INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 27

SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

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
1. A 7. A
2. B 8. C
3. B 9. C
4. D 10. A
5. D 11. D
6. D 12. D

Problem 6 – 4A

Case 1: C
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 28
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

Taxable Nontaxable
Basic salary P240,000
13th month pay P20,000
De minimis within ceiling (P1,500 x 12) 18,000
Other benefits - excess of de minimis (P24,000 – . 6,000
P18,000)
Total P240,000 P44,000

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
Total basic salary P108,000
Overtime pay 30,000
Hazard pay 2,000
Holiday pay 1,000
De minimis:
Nontaxable rice subsidy (P1,500 x 12) P18,000
Nontaxable clothing allowance 4,000
13th month pay and other benefits: Nontaxable
13th month pay P 9,000
Other benefits – excess of de minimis
Rice subsidy (P36,000 – P18,000) 18,000
Clothing (P20,000 – P4,000) 3,000 13,000 30,000
Total P154,000 P52,000

Case 4: Not in the choices

Taxable Nontaxable
Total basic salary P96,000
Overtime pay 20,000
De minimis:
Nontaxable rice subsidy (P1,500 x 12) P18,000
13th month pay and other benefits: Nontaxable
13th month pay P 8,000
Other benefits – excess of de minimis
Rice subsidy (P24,000 – P18,000) 6,000 14,000
Rent income 60,000
Interest income (P4,000/80%) 5,000 .
Total P181,000 P32,000

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

1. A
GMV (P6,000,000 x 5% x 50%)/68% P220,588
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 29
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

Multiplied by FBT rate 32%

FBT P 70,588

2. B
Down payment P2,000,000
Installments (P1,000,000 x 4 x 0.636) 2,544,000
Acquisition cost, excluding interest P4,544,000

GMV (P5,037,300 x 5% x 50%)/68%) P185,195

Multiplied by FBT rate 32%
FBT P 59,262
P2.00 difference is due to rounding off.

Present values of installment payments

Year:
1: (P1,000,000 x 0.8928) P 892,800
2: (P1,000,000 x 0.7972) 797,200
3: (P1,000,000 x 0.7118) 711,800
4: (P1,000,000 x 0.6355) 635,500
Total P3,037,300
Add: Downpayment 2,000,000
Monetary value P5,037,300

Case 2: Motor vehicle benefits

1. A
GMV [(P1,000,000/5) x 50%]/68% P147,059
Multiplied by FBT rate 32%
FBT P 47,059

2. C
GMV [(P1,000,000/5)/68%] P294,118
Multiplied by FBT rate 32%
FBT P 94,118
Correction of Page 270: Motor vehicle formula No. 3:
3. Purchase of car on installment basis, MV = AC/5
the ownership of which is place in the
name of the employee. Where:
Not “employer” AC = Acquisition cost, exclusive of interest

Problem 6 – 5
1. C = P170,000
Monetary value of FB (P80,000/32%) x 68% P170,000

2. B = P250,000
Grossed-up monetary value (P80,000/32%) P250,000

3. D = P – 0 -
A fringe benefit tax is not an income tax of P - 0 -
employer.

Problem 6 – 6 A
Deductible from business income (P136,000/68%) P 200,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 30
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Chapter 6: Fringe Benefits Tax

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
Fringe benefit tax (P102,000/68%) x 32% P48,000
Income tax:
Net income before tax (P1,750,000/70%) P2,500,000
Add: Fringe benefits charge to miscellaneous expense 102,000
Total P2,602,000
Multiplied by corporate income tax rate 30%
Corporate income tax P 780,600
Less: Income tax already paid (P2,500,000 – P1,750,000) 750,000 30,600
Tax recovered by the government 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 – 10 B
Acquisition cost = fair market value (higher than zonal P2,040,000
value)

Monthly fringe benefit [(P2,040,000 x 5% x 50%)/12]/68% P 6,250

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
Grossed-up monetary value (P17,000 + P6,800)/68% P30,000
Multiplied by FBT rate 32%
P 9,600
Problem 6 – 13
FB expense (P476,000 x 75%)/68% P525,000

Problem 6 – 14 D
Fringe benefit tax (P16,320/68%) x 32% P 7,680

Problem 6 – 15 C
Fringe benefit tax (P57,800/68%) x 32% P27,200

Problem 6 – 16 B
1. D
There is no FBT for rank-in-file employee.

