TAX 201 – INCOME TAXATION

SEMI-FINAL PERIOD – QUIZ NO. 1

Examinee’s Name: ________________________________________ ___ Rating:

Level/Section: __________________

FRINGE BENEFITS TAXATION

PART I. Multiple choice. Encircle your choice of answer.

1. 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 employees
A. Compensation
B. Remuneration
C. Fringe Benefits
D. Allowances

2. The Tax Code defines a rank-and-file employee as

A. employees who are holding neither managerial nor supervisory position
B. minimum wage earners
C. entry-level employees
D. an outsourced employee

3. Statement 1: Rank-and-file employees are not subject to fringe benefits tax in all cases.
Statement 2: Supervisors and managers may be subject to fringe benefits tax.
A. Only the first statement is true.
B. Only the second statement is true.
C. Both statements are true.
D. Both statements are false.

4. Who is liable for the fringe benefits tax?

A. Employer
B. Employee
C. Shared liability between the employer and employee
D. It depends on the contract between the employer and the employee.
Note: While the FBT is a tax based on the fringe benefit given to the employee, BIR holds the employer liable for
the said tax such that its nonpayment will be consequential to the employer and not to the employee.

5. In which of the following cases will there be no fringe benefit tax to apply?
A. Employer grants educational support to the kids of the Marketing Manager.
B. Employer shoulders the salary of the personal driver of the chief executive officer.
C. Employer lent an interest-free loan to the Human Resource Supervisor.
D. Employer paid for the airfare and accommodation of the President’s international travel to attend
a business meeting.

6. Which of the following is not a fringe benefit subject to fringe benefit tax?
A. An employee’s personal expense shouldered by the employer
B. Fixed and regular monthly transportation allowances
C. A company car assigned to an employee
D. All of the above are fringe benefits subject to fringe benefit tax

7. Which of the following is not an exempt fringe benefit?

A. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans
B. De minimis benefits
C. Fringe benefits required by the nature of, or necessary to the trade, business or profession of the
employer
D. All are exempt forms of fringe benefit

8. Statement 1: Fringe benefits tax is payable by the employer.

Statement 2: Fringe benefits tax is based on the grossed-up monetary value of the fringe benefit.
A. Only the first statement is true.
B. Only the second statement is true.
C. Both statements are true.
 D. Both statements are false.

9. Benefits of relatively small values provided by the employers to employee on top of the basic compensation
intended for the general welfare of employees
A. Allowances
B. De minimis benefits
C. Fringe benefits
D. Donation
10. Statement 1: Fringe benefits received by rank and file employees are exempt from income tax.
Statement 2: De minimis benefits, if received by a supervisory/managerial employee, are subject to fringe
benefits tax.
A. Only the first statement is true.
B. Only the second statement is true.
C. Both statements are true.
D. Both statements are false.
Note: Fringe benefits received by rank-and-file employees are subject to graduated tax rates. De minimis
benefits, regardless of recipient, are exempt from income tax.

11. Which of the following is not a de minimis benefit?

A. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the
year
B. Medical cash allowance to dependents of employees, not exceeding ₱750 per employee per semester or
₱125 per month
C. Rice subsidy up to ₱1,500 per month
D. All of the above are de minimis benefits

12. Which of the following giving of benefits will result in a portion that could be subject to income tax?
A. Annual uniform and clothing allowance in the amount of ₱4,500.
B. Weekly laundry allowance of ₱300
C. Annual Christmas gift of ₱15,000 given equally to three employees
D. Daily meal allowance for overtime work which is equal to 25% of the basic minimum wage in the region

13. Which of the following giving of benefits will result in a portion that could be subject to income tax?
A. Monetized unused vacation leave credits of an employee of a private company equivalent to 10 days
B. Monetized value of sick leave credits of a government employee equivalent to 15 days
C. Monetized unused sick leave credits of an employee of a private company equivalent to 8 days
D. Monetized value of vacation leave credits of a government employee equivalent to 10 days
Note: RR 5-2011 contains a listing of the de minimis benefits exempt from tax. For private employees, only
monetized VL’s up to 10 per year are considered de minimis while for government employees, both monetized
VL’s and SL’s without limitation are considered de minimis.

14. Statement 1: Prior to the implementation of R.A. 10963, known as the Tax Reform for Acceleration and
Inclusion (TRAIN), the amount of benefits exempt from income tax is ₱82,000.
Statement 2: TRAIN revised the amount of benefits exempted from income tax to ₱90,000.
A. Only the first statement is true.
B. Only the second statement is true.
C. Both statements are true.
D. Both statements are false.

