Chapt-6 Fb Tax2013f

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 employer’s 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 employer’s 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.

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

Chapter 6: Fringe Benefits Tax

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

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

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

Chapter 6: Fringe Benefits Tax

Correction: Should be - The car ownership was transferred to Mr. Alegre. 1.

2.

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%)

Problem 6 – 8 1. Letter C Monetary value of FB (P80,000/32%) x 68% 2.

Letter B Grossed-up monetary value (P80,000/32%)

Letter D A fringe benefit tax is not an income tax of employer.

P

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

P170,000 P250,000

3.

Problem 6 – 9 C Meal benefits (P10,200 x 6 months) Educational assistance (P13,600 x 6 months) Fringe benefits subject to FBT

P - 0 -

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

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

Chapter 6: Fringe Benefits Tax

1 .

Letter A Grossed-up monetary value (P6,000,000 x 5% x 50%)/68% Multiplied by FBT rate Fringe benefit tax

2 .

P220,588 32% P 70,588

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

P2,000,000 3,037,000 P5,037,000 P185,183 32% P 59,258 P73,529 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 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 .

P47,500,000 500,000 P48,000,000 P9,600,000 P 960,000 10 P 96,000

P147,059 32% P 47,059

Letter C Grossed-up monetary value (P1,000,000/5)/68% Multiplied by FBT rate Fringe benefit tax

P294,117 32% P 94,117

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

50

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

P150,000 6 P900,000

Annual value of fringe benefits of each officer [(P900,000/6) x 50%]

P 75,000

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

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

P 5,440 6,800 P12,440

Only the personal expense reimburse. Problem 6 – 22 Grocery items Pants and T-shirt Total monetary value of FB

D

Fringe benefit tax (P20,400/68%) x 32% Problem 6 – 23 B FB expense (P476,000 x 75%)/68%

P17,000 3,400 P20,400 P 9,600 P525,000

Problem 6 – 24 D Fringe benefit tax (P16,320/68%) x 32%

P 7,680

Problem 6 – 25 C Fringe benefit tax (P57,800/68%) x 32%

P27,200

Problem 6 – 26

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

Chapter 6: Fringe Benefits Tax

1.

Letter D There is no FBT for rank-in-file employee.

2.

Letter B 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 6 – 27 Professional Tax Receipts PICPA Lifetime membership Goma golf club Baguio Country Club Total taxable fringe benefits

D P

5,440 13,600 68,000 340,000 P427,040

FBT (P427,040/68%) x 32%

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

P 20,000 14,000 P 34,000

Fringe benefit expense (P34,000/68%)

P 50,000

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

P 7,680 P600,000

A

Zero. The scholarship was obtained through competitive examination. Problem 6 – 32 1. Letter D None. Exempt because the educational benefit is related to work. (Employer’s benefit rule) 2.

Letter B P65,280 – Only the monetary value is deductible because the benefit is tax-exempt.

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

Problem 6 – 34

B

P200,000 15% P 30,000

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

52

Chapter 6: Fringe Benefits Tax

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

P10,000 24,000 P34,000 P100,000 P1,000,000 893,000

107,000 P207,000

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

P 2,040 68% P 3,000 32% P 960

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

P12,000 4,000 10,000 1,500 3,600 10,000 P41,100

2.

Car Divided by grossed-up rate Grossed-up monetary value Multiplied by FBT rate Fringe benefit tax

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

P13,464 20,400 P33,864 68% 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.

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

Chapter 6: Fringe Benefits Tax

Problem 6 – 39 A. 1. Monetary value

B.

C.

D.

E.

F.

P68,000

2.

FBT (P68,000/68%) x 32%

P32,000

1.

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

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

562,896 P762,896 5 P152,579

2.

FBT (P152,579/68%) x 32%

P 71,802

1.

Monetary value (P816,000 x 150%)

P1,224,000

2.

FBT (P1,224,000/68%) x 32%

P 576,000

1.

Annual monetary value = annual depreciation (P1,020,000/25)

P

40,800

2.

FBT (P40,800/68%) x 32%

P

19,200

1.

Monetary value (P244,000 x 50%)

P 122,000

2.

FBT (P122,000/68%) x 32%

1.

Monetary value (P1,360,000 x 5% x 50%)

P 34,000

2.

FBT (P34,000/68%) x 32%

P 16,000

P

57,412

Problem 6 – 40 1.

2.

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

70,588

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

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%)

P 125,000

2.

Grossed-up monetary value of condominium (P125,000/68%)

P 183,823

3.

Fringe benefit tax on the use of condominium (P183,823 x 32%)

P 58,823

4.

Grossed-up monetary value of the car (P500,000/5)/68%

P 147,059

5.

FBT of car (P147,059 x 32%)

P 47,059

6.

None. The cash is a fixed compensation income

7

Zero. Compensation income is subject to normal income tax.