1.SORIANO, Cesar Nickolai 2.JAMONER, Winnie Claire 3.DULNUAN, Gina Mae 4.IBANGGA, Christopher Bernard TAX I REPORTING ATTY BUNDAC AUSL 2013-2014.

1.SORIANO, Cesar Nickolai 2.JAMONER, Winnie Claire 3.DULNUAN, Gina Mae 4.IBANGGA, Christopher Bernard TAX I REPORTING ATTY BUNDAC AUSL 2013-2014

Gross Income

Underlying Laws and Regulations SEC. 32. Gross Income of the National Internal Revenue Code Revenue Regulation (RR) 2-98 as amended by RR 10-2008

SEC. 32. Gross Income - (A) General Definition. - Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items: (1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items; xxx

SEC. 32. Gross Income - IncomeCapital Income is any wealth which flows into the taxpayers other than a return of capital, while Income is the flow Income is the service of wealth Income is the fruit of the tree Capital constitutes the investments which is the source of income Capital is fund Capital is wealth Capital is the tree

BIR Form 1700 Annual Income Tax Return for Individuals Earning Purely Compensation Income

SEC. 32. Gross Income Compensation Income for services rendered in whatever form paid. (A) Compensation Income Defined. In general, the term "compensation" means all remuneration for services performed by an employee for his employer under an employer- employee relationship, unless specifically excluded by the Code. The name by which the remuneration for services is designated is immaterial. The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation. Remuneration for services constitutes compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them.

SEC. 32. Gross Income Compensation paid in cash If the compensation is paid in cash, the full amount received is the measure of the income subject to tax

SEC. 32. Gross Income Compensation paid in Promissory Note Shall be treated as income as of the time of receipt of the fair discounted value of the note at that time

SEC. 32. Gross Income (1) Compensation paid in kind. Compensation may be paid in money or in some medium other than money, as for example, stocks, bonds or other forms of property. If services are paid for in a medium other than money, the fair market value of the thing taken in payment is the amount to be included as compensation subject to withholding. If the services are rendered at a stipulated price, in the absence of evidence to the contrary, such price will be presumed to be the fair market value of the remuneration received. If a corporation transfers to its employees its own stock as remuneration for services rendered by the employee, the amount of such remuneration is the fair market value of the stock at the time the services were rendered.

SEC. 32. Gross Income (2) Living quarters or meals. If a person receives a salary as remuneration for services rendered, and in addition thereto, living quarters or meals are provided, the value to such person of the quarters and meals so furnished shall be added to the remuneration paid for the purpose of determining the amount of compensation subject to withholding. However, if living quarters or meals are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income.

SEC. 32. Gross Income

BenefitCeiling Amount Medical Benefits Actual medical assistance not exceeding P10,000 per year Employee Achievement Awards Tangible personal property other than cash or gift certificate with an annual monetary value not exceeding P10,000 Gifts given during Christmas and major anniversary celebrations Not exceeding P5,000 per annum Uniforms and clothing allowance P4,000 per annum (now P5,000 under RR 8- 2012) Rice subsidy P1,500 or 1 sack of 50kg rice per moth amounting to not more than P1,500 Laundry allowanceNot exceeding P300 per month Medical cash allowance to dependents of employees Not exceeding P750 per semester or P125 per month Daily meal allowance for overtime work and night/graveyard shift Not exceeding 25% of the basic minimum wage on a per region basis Monetized unused vacation and sick leave No ceiling for government employees If private employees, the first 10 VACATION leave credits *Any amount given by the employer as benefit, whether classified as fringe benefits or de minimis benefits, shall constitute as deductible expense upon such employer.

SEC. 32. Gross Income (4) Tips and gratuities. Tips or gratuities paid directly to an employee by a customer of the employer which are not accounted for by the employee to the employer are considered as taxable income but not subject to withholding.

SEC. 32. Gross Income (5) Pensions, retirement and separation pay. Pensions, retirement and separation pay constitute compensation subject to withholding, except those provided under Subsection B of RR 2-98

SEC. 32. Gross Income (6) Fixed or variable transportation, representation and other allowances (a) IN GENERAL, fixed or variable transportation, representation and other allowances which are received by a public officer or employee or officer or employee of a private entity, in addition to the regular compensation fixed for his position or office, is compensation subject to withholding.

