Income taxation by valencia chapter 6 (fringe benefit tax)

False – This a definition of fringe benefits not of fringe benefit tax.. False – The corporate income tax rate is 35% while the fringe benefit tax is a final tax rate of 32%.. False – So

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 True

5 False – Scholarship grants to employees not related to business is taxable

6 False – These are among those exempted from fringe benefit tax

7 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

8 False – Rank-in-file employees’ fringe benefits are subject to income tax on wages

9 True

10 True

11 False – medical allowance of P750 per semester

12 False – Daily meal allowance for overtime

13 True

Problem 6 – 3

Problem 6 – 4A

Case 1: C

Taxable Nontaxable

Other benefits - excess of de minimis (P24,000 –

Note: The 13th 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

Taxable Nontaxable

De minimis:

Other benefits – excess of de minimis

Clothing (P20,000 – P4,000) 3,000 13,000 30,000

Case 4: Not in the choices

Taxable Nontaxable

De minimis:

Other benefits – excess of de minimis

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

Multiplied by FBT rate 32%

P2.00 difference is due to rounding off

Present values of installment payments

Year:

Case 2: Motor vehicle benefits

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

2 B = P250,000

3 D = P – 0 -

A fringe benefit tax is not an income tax of

-Problem 6 – 6 A

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

Income tax:

Add: Fringe benefits charge to miscellaneous expense 102,000

Multiplied by corporate income tax rate 30%

Less: Income tax already paid (P2,500,000 – P1,750,000) 750,000 30,600

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

Problem 6 – 11 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

P 9,600

Problem 6 – 13

Problem 6 – 14 D

Problem 6 – 15 C

Problem 6 – 16 B

There is no FBT for rank-in-file employee

2

Benchmark interest (P88,400 x 12%) P10,608

Problem 6 – 17 B

Problem 6 – 18 A

Problem 6 – 19 C

Problem 6 – 20 B

Problem 6 – 21 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

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

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

Grossed-up monetary value

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

Grossed-up monetary value

Multiplied by FBT rate

Fringe benefit tax due

P112,500 85% P132,353 15%

P 19,853

3 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

Grossed-up monetary value

Fringe benefit tax due

P112,500 75% P150,000 25%

P 37,500

Problem 6 – 26

1 Minimum wage earner

-The MWE qualifies for tax exemption because his

13th month pay and other benefits does not exceed

P30,000, computed as follows:

2 Not a minimum wage earner

Note: Temporary housing for 3 months is not taxable.

Problem 6 – 27

1 Minimum wage earner

2 Not a minimum wage earner

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 13th month pay and other benefits:

Add: Excess DM:

- food overtime allow (P1,500 – (P10,600/30) x 25% x

Problem 6 – 28

Add: Present value of P180,000 installment at 18% per

year:

Yr 3: (P180,000 x 0.6086) 109,548

D 1 Annual monetary value = annual depreciation (P1,020,000/25) P 40,800

Problem 6 – 29

FBT – car:

Present value of P240,000 yearly installment at 12%

2 Journal entries: