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

46

Chapter 6: Fringe Benefits Tax

CHAPTER 6

FRINGE BENEFITS TAX

Problem 6 1 TRUE OR FALSE 1. False FBT is a final tax of the employee. However, this is the liability of the employer to withhold the final tax of 32% 2. True 3. True 4. True 5. True 6. True 7. True 8. True 9. False Some housing fringe benefit is not subject to income tax. Ex. Temporary housing for three months or housing benefit under the employers benefit rule. 10. True, also FB is also a form of incentives to rank-in-file employees. 11. False These are benefits other than salaries and also given to rank-in-file employees. 12. False Wage and salaries are not subject to reduction once given regardless of the financial condition of the employer. 13. True 14. True 15. False The corporate income tax rate is 30% as of 2012, while the fringe benefit tax remains at final tax rate of 32%. 16. True, unless these are among the de minimis Problem 6 2 TRUE OR FALSE 1. False De minimis are also fringe benefits in small amount but not subject to FBT. 2. False Fringe benefits given to rank-in-file, except those which are among the de minimis and those given for employers convenience, are not subject to FBT but subject to compensation income tax. 3. True 4. True 5. False P750/semester is the ceiling for exempt medical allowance 6. False- the exempt meal allowance must be related in the rendering of overtime work to be considered de minimis. 7. True 8. True 9. True 10. False A travel required by the company to its officer is not subject to FBT because by its nature a travelling expense. 11. true 12. False Scholarship grants to employees not related to business is taxable. 13. False These are among those exempted from fringe benefit tax.

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Problem 6-3 1. C 2. B 3. C 4. C 5. D 6. A 7. B 8. D 9. A 10. B 11. B 12. D Problem 6-4 1. A Yes, also if received by supervisor 2. C 3. A 4. D 5. D 6. A 7. B 8. B 9. A only P5,000 is taxable the excess of P10,000. 10. D 11. D 12. D

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Chapter 6: Fringe Benefits Tax

Problem 6 5 Not in the choices = P51,000 Net income (P300,000/30%) Add: FB charged to miscellaneous expense Taxable net income Multiplied by corporate tax rate Income tax due Less: Income tax already paid Additional tax to be paid

P1,000,000 170,000 P1,170,000 30% P 351,000 300,000 P 51,000

The fringe benefits of rank-in-file employee are subject to regular withholding tax on wages, [Sec. 24 (A), NIRC]. There is no grossed-up monetary value involved. If the BIR uncover the concealment resulting to the nonpayment of withholding tax, the fringe benefits shall be disallowed as deductible expense. [Sec. 34 (A)(1ai), NIRC] Problem 6 6 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 7

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Correction: Should be - The car ownership was transferred to Mr. Alegre. 1. Letter B Cash House and lot FMV, higher (ownership transferred) Car ownership transferred (P680,000 x 9/10) Monetary value of fringe benefits Letter C Grossed-up monetary value (P1,190,000/68%) P

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Chapter 6: Fringe Benefits Tax

34,000 544,000 612,000 P1,190,,000 P1,750,000

2.

Problem 6 8 1. Letter C Monetary value of FB (P80,000/32%) x 68% 2. 3. Letter B Grossed-up monetary value (P80,000/32%)

P170,000 P250,000 P - 0 -

Letter D A fringe benefit tax is not an income tax of employer. Problem 6 9 C Meal benefits (P10,200 x 6 months) Educational assistance (P13,600 x 6 months) Fringe benefits subject to FBT

P 61,200 81,600 P142,800

Salaries are subject to normal tax. The fringe benefits subject to FBT shall only start from the time Mr. Rojas was promoted to managerial level. His fringe benefits prior to his promotion should be subject to normal tax. Problem 6 10 B Deductible from business income (P136,000/68%) P 200,000

Problem 6 11 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 12 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 13