SEC. 32. Gross Income (6) Fixed or variable transportation, representation and other allowances (b) Any amount paid specifically, either as advances or reimbursements for travelling, representation and other bonafide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied: (i) It is for ordinary and necessary travelling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade, business or profession; and (ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Sec. 34 of the Code. The excess of actual expenses over advances made shall constitute taxable income if such amount is not returned to the employer. Reasonable amounts of reimbursements/ advances for travelling and entertainment expenses which are pre-computed on a daily basis and are paid to an employee while he is on an assignment or duty need not be subject to the requirement of substantiation and to withholding.

SEC. 32. Gross Income (7) Vacation and sick leave allowances. Amounts of "vacation allowances or sick leave credits" which are paid to an employee constitute compensation. Thus, the salary of an employee on vacation or on sick leave, which are paid notwithstanding his absence from work, constitutes compensation. However, the monetized value of unutilized vacation leave credits of ten (10) days or less which were paid to the employee during the year are not subject to income tax and to the withholding tax.

SEC. 32. Gross Income (8) Deductions made by employer from compensation of employee. Any amount which is required by law to be deducted by the employer from the compensation of an employee including the withheld tax is considered as part of the employee's compensation and is deemed to be paid to the employee as compensation at the time the deduction is made.

SEC. 32. Gross Income (9) Remuneration for services as employee of a non-resident alien individual or foreign entity. The term "compensation" includes remuneration for services performed by an employee of a non-resident alien individual, foreign partnership or foreign corporation, whether or not such alien individual or foreign entity is engaged in trade or business within the Philippines.

(10) Compensation for services performed outside the Philippines. Remuneration for services performed outside the Philippines by a resident citizen for a domestic or a resident foreign corporation or partnership, or for a non-resident corporation or partnership, or for a non-resident individual not engaged in trade or business in the Philippines shall be treated as compensation which is subject to tax. SEC. 32. Gross Income

Exemptions from withholding tax on compensation (RR 2-98)

SEC 32 (B) Exemptions from withholding tax on compensation. The following income payments are exempted from the requirement of withholding tax on compensation: 1) Remunerations received as an incident of employment, as follows: (a) Retirement benefits received under Republic Act under 7641 and those received by officials and employees of private firms, whether individual or corporate, under a reasonable private benefit plan maintained by the employer which meet the following requirements: (i) The plan must be reasonable; (ii) The benefit plan must be approved by the Bureau; (iii) The retiring official or employee must have been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of retirement; and (iv) The retiring official or employee should not have previously availed of the privilege under the retirement benefit plan of the same or another employer. (b) Any amount received by an official or employee or by his heirs from the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee, such as retrenchment, redundancy, or cessation of business. Rep

(b) Any amount received by an official or employee or by his heirs from the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee, such as retrenchment, redundancy, or cessation of business. The phrase "for any cause beyond the control of the said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him. The separation was not of his own making. Whether or not the separation is beyond the control of the official or employee, being essentially a question of fact, shall be determined on the basis of prevailing facts and circumstances. It shall be duly established by the employer by competent evidence which should be attached to the monthly return for the period in which the amount paid due to the involuntary separation was made. Amounts received by reason of involuntary separation remain exempt from income tax even if the official or the employee, at the time of separation, had rendered less than ten (10) years of service and/or is below fifty (50) years of age. Any payment made by an employer to an employee on account of dismissal, constitutes compensation regardless of whether the employer is legally bound by contract, statute, or otherwise, to make such payment.

(c) Social security benefits, retirement gratuities, pensions and other similar benefits received by residents or non-resident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions private or public; (d) Payments of benefits due or to become due to any person residing in the Philippines under the law of the United States administered by the United States Veterans Administration; (e) Payments of benefits made under the Social Security System Act of 1954 as amended; and (f) Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity received by government officials and employees.

(2) Remuneration paid for agricultural labor (a) Remuneration for services which constitute agricultural labor and paid entirely in products of the farm where the labor is performed is not subject to withholding. In general, however, the term, "agricultural labor" does not include services performed in connection with forestry, lumbering or landscaping. (b) Remuneration paid entirely in products of the farm where the labor is performed by an employee of any person in connection with any of the following activities is excepted as remuneration for agricultural labor: (i) The cultivation of soil; (ii) The raising, shearing, feeding, caring for, training, or management of livestock, bees, poultry, or wildlife; or (iii) The raising or harvesting of any other agricultural or horticultural commodity. The term "farm" as used in this subsection includes, but is not limited to stock, dairy, poultry, fruits and truck farms, plantations, ranches, nurseries ranges, orchards, and such greenhouse and other similar structures as are used primarily for the raising of agricultural or horticultural commodities.