2.
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SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

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

Less: Actual interest charge (P88,400 x 3%) 2,652
Difference P 7,956

FBT (P7,956/68%) x 32% P 3,744

Problem 6 – 17 B
Goma golf club P 68,000
Baguio Country Club 340,000
Total taxable fringe benefits P408,000

FBT (P408,000/68%) x 32% P192,000

Problem 6 – 18 A
Hotel accommodation [($1,600- ($300 x 4)] x P50/$1 P 20,000
Personal expenses ($280 x P50/$1) 14,000
Total amount of fringe benefits P 34,000

Fringe benefit expense (P34,000/68%) P 50,000

Problem 6 – 19 C
Fringe benefit tax [(P54,400 x 30%) / 68%] x 32% P 7,680

Problem 6 – 20 B
Fringe benefit expense (P408,000/68%) P600,000

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
1. Rice subsidy P12,000
Nontaxable uniform and clothing allowance 3,000
Employees achievement award 10,000
Nontaxable medical allowance to dependents (P125 x 12) 1,500
Laundry allowance 3,600
Actual medical benefits 10,000
Total nontaxable fringe benefits P40,100

2. Car P214,000
Uniform and clothing allowance (P6,800 – P3,000) 3,800
Medical allowance to dependents (P8,500 – P1,500) 7,000
Total monetary value P224,800
Divided by grossed-up rate 68%
Grossed-up monetary value P330,588
Multiplied by FBT rate 32%
Fringe benefit tax P105,788
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 32
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

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
1. Housing benefit (P12,240 x 110%) P13,464
Lions Club membership fee 20,400
Total P33,864
Divided by grossed-up rate 68%
Taxable amount of FB P49,800

2. Fringe benefit tax (P49,800 x 32%) P15,936

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 P112,500
Divided by GMV divisor 75%
Grossed-up monetary value P150,000
Multiplied by FBT rate 25%
Fringe benefit tax due 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 P112,500
Divided y GMV divisor 85%
Grossed-up monetary value P132,353
Multiplied by FBT rate 15%
Fringe benefit tax due 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 P112,500
Divided by GMV divisor 75%
Grossed-up monetary value P150,000
Multiplied by FBT rate 25%
Fringe benefit tax due P 37,500

Problem 6 – 26
1. Minimum wage earner
Taxable compensation income P - 0 -

The MWE qualifies for tax exemption because his

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 33
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

13th month pay and other benefits does not exceed

P30,000, computed as follows:
13th month pay P 9,100
Rice subsidy (P24,000 – P18,000) 6,000
Actual hospitalization payments (P15,000 – P10,000) 5,000
Clothing allowance (P5,000 – P4,000) 1,000
13th month pay and other benefits – nontaxable P21,100

2. Not a minimum wage earner

Gross compensation income P109,200
Less: SSS premium contribution P2,400
Philhealth premium contribution 3,000 5,400
Taxable compensation P103,800

Note: Temporary housing for 3 months is not taxable.

Problem 6 – 27
1. Minimum wage earner
Gross compensation income P128,000
Less: SSS premium contribution P2,400
Philhealth premium contribution 3,000 5,400
Net taxable compensation P122,600

2. Not a minimum wage earner

Gross compensation income P128,000
Less: SSS premium contribution P2,400
Philhealth premium contribution 3,000 5,400
Net taxable compensation P122,600

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:

13th month pay P10,600
Add: Excess DM:
- actual hospitalization (P20,000 – P10,000) P10,000
- food overtime allow (P1,500 – (P10,600/30) x 25% x 10) 617 10,617
Total nontaxable 13th month pay and other benefits P21,217

Problem 6 – 28
A. 1. Monetary value P68,000

2. FBT (P68,000/68%) x 32% P32,000

B. 1. Down payment P200,000

Add: Present value of P180,000 installment at 18% per
year:
Yr. 1: (P180,000 x 0.8475) 152,550
Yr. 2: (P180,000 x 0.7182) 129,276
Yr. 3: (P180,000 x 0.6086) 109,548
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 34
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Chapter 6: Fringe Benefits Tax

Yr. 4: (P180,000 x 0.5158) 92,844

Yr. 5: (P180,000 x 0.4371) 78,678 562,896
Acquisition cost P762,896
Divided by 5
Monetary value P152,579

2. FBT (P152,579/68%) x 32% P 71,802

C. 1. Monetary value (P816,000 x 150%) P1,224,000

2. FBT (P1,224,000/68%) x 32% P 576,000

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

2. FBT (P40,800/68%) x 32% P 19,200

E. 1. Monetary value (P244,000 x 50%) P 122,000

2. FBT (P122,000/68%) x 32% P 57,412

F. 1. Monetary value (P1,360,000 x 5% x 50%) P 34,000

2. FBT (P34,000/68%) x 32% P 16,000

Problem 6 – 29

1. FBT – condominium [(P8,000,000 x 5% x 50%)/68%] x 32% P 94,118

FBT – car:
Down payment P 300,000
Present value of P240,000 yearly installment at 12%
(P240,000 x 3.605) 865,200
Acquisition cost P1,165,200
Divided by 5
Monetary value P 233,040
FBT – car (P233,040/68%) x 32% P 109,666

2. Journal entries:
FB expense 94,118
Cash / FBT payable 94,118

FB expense 1,274,866
Car 1,165,200
Cash / FBT payable 109,666