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FRINGE BENEFITS

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Angela Claire Bunda

on 18 January 2016

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Transcript of FRINGE BENEFITS

vehicles
FRINGE BENEFITS
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 employee, such as, but not limited, to the following:

Housing
Expense Account
Vehicle of any kind
Household personnel
Interest on loan
at less than market rate
Membership fees, dues and other expenses
Expenses for foreign travel
Holiday & Vacation Exp.
Educational assistance
Life or health insurance
Rationale of Granting Fringe Benefits
Form of incentive
During financial difficulties, employer may
increase or discontinue previously given benefits
Additional remunerations for overtime and
separation pay do not include fringe benefits
Fringe benefit
Monetary burden imposed by the
sovereignty on fringe benefits
tax (FBT)
Should be remitted to the BIR
Final tax on the employee's
income
fbt base & rate
Based on the Grossed-up Monetary
Value (GMV) of fringe benefits
granted to employees, except rank
and file employees.
GMV= monetary value of fringe benefits
68%
GMv of fringe benefits
represents:
Whole amount of income including
the net amount of money or net
monetary value of property that
has been received
Amount of FBT due to employee
which has been withheld and paid
by the employer
FBT rate= 32%
classification of
fringe benefits
Rank-and-File
Supervisor/
Managerial
Allowances
regularly received in fixed amts.
taxable
nomal tax
taxable
final tax
of 32%
compensation
income
angela bunda received:

total salary= P 180 000
cash fringe benefits= P 136 000
for personal expense during the year.
Assuming:
She is a rank and file employee,

how much of her fringe benefits
would be subject to FBT?
She is a manager of the company,

How much is the related final tax
on her fringe benefits?
value received as fringe benefit
divided by gmv rate
gross up monetary value
multiplied by fbt rate
fringe benefit tax
P 136 000
68%
P 200 000
32%
P 64 000
fbt concept summary
operating expense of
the employer
grossed up monetary value x 32%
income of the managerial employees
employer is liable to withhold
income tax
tax expense of the managerial employee
Cash payment by employer for reimbursement of the personal expenses of a managerial employee= P 170 000
Taxable amount of fringe benefit income:
Fringe benefit tax:
Deductible fringe benefit expense of the employer:
Cash payment/ monetary
value of fringe benefit

Divided by GMV factor

Taxable amount of fringe
benefit
P 170 000


68%

P 250 000
Taxable amount of
fringe benefit

Multiplied by FBT rate

Fringe benefit tax
P 250 000


32%

P 80 000
Cash payment of
personal expenses

Fringe benefit tax

Deductible fringe benefit
expense
P 170 000


80 000

P 250 000
fringe benefits tax structure
Income
Grossed-Up Monetary Value
(Fringe benefit income of the manager)
= 100%

Distribution
Payment to Managerial Employee
(Cash/ Monetary Value of FB)
= 68%

Remittance to the BIR
(Final Tax Withheld)
= 32%

Journal entries: employer
Case 1: Employer correctly withheld corresponding tax:
Case 2: Employer did not withhold tax:
Payment of tax:
Fringe benefit expense
Cash
Withholding tax payable
Withholding tax payable
Cash
Fringe benefit expense
Cash
Income tax expense
Cash
100%
68%
32%
32%
32%
100%
100%
32%
32%
Importance of Fringe Benefit Tax
to recover the lost revenue of the government due to a previous malpractice of the employer and the managerial employee
Business income before fringe benefit
Less: Fringe benefit-managerial employee

Net taxable income
Less: Income tax (30%)

Net income after tax

Net tax recovered by the gov.
P 1 000 000

68 000


P 932 000
279 600

P 652 400
P 1 000 000

100 000


P 900 000
270 000

P 630 000
P 32 000



( 9 600)



P 22 400
Before FBT rule
Effectivity of FBT
Tax recov. by gov.
valuation of fringe benefits
Condition
Valuation
Rule 1: FB is granted in money, or directly
paid for by employer

Rule 2: FB is granted/ furnished in roperty
other than money and ownership is
transferred to employee

Rule 3: Same in no. 2, but ownership is
not transferred to employee
Value= amount granted/ paid for
Value= FMV of property
Value= depreciated value of property
Housing fringe benefits
HOUSING PRIVILEGE
FBT BASE
Lease of residential property for residential use