(c) The remuneration paid entirely in products of the farm where labor is performed for the following services in the employ of the owner or tenant or other operator of one or more farms is not considered as remuneration for agricultural labor, provided the major part of such services is performed on a farm: (i) Services performed in connection with the operation, management, conservation, improvement, or maintenance of any such farms or its tools or equipments; or (ii) Services performed in salvaging timber, or clearing land brush and other debris left by a hurricane or typhoon. The services described in (i) above may include for example, services performed by carpenters, painters, mechanics, farm supervisors, irrigation engineers, bookkeepers, and other skilled or semi-skilled workers, which contribute in any way to the conduct of the farm or farms, as such, operated by the person employing them, as distinguished from any other enterprise in which such person may be engaged. Since the services described in this paragraph must be performed in the employ of the owner or tenant or other operator of the farm, the exception does not extend to remuneration paid for services performed by employees of a commercial painting concern, for example, which contracts with a farmer to renovate his farm properties.

(d) Remuneration paid entirely in products of the farm where labor is performed by an employee in the employ of any person in connection with any of the following operations is not considered as remuneration for agricultural labor without regard to the place where such services are performed: (i) The making of copra, stripping of abaca, etc.; (ii) The hatching of poultry; (ii) The raising of fish; (iv) The operation or maintenance of ditches, canals, reservoirs, or waterways used exclusively for supplying or storing water for farming purposes; and (v) The production or harvesting of crude gum from a living tree or the processing of such crude gum into gum spirits or turpentine and gum resin, provided such processing is carried on by the original producer of such crude gum.

(e) Remuneration paid entirely in products of the farm where labor is performed by an employee in the employ of a farmer or a farmer's cooperative, organization or group in the handling, planting, drying, packing, packaging, processing, freezing, grading, storing or delivering to storage or to market or to carrier for transportation to market, of any agricultural or horticultural commodity, produced by such farmer or farmer-members of such organization or group, is excepted as remuneration for agricultural labor. Services performed by employees of such farmer or farmer's organization or group in handling, planting, drying, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to carrier for transportation to market of commodities produced by persons other than such farmer or members of such farmer's organization or group are not performed "as an incident to ordinary farming operation". All payments made in cash or other forms other than products of the farm where labor is performed, for services constituting agricultural labor as explained above, are not within the exception.

(3) Remuneration for domestic services. Remuneration paid for services of a household nature performed by an employee in or about the private home of the person by whom he is employed is not subject to withholding. However, the services of household personnel furnished to an employee (except rank and file employees) by an employer shall be subject to the fringe benefits tax pursuant to Sec. 33 of the Code, as amended. A private home is the fixed place of abode of an individual or family. If the home is utilized primarily for the purpose of supplying board or lodging to the public as a business enterprise, it ceases to be a private home and remuneration paid for services performed therein is not exempted. In general, services of a household nature in or about a private home include services rendered by cooks, maids, butlers, valets, laundresses, gardeners, chauffeurs of automobiles for family use. The remuneration paid for the services above enumerated which are performed in or about rooming or lodging houses, boarding houses, clubs, hotels, hospitals or commercial offices or establishments is considered as compensation; Remuneration paid for services performed as a private secretary, even if they are performed in the employer's home is considered as compensation;

(4) Remuneration for casual labor not in the course of an employer's trade or business. The term "casual labor" includes labor which is occasional, incidental or regular. The expression "not in the course of the employer's trade or business" includes labor that does not promote or advance the trade or business of the employer. Thus, any remuneration paid for labor which is occasional, incidental or irregular, and does not promote or advance the employer's trade or business, is not considered as compensation. EXAMPLE: A's business is that of operating a sawmill. He employs B, a carpenter, at an hourly wage to repair his home. B's work is irregular and he spends, the greater part of two days in completing the work. Since B's labor is casual and is not in the course of A's business, the remuneration paid for such services is exempted. Any remuneration paid for casual labor, that is, labor which is occasional, incidental or irregular, but which is rendered in the course of the employer's trade or business, is considered as compensation. EXAMPLE: E is engaged in the business of operating a department store. He employs additional clerks for a short period. While the services of the clerks may be casual, they are rendered in the course of the employer's trade or business and therefore the remuneration paid for such services is considered as compensation. Any remuneration paid for casual labor performed for a corporation is considered as compensation;

(5) Compensation for services by a citizen or resident of the Philippines for a foreign government or an international organization. Remuneration paid for services performed as an employee of a foreign government or an international organization is exempted. The exemption includes not only remuneration paid for services performed by ambassadors, ministers and other diplomatic officers and employees but also remuneration paid for services performed as consular or other officer or employee of a foreign government or as a non-diplomatic representative of such government.