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
1 . Letter A Grossed-up monetary value (P6,000,000 x 5% x 50%)/68% Multiplied by FBT rate Fringe benefit tax 2 . Letter B Down payment Present value of 4 installments (P1,000,000 x 3.037) Total GMV (P5,037,000 x 5% x 50%)/68% Multiplied by FBT rate Fringe benefit tax Problem 6 14 D FB Expense is equal to GMV (P2,000,000 x 5% x 50%)/68% Problem 6 15 B Acquisition cost = fair market value (higher than zonal value) Monthly fringe benefit [(P2,040,000 x 5% x 50%)/12]/68% Problem 6 16 A

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Chapter 6: Fringe Benefits Tax

P220,588 32% P 70,588

P2,000,000 3,037,000 P5,037,000 P185,183 32% P 59,258 P73,529 P2,040,000 P 6,250

Zero. Jeans 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 17 A Discounted price of the cars (P1,000,000 x 95% x 50) Add: Transportation, insurance and testing cost Total acquisition cost Acquisition cost assigned to officers [(P48,000,000/50) x 10] Monetary value of 10 cars [(P9,600,000/5) x 50%] Divided by number of officers to received the cars Monetary value of fringe benefit of each officer [Sec. 2.33 (B), Rev. Regs. No. 3-98] Problem 6 18 1 Letter A . Grossed-up monetary value [(P1,000,000/5) x 50%] /68% Multiplied by FBT rate Fringe benefit tax 2 . Letter C Grossed-up monetary value (P1,000,000/5)/68% Multiplied by FBT rate Fringe benefit tax P294,117 32% P 94,117 P47,500,000 500,000 P48,000,000 P9,600,000 P 960,000 10 P 96,000

P147,059 32% P 47,059

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

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Chapter 6: Fringe Benefits Tax

Problem 6 19 D Lease price per vehicle [P6,000,000/(20 + 14 + 6)] Multiplied by number of vehicle assigned to officers Total fringe benefits to officers Annual value of fringe benefits of each officer [(P900,000/6) x 50%] Problem 6 20 C Annual depreciation allowed (P17,000,000/20) Divided by GMV factor Grossed-up monetary value Multiplied by FBT rate Annual fringe benefit tax Divided by number of the members of the BOD Annual fringe benefit tax for each director

P150,000 6 P900,000 P 75,000 P 850,000 68% P1,250,000 32% P 400,000 5 P 80,000

The use of aircraft (including helicopters) owned and maintained by the employer shall be treated as business use and not b e subject to the fringe benefit tax. The use of yacht whether owned and maintained or leased by the employer shall be treated as taxable fringe benefit. The value of the fringe benefit shall be measured based on the depreciation of a yacht at an estimated useful life of 20 years. [Sec. 2.33 (B), Rev. Regs. No. 3-98] Problem 6 21 B Light and power of his residential house Grocery items Reimbursable expense subject to FBT Only the personal expense reimburse. Problem 6 22 Grocery items Pants and T-shirt Total monetary value of FB D P17,000 3,400 P20,400 P 9,600 P525,000 P 7,680 P27,200 P 5,440 6,800 P12,440

Fringe benefit tax (P20,400/68%) x 32% Problem 6 23 B FB expense (P476,000 x 75%)/68% Problem 6 24 D Fringe benefit tax (P16,320/68%) x 32% Problem 6 25 C Fringe benefit tax (P57,800/68%) x 32%

Problem 6 26

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
1. 2. Letter D There is no FBT for rank-in-file employee. Letter B Benchmark interest (P88,400 x 12%) Less: Actual interest charge (P88,400 x 3%) Difference FBT (P7,956/68%) x 32% Problem 6 27 Professional Tax Receipts PICPA Lifetime membership Goma golf club Baguio Country Club Total taxable fringe benefits FBT (P427,040/68%) x 32% D P

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Chapter 6: Fringe Benefits Tax

P10,608 2,652 P 7,956 P 3,744 5,440 13,600 68,000 340,000 P427,040 P200,960

All membership fees paid by the company in behalf of the comptroller are considered fringe benefits; hence, subject to FBT. Problem 6 28 A Hotel accommodation [($1,600- ($300 x 4)] x P50/$1 Personal expenses ($280 x P50/$1) Total amount of fringe benefits Fringe benefit expense (P34,000/68%) Problem 6 29 C Fringe benefit tax [(P54,400 x 30%) / 68%] x 32% Problem 6 30 B Fringe benefit expense (P408,000/68%) Problem 6 31 A P 20,000 14,000 P 34,000 P 50,000

P 7,680 P600,000

Zero. The scholarship was obtained through competitive examination.