Assignment of residential property

Purchase of residential property on installment

Purchase of residential property, ownership is transferred
MV= 50% x rental payments


MV= [5% (FMV or ZV, whichever is higher)] x 50%

MV= 5% x AC x 50%

MV= FMV or ZV, whichever is higher
illustration 1: purchase and transfer
of real property
David Corporation purchased a residential property and
transferred it to Angela Claire Bunda, Chairman of the Board, as a fringe benefit. It has a fair market value of
P 6 000 000 and a zonal value of P 5 000 000.
Grossed-Up Monetary Value (6 000 000/68%)
Multiplied by FTB rate
Fringe benefit tax
P 8 823 529
32%
P 2 823 529
Fringe benefit expense
Residential Property
Cash
8 823 529
6 000 000
2 823 529
illustration 2: Assignment of real
property
Raymundo Corporation assigned its own residential
building as a residential house of its Marketing Manager, Angela Bunda, with a fair market value of P 6 000 000 and zonal value of P 5 000 000.
Monetary value [(6 000 000 x 5%) x 50%]
Divided by GMV factor
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax
P 150 000
68%
P 220 588
32%
P 70 588
Fringe benefit expense
Cash/FBT payable
70 588
70 588
Cost (book value) lesser than fair marker value
If cost (book value) FMV, excess amount should be amortized throughout the remaining estimated useful life of the residential property.
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Illustration:
Residential property assigned to the Manager of CutiePatootie Company:
Fair market value
Zonal value
Book value
Remaining estimated useful
life of the building
P 6 000 000
5 000 000
4 200 000
10 years
Fair market value
Less: Cost/Book value of real property
Excess amount
Divided by remaining useful life in years
Annual amortization
Divided by GMV factor
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax
P 6 000 000
4 200 000
P 1 800 000
10
P 180 000
68%
P 264 706
32%
P 84 706
Fringe benefit expense
Cash/FBT payable
84 706
84 706
Nontaxable housing
Housing privilege of the Armed Forces of the Philippines (AFP) officials
fringe benefit
A housing unit, situated inside or adjacent to the premises of a business or factory
Temporary housing for an employee who stays for 3 months or less
motor
motor vehicle privilege
Purchase of motor vehicle, name of employee
Cash given to employee for purchase of vehicle, name of employee
Purchase of car on installment, name of employee
Employer shoulders a portion of purchase price, name of employee
Employer owns a fleet of motor vehicles
Employer leases a fleet of motor vehicles
MV = AC
MV = cash received by
employee
MV = AC/5
MV = amount shouldered
by employer
MV = (AC/5) x 50%
MV = 50% x rental payment
fbt base
Illustration: Purchase of car on installment basis
Gryffindor Company purchased a car by installment to be
given as fringe benefit of its president.
Cash price=
Annual installment=
Car registration fee=
P 1 650 000
P 400 000 w/in 5 yrs (P 2M)
P 50 000
Fringe benefit tax would be:
Cash price of the car
Add: Other AC- registration fee
Total acquisition costs
Divided by
Monetary value
Divided by GMV factor
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax
P 1 650 000
50 000
P 1 700 000
5
P 340 000
68%
P 500 000
32%
P 160 000
Aircraft
Yacht
and
use of aircraft (including helicopters) owned & maintained by employer:
treated as business use
not subject to fringe benefit tax
use of yacht whether owned/maintained or leased by employer:
treated as taxable fringe benefit
value of FB: based on the depreciation of a yacht at an est. useful life of 20yrs
Slytherin Corporation owns and maintains a yacht,
a helicopter and an airplane which are used by its 10 members of the board of directors for pleasure and business purposes.
Yacht
Helicopter
Airplane
Acquisition Cost
P 27 200 000
6 800 000
13 600 000
Estimated life
20 years
10 years
10 years
Annual depreciation- yacht (P27 200 000/20)
Divided by GMV factor
Grossed-up monetary value
Multiplied by FBT rate
Annual fringe benefit tax
Divided by BOD member
Annual fringe benefit tax for each director
P 1 360 000
68%
P 2 000 000
32%
P 640 000
10
P 64 000
Expense account
Expenses incurred by employee but paid by employer.

