Income taxation by valencia chapter 6 (fringe benefit tax)

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 27 Chapter 6: Fringe Benefits Tax CHAPTER FRINGE BENEFITS TAX Problem – TRUE OR FALSE True False – These are benefits other than salaries False – Wage and salaries are not subject to reduction once given regardless of the financial condition of the employer True 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% True, unless these are deminimis False – FBT is a final tax of the employee 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 – TRUE OR FALSE True False – If in the name of an officer employee and reimburse or paid by the employer False - Fringe benefit which are necessary for the business and required for the convenience of the employer are not subject to fringe benefit tax 10 11 12 13 True False – Scholarship grants to employees not related to business is taxable False – These are among those exempted from fringe benefit tax 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 False – Rank-in-file employees’ fringe benefits are subject to income tax on wages True True False – medical allowance of P750 per semester False – Daily meal allowance for overtime True Problem – A A B C B C D 10 A D 11 D D 12 D Problem – 4A Case 1: C 28 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 6: Fringe Benefits Tax Taxable P240,000 Basic salary 13 th month pay De minimis within ceiling (P1,500 x 12) Other benefits - excess of de minimis (P24,000 – P18,000) Total Nontaxable P20,000 18,000 6,000 P240,000 P44,000 Note: The 13 th 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 Total basic salary Overtime pay Hazard pay Holiday pay De minimis: Nontaxable rice subsidy (P1,500 x 12) Nontaxable clothing allowance 13th month pay and other benefits: 13 th month pay Other benefits – excess of de minimis Rice subsidy (P36,000 – P18,000) Clothing (P20,000 – P4,000) Total Taxable P108,000 30,000 2,000 1,000 Nontaxable P18,000 4,000 Nontaxable P 9,000 18,000 3,000 13,000 P154,000 30,000 P52,000 Taxable P96,000 20,000 Nontaxable Case 4: Not in the choices Total basic salary Overtime pay De minimis: Nontaxable rice subsidy (P1,500 x 12) 13th month pay and other benefits: 13 th month pay Other benefits – excess of de minimis Rice subsidy (P24,000 – P18,000) Rent income Interest income (P4,000/80%) Total P18,000 Nontaxable P 8,000 6,000 14,000 60,000 5,000 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 – 4B Case 1: Housing benefits A GMV (P6,000,000 x 5% x 50%)/68% P220,588 29 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 6: Fringe Benefits Tax Multiplied by FBT rate FBT 32% P 70,588 B Down payment Installments (P1,000,000 x x 0.636) Acquisition cost, excluding interest P2,000,000 2,544,000 P4,544,000 GMV (P5,037,300 x 5% x 50%)/68%) Multiplied by FBT rate FBT P2.00 difference is due to rounding off P185,195 32% P 59,262 Present values of installment payments Year: 1: (P1,000,000 x 0.8928) 2: (P1,000,000 x 0.7972) 3: (P1,000,000 x 0.7118) 4: (P1,000,000 x 0.6355) Total Add: Downpayment Monetary value P 892,800 797,200 711,800 635,500 P3,037,300 2,000,000 P5,037,300 Case 2: Motor vehicle benefits A GMV [(P1,000,000/5) x 50%]/68% Multiplied by FBT rate FBT P147,059 32% P 47,059 C GMV [(P1,000,000/5)/68%] Multiplied by FBT rate FBT P294,118 32% P 94,118 Correction of Page 270: Motor vehicle formula No 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 – C = P170,000 Monetary value of FB (P80,000/32%) x 68% P170,000 B = P250,000 Grossed-up monetary value (P80,000/32%) P250,000 D = P – A fringe benefit tax is not an income tax of employer Problem – A Deductible from business income (P136,000/68%) P - - P 200,000 30 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 6: Fringe Benefits Tax Problem – 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 – 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 – 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 – 10 B Acquisition cost = fair market value (higher than zonal value) Monthly fringe benefit [(P2,040,000 x 5% x 50%)/12]/68% Problem – 11 P2,040,000 P 6,250 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 – 12 A Grossed-up monetary value (P17,000 + P6,800)/68% Multiplied by FBT rate Problem – 13 FB expense (P476,000 x 75%)/68% P30,000 32% P 9,600 P525,000 Problem – 14 D Fringe benefit tax (P16,320/68%) x 32% P 7,680 Problem – 15 C Fringe benefit tax (P57,800/68%) x 32% P27,200 Problem – 16 B D There is no FBT for rank-in-file employee 31 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 6: Fringe Benefits Tax Benchmark interest (P88,400 x 12%) Less: Actual interest charge (P88,400 x 3%) Difference P10,608 2,652 P 7,956 FBT (P7,956/68%) x 32% P 3,744 Problem – 17 Goma golf club Baguio Country Club Total taxable fringe benefits B P 68,000 340,000 P408,000 FBT (P408,000/68%) x 32% P192,000 Problem – 18 A Hotel