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For PMAP Grand Men Seng Hotel June 26, 2014 Presented by: Susan D. Tusoy, CPA, MPS

TAXATION OF FRINGE BENEFITS. For PMAP Grand Men Seng Hotel June 26, 2014 Presented by: Susan D. Tusoy, CPA, MPS (powerpoint presentation courtesy of RO Christine Diwata T. Camina). Legal Basis. Sec. 33 of NIRC of 1997 RR 3-98 RR 8-2000 RR 10-2000 RR 5-2008 RR 5-2011 RMC 20-2011.

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For PMAP Grand Men Seng Hotel June 26, 2014 Presented by: Susan D. Tusoy, CPA, MPS

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  1. TAXATION OF FRINGE BENEFITS For PMAP Grand Men Seng Hotel June 26, 2014 Presented by: Susan D. Tusoy, CPA, MPS (powerpoint presentation courtesy of RO Christine Diwata T. Camina)

  2. Legal Basis • Sec. 33 of NIRC of 1997 • RR 3-98 • RR 8-2000 • RR 10-2000 • RR 5-2008 • RR 5-2011 • RMC 20-2011

  3. FRINGE BENEFIT Any good, service, or other benefit furnished or granted in cash or in kind by an employer to an individual employee, except rank and file, such as but not limited to the ff:

  4. 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 and vacation expenses; Educational assistance Life/ health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.

  5. COVERAGE All fringe benefits given or furnished to managerial or supervisory employees excluding the rank and file.

  6. NATURE • The FBT imposed under Section 33 of the tax code shall be treated as final income tax on the employee that shall be withheld and paid by the employer.

  7. RATE OF TAX AND TAX BASE • 32% of the gross-up monetary value of the fringe benefit

  8. GROSS-UP MONETARY VALUE GMV = MV + FBT 100% = 68%+32% Therefore: GMV = MV ÷68%

  9. GENERAL RULE IN THE VALUATION OF FRINGE BENEFITS a.) If the FB is granted in money, or is directly paid for by the employer, then the value is the amount granted or paid for. b.) If the FB is granted by the employer in property and ownership is transferred to the employee, then the value of the FB shall be equal to the FMV of the property

  10. GENERAL RULE IN THE VALUATION OF FRINGE BENEFITS c.) If the FB is granted by the employer is in property but the ownership is not transferred to the employee, the value of the FB is equal to the depreciation value of the property.

  11. STEPS IN COMPUTING FBT • Determine the value of the benefit • Determine the Monetary Value (MV) • Divide the MV by 68% to derive the GMV • Multiply the GMV by 32%

  12. I. HOUSING PRIVILEGES

  13. Case 1. A – the employer leases residential property for the use of employee. Value of the benefit - rental paid by the employer Monetary Value - 50% of the value of the benefit Tax base - GMV

  14. Illustration Case 1. A Jupiter Co. leased a residential house for the use of its branch manager. The rent agreed upon under the contract was P 165,000 per month. Value of the benefit P165,000 Monetary Value (50% of 165,000) 82,500 Tax base/GMV (P82,500 / 68%) P121,324 Monthly FBT (121,324x32%) P 38,824

  15. ACCOUNTING ENTRIES If paid: Dr: Fringe Benefit Expense 165,000 Dr: Fringe Benefit Tax Expense 38,824 Cr: Cash 203,824 If accrued but unpaid: Dr: Fringe Benefit Expense 165,000 Dr: Fringe Benefit Tax Expense 38,824 Cr: Fringe Benefit Payable 165,000 Cr: Fringe Benefit Tax Payable 38,824

  16. Case 1.B – The employer owns residential property which was assigned to an officer for his use as residence. Annual value of the benefit - 5% of FMV of the land and improvements as determined by the BIR Com. or the Assessor, whichever is higher. Monetary Value of the benefit - 50% of the value of the benefit Tax base - GMV

  17. Illustration Case 1.B1 -COST IS HIGHER THAN FMV Uranus Co. owns a condominium unit which an officer of the company was allowed to use as residence. Cost of the unit was P 12M. The FMV per Zonal is P 10M and the Assessors’s is P 8M. Monthly Value of FB (5% of P10M/12mos.) P 41,667 Monetary Value (50% of 41,667) P 20,833 GMV ( P 20,833/68%) P 30,637 Monthly FBT P 9,804