15. Prior to any impact of TRAIN, fringe benefits received by aliens employed by regional or area headquarters
and regional operating headquarters of multinational companies, offshore banking units, and petroleum
service contractors and subcontractors enjoying the preferential rate of 15% are subject to a fringe benefit
tax of
A. 15% of the grossed-up monetary value of the fringe benefit received
B. 35% of the grossed-up monetary value of the fringe benefit received
C. 15% of the net monetary value of the fringe benefit received
D. 32% of the grossed-up monetary value of the fringe benefit received

16. Fringe benefits tax is a form of final tax.

A. Yes, it is a final withholding tax on the fringe benefit received by the employee to be paid and
remitted by the employer to BIR
B. No, it is a creditable withholding tax which the employee may claim as a deduction from the income tax
due from him after determining his final tax liability upon annualization.
C. No, it is a refundable tax which the employee may refund at the end of the year after due process.
D. Yes, it is a final tax remitted by the employee with his income tax return.
17. Which of the following statements is true about the nature of fringe benefits tax?
A. Fringe benefits tax is a deductible expense of the employee.
B. Fringe benefits tax is deducted from the actual monetary value received by the employee.
C. Fringe benefits tax is a deductible expense of the employer.
D. Fringe benefits tax is a creditable withholding tax to the employee.

18. A mining company built a temporary quarter for its employees at a safe distance from the mining site located
in a remote province. Both construction workers and the foremen were given rooms and accommodation in
the quarter to ensure that the mining activity will be completed without delay. Which of the following
statements is true?
A. The monetary value of this temporary housing is a fringe benefit to all employees; hence, subject to fringe
benefits tax.
B. The monetary value of this temporary housing is a fringe benefit to the foremen; hence, subject to fringe
benefits tax.
C. The monetary value of this temporary housing is not subject to fringe benefits tax as far as the
construction workers are concerned.
D. The temporary housing is not a taxable fringe benefit to the employees as it was provided for the
advantage of the employer.

19. A Director of a company was assigned a company vehicle for both business and personal use. Which of the
following statements is true?
A. This is a fringe benefit subject to fringe benefits tax.
B. This is a fringe benefit subject to graduated tax rates.
C. This is not a fringe benefit as it is being used for business purposes.
D. This is a fringe benefit to the extent it is being used for personal use.
Note: RR 3-98 subjects assignment or purchase of vehicles for employees regardless whether it’s partly used for
the benefit of the employer and partly for personal use. Even if this would be considered, it will be impossible to
gauge the proportion.

20. Statement 1: Employers, whether individual or corporate, enjoying income tax exemption for a particular
year are exempt from paying fringe benefits tax on fringe benefits given to employees during the exempt
year.
Statement 2: Fringe benefits tax is a tax on the income of individuals in the form of fringe benefits.
A. Only the first statement is true.
B. Only the second statement is true.
C. Both statements are true.
D. Both statements are false.
Note: Fringe benefits tax is a tax on the individual’s income, therefore the tax status of the employer is irrelevant.

21. Company X purchased a motor vehicle for the use of its messenger. Which of the following statements is
false?
A. The assignment of the motor vehicle for the use of its messenger is not subject to fringe benefits tax
regardless of the messenger’s utilization of the motor vehicle.
B. If the messenger will use it for personal use, it will be subject to fringe benefits tax.
C. If the messenger will use if for personal use, it will be subject to graduated income tax.
D. The motor vehicle will remain in the books of the company.
Note: Rank-and-file employees are not subject to fringe benefits tax but to graduated income tax.

22. Statement 1: Failure of the employer to pay the fringe benefits tax will result in the disallowance of the fringe
benefit as an expense of the employer.
Statement 2: The employee will not be held liable for any deficient fringe benefit tax.
A. Only the first statement is true.
B. Only the second statement is true.
C. Both statements are true.
D. Both statements are false.

23. Which of the following may be a form of fringe benefit to an employee subject to fringe benefits tax?
A. Overtime pay
B. Monthly transportation allowances
C. Separation pay
D. None of the above

24. Which of the following is not a taxable housing privilege?

A. Housing privilege of a Philippine Navy soldier
B. Temporary housing for an employee for less than three months
C. Housing unit situated inside or adjacent to the premises of a business or factory
 D. All of the above are not taxable

25. Statement 1. The use of aircraft (including helicopters) owned and maintained by the employer shall be
treated as business use and not be subject to the fringe benefits tax.
Statement 2. Discount on the loan interest granted to an employee (other than rank & file) is a taxable fringe
benefit.
A. Only the first statement is true.
B. Only the second statement is true.
C. Both statements are true.
D. Both statements are false.

26. Foreign travel expenses shall be treated as fringe benefits expense if:
A. it is in connection with the furtherance of the employer’s business
B. it is unsupported by documentary evidence proving its connection to the business
C. it is incurred by a manager or a supervisor
D. Both A and C

PART II. Multiple choice / Supply the correct answer.

Cachupoy Corporation, a domestic corporation engaged in the cultivation, production, packaging and sale of peanuts
of various kinds employs the following officers and personnel among others:

 Mang Tomas – foreman managing the plantation

 Mr. Butch Makoy – head over production
 Jack Lusak – delivery truck driver

A review of their compensation package shows the data below:

Mang Tomas Mr. Makoy Jack Lusak

Basic monthly salary ₱40,000 ₱75,000 ₱12,000
Monthly gas allowance 5,000 10,000 –
Meal allowance for overtime
– – 18,000
work (for the year)
Annual uniform allowance – – 5,000

Rank-and-file employees receive daily meal allowance for overtime work amounting to ₱60 which is equivalent to
20% of the basic minimum wage in that region. Employees are to receive their 13th month pay equal to one-month
basic salary before every year ends.