6) Damages. Actual, moral, exemplary and nominal damages received by an employee or his heirs pursuant to a final judgment or compromise agreement arising out of or related to an employer-employee relationship. 7) Life Insurance. The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, provided however, that interest payments agreed under the policy for the amounts which are held by the insured under such an agreement shall be included in the gross income. (8) Amount received by the insured as a return of premium. The amount received by the insured, as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract. (9) Compensation for injuries or sickness. Amounts received through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness.

(10) Income exempt under treaty. Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines. (11) Thirteenth (13th ) month pay and other benefits. (a) Thirteenth (13th) month pay equivalent to the mandatory one (1) month basic salary of officials and employees of the government, (whether national or local), including government-owned or controlled corporations, and or private offices received after the twelfth (12th) month pay; and (b) Other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices. The above stated exclusions (a) and (b) shall cover benefits paid or accrued during the year provided that the total amount shall not exceed thirty thousand pesos (P30,000.00) which may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the effect on the same of the inflation rate at the end of the taxable year. (12) GSIS, SSS, Medicare and other contributions. GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of individual employees

(1) Life Insurance. The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, provided however, that interest payments agreed under the policy for the amounts which are held by the insured under such an agreement shall be included in the gross income. (2) Amount received by the insured as a return of premium. The amount received by the insured, as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract. (3) Compensation for injuries or sickness. Amounts received through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness. (4) Income exempt under treaty. Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines. (5) Retirement benefits, pensions, gratuities, etc (6) Thirteenth (13th ) month pay and other benefits not exceeding P30 000 (7) GSIS, SSS, Medicare and other contributions SEC 32 (B) Exclusions from Gross Income

FRINGE BENEFITS

A.Basic Concepts

Underlying Laws and Regulations Fringe Benefits Tax 38 Section 33 of the National Internal Revenue Code [NIRC] Revenue Regulations (RR) No. 3-98 and amendments (RR Nos. 8-2000, 10-2000, 5-2011 and 8-2012)

Fringe Benefits: Definition 39 What are Fringe Benefits? Fringe Benefit means 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) such as, but not limited to, the following: 1) Housing; 2) Expense account; 3) Vehicle of any kind; 4) Household personnel, such as maid, driver and others; 5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted; Sec. 33(B), Tax Code

Fringe Benefits: Definition 40 6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations; 7) Expenses for foreign travel; 8) Holiday and vacation expenses; 9) Educational assistance to the employee or his dependents; and 10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. Sec. 33(B), Tax Code

Person Liable for FBT 41 Who is liable to FBT? The EMPLOYER, whether individual, professional partnership or a corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalities except when: 1) the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer; or 2) when the fringe benefit is for the convenience or advantage of the employer, is liable for FBT.

Fringe Benefits: Tax Rate and Base 42 In General: Effective January 1, 2000 and thereafter: where the GMV of the fringe benefit shall be determined by dividing the actual monetary value by 68% (i.e., 100% - 32%). Tax RateTax Base 32%Grossed-up monetary value (GMV) of the fringe benefit furnished or granted to the employee (except rank-and-file employees) by the employer

Valuation of FBT 43 ConditionsValuation If the fringe benefit is granted in money, or is directly paid for by the employer The value is the amount granted or paid for. If the fringe benefit is granted or furnished by the employer in property other than money and ownership is transferred to the employee The value of the fringe benefit shall be equal to the fair market value (FMV) of the property as determined in accordance with Sec. 6(E) of the Tax Code (zonal value or assessed value). If the fringe benefit is granted or furnished by the employer in property other than money but ownership is NOT transferred to the employee The value of the fringe benefit is equal to the depreciation value of the of the property.

B.Classification of Employees

Classification of Employees 45 a. Managerial Employee one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees. b. Supervisory Employees those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not independent judgment merely routinary or clerical in nature but requires the use of. c. Rank and File Employees means all employees who are holding neither managerial nor supervisory position.