Expenses paid by employee but reimbursed by employer. However, if duly receipted for and in the name of employer and do not partake the nature of a personal expense of EMPLOYEE, same shall not be subject to FBT.

Personal expenses of employee (groceries for personal consumption of employee) paid for and reimbursed by employer whether of not duly receipted for in the name of employer.
Representation & transportation allowances (in fixed amounts & regularly received as part of monthly compensation income)- taxable compensation income subject to WTW
Hogwarts Corporation allows its Chief Operation Officer, Ms.
Rowena Ravenclaw, to incur expenses subject to reimbursement.
Light & Power (75%=company)
Grocery items (Ms.Ravenclaw)
Clothing (Ms. Ravenclaw)
Gasoline of car company
Transpo- business trip
P 8 000
15 000
5 000
3 000
12 000
How much of her reimbursable expense would be subject to FBT?
Light &Power (P 8000 x 25%)
Grocery
Clothing
Total
P 2 000
15 000
5 000
P 22 000
Fringe benefit tax
Total fringe benefits
Divided by GMV factor
Grossed-up monetary value
Multiply by tax rate
Fringe benefit tax due
P 22 000
68%
P 32 353
32%
P 10 353
household expenses
Expenses of employee borne by employer for household personnel (salaries of household help, personal driver, payment for homeowner's association dues, garbage dues, etc.) shall be treated as TAXABLE FRINGE BENEFITS.
Chum Bucket Corp. hired Mr. Carlo Mendoza, an
evil cook who discovered the secret formula of the famous Krabby Patty, and gave him the ff. compensation & fringe benefits:
Salary
3 personal security guards
2 maids
1 secretary in the office
1 personal driver
Homeowner's association due
P 300 000/month
P 3 000 each/month
P 2 000 each/month
P 8 000/month
P 4 000/month
P 600/year
3 personal sec. guards (P 3000 x 3 x 12)
2 maids (P 2000 x 2 x 12)
1 personal driver (P 4000 x 12)
Homeowner's association due
Total annual fringe benefits
Divide by GMV
Grossed-up monetary value
Multiply by tax rate
Fringe benefit tax due

P 108 000
48 000
48 000
600
P 204 600
68%
P 300 882
32%
P 96 282
illustration:
Interest on Loan at Less than Market Rate
Rules applicable regarding the cost of money whenever an employee borrowed money from his employer:
If the employer lends money to his employee free of interest or at a rate lower than 12% per year, such interest foregone by the employer of the difference of interest assumed by the employee and the 12% rate shall be treated as TAXABLE FB.

Benchmark interest rate of 12% shall remain in effect until revised by subsequent regulation.

This regulation shall apply to installment payments or loans w/ interest lower than 12% starting January 1, 1998.
In 2016, Ms. Angela Bunda, the
owner of Puregold Price Club Inc., lends
P 100 000 to Shiela Besares, the supermarket's manager.
It it stipulated in their agreement
that the amount should be paid in one year with an annual interest of 5.2%.
Interest at 12% (P 100 000 x 12%)
Interest at 5.2% (P 100 000 x 5.2%)
Difference
Divide by GMV
Grossed-up monetary balue
Multiply by tax rate
Fringe benefit tax due
P 12 000
5 200
P 6 800
68%
P 10 000
32%
P 3 200
Membership Fees, Dues & Other Expenses
Membership fees, dues, and other
expenses borne by the employer for the employee in social and athletic clubs or other similar organizations shall be treated as TAXABLE FRINGE BENEFITS of the employee.
Ms. Joreleen Ayuyao was appointed as the
Vice President for Marketing of Baguio Gold Corporation. As her privilege, the corporation paid her Baguio Country Club membership fee amounting to P 1 700 000.
How much is the fringe benefit tax?
Monetary value of membership fee
Divide by GMV factor
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax
P 1 700 000
68%
P 2 500 000
32%
P 800 000
Expenses for foreign travel
Reasonable expenses paid by the employer for the foreign travel of his employee for the purpose of attending business meetings or conventions: not treated as taxable fringe benefit
Rules:
Inland travel expenses (food beverages&local transpo): NOT SUBJECT TO FBT
Lodging cost in a hotel or similar establishment, cost in excess of US$300.00/day: SUBJECT TO FBT
Economy & business class airplane ticket: NOT SUBJECT TO FBT
30% of the cost of first class airplane ticket: SUBJECT TO FBT
Expenses should be supported by documents
No documentary evidence: ENTIRE cost is treated as TAXABLE FRINGE BENEFITS
Traveling exp. paid by employer for travel of family members of employee: TAXABLE
illustration:
Mr. Aldrin Alvarado, the Vice President for Finance of David Corporation
incurred the ff. expenses in attending a three-day foreign business convention:
Plane tickets (USA travel):
First class
Economy
Hotel accomodation (USA)
Inland travel
Assume $1.00 = P40