  18. ACCOUNTING ENTRY Case 1.B Dr: Fringe Benefit Tax Expense 9,804.00 Cr: Cash/Fringe Benefit Tax Payable 9,804.00

  19. Illustration Case 1.B2 - COST IS LOWER THAN FMV Same as Case 1.B.1 but the cost of the unit was only P 7M. The FMV per Zonal is P 10M and the Assessor’s is P 8M. The condominium has a remaining estimated useful life of 15 years. Base Value for FBT P 10M Less: Cost 7M Excess Amount 3M ==== Take Note!: The excess amount shall be amortized throughout the remaining estimated useful life of the residential property

  20. Monthly amortization (P 3M/15years/12months) P 16,667.00 ACCOUNTING ENTRY: Dr: Fringe Benefit Expense 16,667.00 Dr: Fringe Benefit Tax Expense 9,804.00 Cr: Income Constructively Realized 16,667.00 Cr: Cash/Fringe Benefit Tax Payable 9,804.00

  21. Case 1.C- The employer purchases residential property on the installment basis and allows the employee to use the same as his residence. Annual value of FB - 5% of the acquisition cost exclusive of Interest MV of the FB - 50% of the value of the benefit Tax Base - GMV

  22. Illustration Case 1.C PBB Co. purchased real property in installments and allowed Mr. Y an officer to use the same as his residence. Installment contract price was P 2M. Annual Value of FB (5% of 2M) P 100,000.00 MV (50% of P100T) P 50,000.00 GMV(P50,000/68%) P 73,530.00 Monthly FBT (P 73,530 x 32%/12 mos) P 1,961.00

  23. Case 1.D - The employer purchases a residential property and transfers ownership thereof in the name of the employee. Value of FB - Employer’s acquisition Cost or FMV(zonal or TD), whichever is higher MV of the FB - the entire value of the Benefit Tax Base - GMV

  24. Illustration Case 1.D Earth Co. purchased a house and lot and transferred title thereto to its president. The acquisition cost was P 1.5M. The zonal value is P 2M, while market value per TD is P 2.5M Value of FB (per TD the highest) P 2,500,000 MV (entire benefit) P 2,500,000 GMV(P2.5M/68%) P 3,676,471 FBT (P 3,676,471x 32%) P 1,176,471

  25. Case 1.E - The employer purchases a residential property and transfers ownership thereof to his employee for the latter’s residential use at a price less than the employer’s acquisition cost. Value of FB - The difference between the FMV of the BIR commissioner or the FMV of the assessor, whichever is higher and the cost to the employee. MV of the FB - The entire value of the benefit Tax Base - GMV

  26. Illustration Case 1.EVenus Co. purchased a house and lot at a cost of P 2M. The property was transferred to its president to be used for residential purposes for P 1.5M . Zonal Value is P 2.3M, while the assessor’s value is P 2.5M.FMV of assessor (higher than ZV) P 2,500,000Less: Cost to the employee 1,500,000Value of the benefit 1,000,000 Monetary Value (Entire Value) 1,000,000 GMV (P 1M/68%) 1,470,588FBT (P 3,676,471x 32%) P 470,588

  27. HOUSING BENEFITS WHICH ARE NOT TAXABLE a.) Housing privilege of military officials of the AFP consisting of officials of PA, PN and PAF. b.) A housing unit which is situated inside or adjacent to the premises of a business or factory. WITHIN THE MAXIMUM 50 METERS FROM THE PERIMETER OF THE BUSINESS PREMISES c.) Temporary housing for an employee who stays in the housing unit for 3 months or less.

  28. 2. EXPENSE ACCOUNT

  29. Expenses incurred by the employee which are paid by his employer shall be treated as taxable FB; Expenses paid for by the employee but reimbursed by his employer shall be treated as taxable FB. The above expenses are not treated as fringe benefits and therefore not taxable provided: a.) the expenditures are duly receipted for and in the name of the employer, and b.) the expenditures are connected with the trade or business of the taxpayer

  30. Personal expenses of the employee paid for or reimbursed by the employer to the employee shall be treated as taxable FB of the employee whether or not the same are duly receipted for in the name of the employer 4. Representation and transportation allowances which are fixed in amounts and are regularly received by the employees as part of their monthly compensation income shall not be treated as taxable fringe benefits

  31. 3. MOTOR VEHICLE OF ANY KIND

  32. Case 3.A – The employer purchases the motor vehicle in the name of the employee. Value of the benefit - Acquisition Cost Monetary Value - Entire value of the benefit Tax Base - GMV

  33. Case 3.B – The employer provides the employee with cash for the purchase of a vehicle in the name of the employee. Value of the benefit - Amount of cash received Monetary Value - Entire value of the benefit Tax Base - GMV