Problem 6 32 1. Letter D None. Exempt because the educational benefit is related to work. (Employers benefit rule) 2. Letter B P65,280 Only the monetary value is deductible because the benefit is tax-exempt. P200,000 15% P 30,000

Problem 6 33 D Grossed-up monetary value (P170,000/85%) Multiplied by applicable FBT rate Fringe benefit tax

Problem 6 34

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Fringe benefit tax: Chan (P30,000/75%) x 25% Lapid (P51,000/68%) x 32% Total fringe benefit tax withheld
Problem 6 35 C Annual life insurance premium Amount of loan Less: Present value at 12% (P1,000,000 x 0.893) Monetary value of fringe benefit subject to FBT Problem 6 36 C Insurance premium - VP for Operation (50% x P4,080) Divided by GMV factor Grossed-up monetary value Multiplied by FBT rate Fringe benefit tax Problem 6 37 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 Divided by grossed-up rate Grossed-up monetary value Multiplied by FBT rate Fringe benefit tax

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Chapter 6: Fringe Benefits Tax

P10,000 24,000 P34,000

P100,000 P1,000,000 893,000 107,000 P207,000 P 2,040 68% P 3,000 32% P 960 P12,000 4,000 10,000 1,500 3,600 10,000 P41,100 P214,000 68% P314,705 32% P100,705

Note: The new BIR interpretation is that the excess of the actual fringe benefit given shall be taxable after deducting the de minimis threshold amount. The excess amount of fringe benefit shall be subject to withholding tax on wages whether the recipient employee is a rank-in-file or managerial employee.
Problem 6 38 1. Housing benefit (P12,240 x 110%) Lions Club membership fee Total Divided by grossed-up rate Taxable amount of FB 2. 3. Fringe benefit tax (P49,800 x 32%) 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.

P13,464 20,400 P33,864 68% P49,800 P15,936

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

53

Chapter 6: Fringe Benefits Tax

Problem 6 39 A. 1. Monetary value 2. B. 1. FBT (P68,000/68%) x 32% 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) 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 FBT (P152,579/68%) x 32% Monetary value (P816,000 x 150%) FBT (P1,224,000/68%) x 32% Annual monetary value = annual depreciation (P1,020,000/25) FBT (P40,800/68%) x 32% Monetary value (P244,000 x 50%) FBT (P122,000/68%) x 32% Monetary value (P1,360,000 x 5% x 50%) FBT (P34,000/68%) x 32%

P68,000 P32,000 P200,000 152,550 129,276 109,548 92,844 78,678

562,896 P762,896 5 P152,579 P 71,802 P1,224,000 P 576,000 P P 40,800 19,200

2. C. 1. 2. D. 1. 2. E. 1. 2. F. 1. 2.

P 122,000 P 57,412 P 34,000 P 16,000

Problem 6 40 1. FBT condominium [(P6,000,000 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 P 300,000 865,200 P1,165,200 5 P 233,040 P 109,666 70,588 70,588 342,706 233,040 109,666 70,588

2.

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

54

Chapter 6: Fringe Benefits Tax

Problem 6 41 1. Monetary value assignment of condominium (P5,000,000 x 5% x 50%) 2. 3. 4. 5. 6. 7 Grossed-up monetary value of condominium (P125,000/68%) Fringe benefit tax on the use of condominium (P183,823 x 32%) Grossed-up monetary value of the car (P500,000/5)/68% FBT of car (P147,059 x 32%) None. The cash is a fixed compensation income Zero. Compensation income is subject to normal income tax.

P 125,000 P 183,823 P 58,823 P 147,059 P 47,059