200
5
P 233,040
P 109,666
94,118
94,118
1,274,866
1,165,200
109,666