$ 1 500
800
8 000
1 500
Compute FBT assuming:
a. convention was w/ documentary
evidence

b. convention was w/o documentary
evidence

with evidence
First class plane ticket ($1500 x P40 x 30%)
Hotel accomodation [($8000-$900) x P40)]
Total fringe benefits
Divide by GMV factor
Grossed-up monetary value
Multiply by tax rate
Fringe benefit tax due
P 18 000
284 000
P 302 000
68%
P 444 118
32%
P 142 118
without evidence
First class plane ticket ($1500 x P40)
Economy class plane ticket ($800 x P40)
Hotel accomodation ($8000 x P40)
Inland travel ($1500 x P40)
Total fringe benefits
Divide by GMV factor
Grossed-up monetary value
Multiply by tax rate
Fringe benefits tax due
P 60 000
32 000
320 000
60 000
P 472 000
68%
P 694 118
32%
P 222 118
holiday & vacation expenses
Holiday and vacation expenses of the employee borne by the
employer shall be treated as TAXABLE FRINGE BENEFITS.
Illustration:
In 2016, Florada Corp. provided a four-day free vacation in Boracay to all
of its employees of which 80% are rank-and-file.

Total expenses: P 2 000 000
Fringe benefit for managerial employees
(P2M x 20%)
Divide by GMV factor
Grossed-up monetary value
Multiply by tax rate
Fringe benefit tax due

P 400 000
68%
P 588 235
32%
P 188 235
educational assistance
illustration:
Mr. Justin Bieber is a regular faculty member of
Pamantasan ng Lungsod ng Maynila. The school provides free tuition fees for the children of its employees.
Are the tuition fees subject to fringe benefit tax?
No. However, it is subject to withholding tax for compensation income.
insurance benefits
Cost of life or health insurance & other non-life insurance premiums for employees are treated as TAXABLE FB, except:
Contributions of the employer for the benefit of employee pursuant to the provisions of the existing law such as under the SSS of under the GSIS similar contributions arising from the provisions of any other existing law
Cost of premiums borne by employer for the group insurance of his employees
Insurance premiums intended for C Company's president, Ms. Christine Galvez:
Particulars:
Life insurance
Car insurance
Health insurance
SSS contribution
Group insurance
Total insurance premiums paid
Beneficiary
Ms. Galvez & her heirs
Ms. Galvez
Ms. Galvez' family
Ms. Galvez & her heirs
Ms. Galvez & her heirs
Premium paid
P 10 200
5 440
4 080
3 400
1 700
P 24 820
Particulars:
Life insurance
Car insurance
Health insurance
Total monetary value of FB

FBT (P 19720 /68%) x 32%
Premium paid
P 10 200
5 440
4 080
P 19 720

P 9 280
Fringe benefits tax on special taxpayers
Illustration:
Jimboy, a nonresident alien not engaged
in trade or business in the Philippines received P 60 000 from Jimgirl Philippines, Inc. as fringe benefit.
FB to be withheld and paid:
GMV (P 60000 / 75%)
Multiplied by applicable FBT rate
Fringe benefit tax
P 80 000
25%
P 20 000
fringe benefits not subject to fbt
FBs authorized & exempted from income tax under the Code or any special law
Contributions of employer for the benefit of employee for retirement, insurance & hospitalization benefit plans
Benefits given to rank-and-file
If grant of FBs to employee is necessary to the trade or business or profession of employer
If grant of FBs is for the convenience of employer
De minimis benefits
THANK
YOU!!!
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