accommodation [($1,600- ($300 x 4)] x P50/$1 Personal expenses ($280 x P50/$1) Total amount of fringe benefits P 20,000 14,000 P 34,000 Fringe benefit expense (P34,000/68%) P 50,000 Problem – 19 C Fringe benefit tax [(P54,400 x 30%) / 68%] x 32% Problem – 20 B Fringe benefit expense (P408,000/68%) Problem – 21 P 7,680 P600,000 A Zero The scholarship was obtained through competitive examination Problem – 22 D None Exempt because the educational benefit is related to work (Employer’s benefit rule) B P65,280 – Only the monetary value is deductible because the benefit is tax-exempt Problem – 23 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 Car Uniform and clothing allowance (P6,800 – P3,000) Medical allowance to dependents (P8,500 – P1,500) Total monetary value Divided by grossed-up rate Grossed-up monetary value Multiplied by FBT rate Fringe benefit tax P12,000 3,000 10,000 1,500 3,600 10,000 P40,100 P214,000 3,800 7,000 P224,800 68% P330,588 32% P105,788 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 32 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 – 24 Housing benefit (P12,240 x 110%) Lions Club membership fee Total Divided by grossed-up rate Taxable amount of FB P13,464 20,400 P33,864 68% P49,800 Fringe benefit tax (P49,800 x 32%) P15,936 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 – 25 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 Divided by GMV divisor Grossed-up monetary value Multiplied by FBT rate Fringe benefit tax due P112,500 75% P150,000 25% P 37,500 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 Divided y GMV divisor Grossed-up monetary value Multiplied by FBT rate Fringe benefit tax due P112,500 85% P132,353 15% P 19,853 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 Divided by GMV divisor Grossed-up monetary value Multiplied by FBT rate Fringe benefit tax due Problem – 26 Minimum wage earner Taxable compensation income The MWE qualifies for tax exemption because his P112,500 75% P150,000 25% P 37,500 P - - 33 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 6: Fringe Benefits Tax 13 th month pay and other benefits does not exceed P30,000, computed as follows: 13 th month pay Rice subsidy (P24,000 – P18,000) Actual hospitalization payments (P15,000 – P10,000) Clothing allowance (P5,000 – P4,000) 13 th month pay and other benefits – nontaxable Not a minimum wage earner Gross compensation income Less: SSS premium contribution Philhealth premium contribution Taxable compensation P 9,100 6,000 5,000 1,000 P21,100 P109,200 P2,400 3,000 5,400 P103,800 Note: Temporary housing for months is not taxable Problem – 27 Minimum wage earner Gross compensation income Less: SSS premium contribution Philhealth premium contribution Net taxable compensation Not a minimum wage earner Gross compensation income Less: SSS premium contribution Philhealth premium contribution Net taxable compensation P128,000 P2,400 3,000 5,400 P122,600 P128,000 P2,400 3,000 5,400 P122,600 Notes: The MWE is disqualified from tax exemption once he has other other income subject to normal tax aside from his compensation income The rent income is not included in the solutin amount because the requirement is only taxable compensation income Nontaxable 13 th month pay and other benefits: 13 th month pay Add: Excess DM: actual hospitalization (P20,000 – P10,000) food overtime allow (P1,500 – (P10,600/30) x 25% x 10) Total nontaxable 13 th month pay and other benefits P10,600 P10,000 617 P21,217 Problem – 28 A Monetary value B 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) 10,617 P68,000 P32,000 P200,000 152,550 129,276 34 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 6: Fringe Benefits Tax 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 C D E F 109,548 92,844 78,678 562,896 P762,896 P152,579 FBT (P152,579/68%) x 32% P 71,802 Monetary value (P816,000 x 150%) P1,224,000 FBT (P1,224,000/68%) x 32% P 576,000 Annual monetary value = annual depreciation (P1,020,000/25) P 40,800 FBT (P40,800/68%) x 32% P 19,200 Monetary value (P244,000 x 50%) P 122,000 FBT (P122,000/68%) x 32% Monetary value (P1,360,000 x 5% x 50%) P 34,000 FBT (P34,000/68%) x 32% P 16,000 P 57,412 Problem – 29 FBT – condominium [(P8,000,000 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 94,118 P 300,000 865,200 P1,165,200 P 233,040 P 109,666 94,118 94,118 1,274,866 1,165,200 109,666 ... 0.7182) 10 ,61 7 P68,000 P32,000 P200,000 152,550 129,2 76 34 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 6: Fringe Benefits Tax Yr 3: (P180,000 x 0 .60 86) Yr 4: (P180,000... Case 1: Housing benefits A GMV (P6,000,000 x 5% x 50%) /68 % P220,588 29 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 6: Fringe Benefits Tax Multiplied by FBT rate FBT... payable FB expense Car Cash / FBT payable P 94,118 P 300,000 865 ,200 P1, 165 ,200 P 233,040 P 109 ,66 6 94,118 94,118 1,274, 866 1, 165 ,200 109 ,66 6