During the year, Mang Tomas was rushed to the hospital after falling off his bike one rest day and had to pay ₱15,000
for hospitalization. Being a valued employee, the company paid for every cent of the hospital bill. Meanwhile, during
the annual anniversary celebration of the company, Mr. Butch Makoy and Jack Lusak were two of the awardees:
 Safety achievement award ₱12,000-worth of safety gadgets for home use – Mr. Butch Makoy
 Loyalty award for 5 years of service – ₱5,000 in cash

Lastly, in the spirit of Christmas, the company granted Christmas bonus equivalent to 20% of their basic monthly
salary.

Requirements: Compute the following for the year.

27. De minimis benefits exempt from income tax – Mang Tomas - ________________________
28. De minimis benefits exempt from income tax – Mr. Makoy - ________________________
29. De minimis benefits exempt from income tax – Jack Lusak - ________________________
30. Income tax due of Jack Lusak - ________________________
31. Income tax due of Mr. Makoy - ________________________
32. Income tax due of Mang Tomas - ________________________
 Income
Income subj.
subj.to
tograduated
graduated rates
rates
Mang
Mang Tomas
Tomas Mr.
Mr.Makoy
Makoy Jack
JackLusak
Lusak
Annual
Annualbasic
basicsalary
salary 480,000
480,000 900,000
900,000 144,000
144,000
Annual allowances
Annual allowances 60,000
60,000 120,000
120,000 --
Others:
Others:
Over
Over the
the other
other benefits
benefitscap
cap (for
(for rank-and-file)
rank-and-file) -- -- --
Taxable income
Taxable income 540,000
540,000 1,020,000
1,020,000 144,000
144,000
Income
Income tax
tax due
due
Base
Base 30,000
30,000 130,000
130,000 --
In
In excess
excessofof 35,000
35,000 66,000
66,000 --
65,000
65,000 196,000
196,000 --

De
De minimis
minimisbenefits
benefits-- exempt
exemptfrom
from income
income tax
tax
Mang
Mang Tomas
Tomas Mr.
Mr.Makoy
Makoy Jack
JackLusak
Lusak
Meal
Mealallowance
allowance for
for the
the year
year -- -- 18,000
18,000
Annual
Annualuniform
uniform allowance
allowance -- -- 5,000
5,000
Actual
Actualmedical
medicalassistance
assistance 10,000
10,000 -- --
Employee
Employee achievement
achievementawardaward in
in kind
kind -- 10,000
10,000 --
10,000
10,000 10,000
10,000 23,000
23,000

13th
13th month
month &&other
other benefits
benefits--max of ₱90k/year
max of ₱90k/year
Mang
Mang Tomas
Tomas Mr.
Mr.Makoy
Makoy Jack
JackLusak
Lusak
13th
13th month
month pay
pay 40,000
40,000 75,000
75,000 12,000
12,000
Christmas
Christmasbonus
bonus 8,000
8,000 15,000
15,000 2,400
2,400
Loyalty
Loyalty award
award (in
(in cash)
cash) -- -- 5,000
5,000
Actual
Actualmedical
medicalassistance
assistance 5,000
5,000 -- --
Employee
Employee achievement
achievementawardaward in
in kind
kind -- 2,000
2,000 --
53,000
53,000 92,000
92,000 19,400
19,400
Maximum
Maximum 90,000
90,000 90,000
90,000 90,000
90,000
Taxable
Taxable portion
portion -- 2,000
2,000 --
subject
subjectto
toFBT,
FBT,non-rank-and-file
non-rank-and-file

Mark Yague, CEO of Maharlika Company, lives in the company-owned residential property since his promotion from
Marketing Director to his current office about two years ago. As of the close of the current taxable year, the following
information were gathered:

 Acquisition cost – ₱5 million

 Acquisition date – February 1, 2013
 Fair market value – ₱8 million
 Zonal value – ₱4 million

33. Compute the fringe benefits tax for the above benefit – _________________________
34. Compute the annual expense of the Company in relation to the above fringe benefits – _________________________
35. How often is the fringe benefits tax return filed in a year?
A. Annually
B. Quarterly
C. Monthly
D. Anytime

FMV
FMV 8,000,000
8,000,000
Zonal
Zonal value
value 4,000,000
4,000,000

Higher
Higher basis
basis 8,000,000
8,000,000
5%
5%
Annual
Annual value
value of
of the
the benefit
benefit 400,000
400,000
usufruct
usufruct 50%
50%
Monetary
Monetary value
value 200,000
200,000
65%
65%
Grossed
Grossed up
up monetary
monetary value
value 307,692
307,692
35%
35%
Fringe
Fringe benefits
benefits tax
tax 107,692
107,692