  34. Case 3.C – The employer shoulders a portion of the amount of the purchase price of a motor vehicle in the name of the employee. Value of the benefit - Amount shouldered by the employer Monetary Value - Entire value of the benefit Tax Base - GMV

  35. Case 3.D– The employer purchases the car on installment in the name of the employee. Value of the benefit - Acquisition cost (exclusive of Interest) divided by 5 years Monetary Value - Entire value of the benefit Tax Base - GMV

  36. Case 3.D– The employer purchases the car on installment in the name of the employee. Value of the benefit - Acquisition cost exclusive of interest divided by 5 years Monetary Value - Entire value of the benefit Tax Base - GMV

  37. Illustration Case 3. DVenus Co. purchased a car in the name of the manager on installment basis in the amount of P 396,000. Value of the benefit (P396,000 / 5 yrs) P 79,200.00 Monetary Value 79,200.00 GMV (P 79,200 / 68%) 116,471.00 Annual FBT (P 116,471x 32%) 37,271.00 Quarterly FBT P 9,317.75 =======

  38. Case 3.E – The employer owns and maintains a fleet of motor vehicles for the use of the business and the employees. Value of the benefit - Acquisition cost of all vehicles not normally used for bus. divided by 5yrs Monetary Value - Entire value of the benefit Tax Base - GMV

  39. Illustration Case 3. E Pluto Co. owns a fleet of motor vehicles for the use of the business. It has recently bought four cars w/ total cost of P 5M for issuance to officers to be used for business and personal purposes. Annual Value of the benefit (P5M/ 5 yrs) P 1,000,000Monetary Value (50% of 1M) 500,000 GMV (P 500,000 / 68%) 735,294Annual FBT (P 735,294x 32%) 235,294 Quarterly FBT P58,824 =======

  40. Case 3.F – The employer leases and maintains a fleet of motor vehicles for the use of the business and the employees. Value of the benefit - Amount of rental payments for motor vehicles not normally used for business Monetary Value - Entire value of the benefit Tax Base - GMV

  41. Illustrative Case 3.F Suppose Pluto Co. does not own the motor vehicles but leases them from Rent-a-Car, Inc, and pays quarterly rental of P 41,250 for the vehicle used by the employees for personal purposes. Value of the benefit P 41,250Monetary Value (50% of P 41,250) 20,625 GMV (P 20,625 / 68%) 30,331 Quarterly FBT P 9,706 ======

  42. Case 3.G – The use of aircraft or helicopters owned and maintained by the employer shall not be subject to FBT. Case 3.H – The use of yacht, whether owned and maintained or leased by the employer shall be treated as taxable fringe benefit. The value of the yacht shall be measured based on the depreciation of a yacht at an estimated useful life of 20 years.

  43. 4. HOUSEHOLD EXPENSES

  44. Salaries of household help, personal driver of the employee, and other. 2. Similar expenses like payment for homeowners association dues, garbage dues, etc. EXPENSES OF THE EMPLOYEE BORNE BY THE EMPLOYER SUBJECT TO FBT

  45. 5. INTEREST ON LOAN AT LESS THAN MARKET RATE

  46. If an employer lends money to his employee free of interest or at a lower than 12%, such interest foregone by the employer shall be as taxable fringe benefit. The benchmark rate of 12% shall remain in effect until revised by a subsequent regulation The regulation shall apply to installment payments or loans with interest rate lower than 12% starting January 1, 1998.

  47. Illustration 5. A A local bank approved a loan of P 300,000 in favor of an officer with interest thereon at special rate of 8% per annum. Term of the loan is 4 months. Interest foregone by the bank (P 300,000 x 4% x 4/12) P 4,000 Value of the benefit P 4,000 GMP ( P 4,000/68%) P 5,882 FBT ( P5,882 X 32%) P 1,882 =======

  48. 6. SOCIAL AND ATHLETIC CLUB FEES Membership fees, dues, and other expenses borne by the employer for his employee, in social and athletic clubs and other similar organizations shall be treated as taxable fringe benefits of the employee in FULL

  49. 7. EXPENSES FOR FOREIGN TRAVEL

  50. FOREIGN TRAVEL BENEFITS WHICH ARE NOT TAXABLE a.) Inland travel expenses such as expenses for food, beverages and local transportation; b.) The cost of lodging in a hotel or similar establishment amounting to an average of US $ 300 or less per day c. ) Cost of economy and business class airplane ticket; d.) 70% of the cost of first class airplane ticket

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