C.Fringe Benefits Subject to FBT

Fringe Benefits Subject to FBT: Housing 47 Housing PrivilegeMonetary Value (MV) a.Lease of residential property for residential use of employee 50% x rental payments Sec. 2.33(B)(1)(a), RR No. 3-98

Fringe Benefits Subject to FBT: Housing 48 Housing PrivilegeMonetary Value (MV) b.Assignment of residential property for use of employee as his usual place of residence [5% (FMV) or ZV, whichever is higher] x 50% Where: ZV Zonal Value of the land and improvement, as declared in the Real Property Declaration Form FMV Fair Market Value as determined by the Commissioner of Internal Revenue Sec. 2.33(B)(1)(b), RR No. 3-98

Fringe Benefits Subject to FBT: Housing 49 Housing PrivilegeMonetary Value (MV) c.Purchase of residential property on installment basis for residential use of employee 5% x AC x 50% Where: AC Acquisition Cost, exclusive of interest Sec. 2.33(B)(1)(c), RR No. 3-98

Fringe Benefits Subject to FBT: Housing 50 Housing PrivilegeMonetary Value (MV) d.Purchase of residential property and ownership thereof is transferred in the name of the employee FMV or ZV, whichever is higher Sec. 2.33(B)(1)(d), RR No. 3-98

Fringe Benefits Subject to FBT: Housing 51 Housing PrivilegeMonetary Value (MV) e.Purchase of residential property and ownership thereof is transferred to the employee for his residential use, at a price less than the employer's acquisition cost FMV or ZV, whichever is higher less the cost to the employee Sec. 2.33(B)(1)(e), RR No. 3-98

Fringe Benefits Subject to FBT: Expense Account 52 The following are treated as taxable fringe benefits: 1. In general, expenses incurred by the employee but which are paid by his employer, except when: a. the expenditures are duly receipted for and in the name of the employer, and b. the expenditures do not partake the nature of a personal expense attributable to the employee. 2. Expenses paid for by the employee but reimbursed by his employer, except only when: a. the expenditures are duly receipted for and in the name of the employer, and b. the expenditures do not partake the nature of a personal expense attributable to the said employee. Sec. 2.33(B)(2)(a) and (b), RR No. 3-98

Fringe Benefits Subject to FBT: Expense Account 53 3. Personal expenses of the employee (like purchases of groceries for the personal consumption of the employee and his family members) paid for or reimbursed by the employer to the employee whether or not the same are duly receipted for in the name of the employer. Sec. 2.33(B)(2)(c), RR No. 3-98

Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind 54 Motor VehicleMonetary Value (MV) a.Purchase of motor vehicle in the name of the employee Acquisition Cost (AC) Sec. 2.33(B)(3)(a), RR No. 3-98

Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind 55 Motor VehicleMonetary Value (MV) b.Cash is provided to the employee for the purchase of the motor vehicle, the ownership of which is placed in the name of the employee Amount of cash received by the employee Please note that if the cash received by the employee was subjected to a withholding tax as compensation income under RR No. 2-98, the same shall not be subject to FBT. Sec. 2.33(B)(3)(b), RR No. 3-98

Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind 56 Motor VehicleMonetary Value (MV) c.Purchase of car on installment basis and the ownership of which is placed in the name of the employee AC (exclusive of interest) / 5 years Sec. 2.33(B)(3)(c), RR No. 3-98

Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind 57 Motor VehicleMonetary Value (MV) d.Employer shoulders a portion of the amount of the purchase price of the motor vehicle, the ownership of which is placed in the name of the employee Amount shouldered by the employer Sec. 2.33(B)(3)(d), RR No. 3-98

Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind 58 Motor VehicleMonetary Value (MV) e.Employer OWNS and maintains a fleet of motor vehicles for the use of the business and the employees [AC/5] x 50% Does NOT include motor vehicles in the fleet which are normally used for sales, freight, delivery service and other non-personal use. Sec. 2.33(B)(3)(e), RR No. 3-98

Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind 59 Motor VehicleMonetary Value (MV) f.Employer LEASES and maintains a fleet of motor vehicles for the use of the business and the employees 50% x Rental payments Does NOT include motor vehicles in the fleet which are normally used for sales, freight, delivery service and other non-personal use. Sec. 2.33(B)(3)(f), RR No. 3-98

Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind 60 Motor VehicleMonetary Value (MV) h.Use of yacht owned and maintained or leased by the employer Depreciation of the yacht at an estimated life of 20 years Sec. 2.33(B)(3)(h), RR No. 3-98

Fringe Benefits Subject to FBT: Household Expenses 61 Expenses of the employee which are borne by the employer for household personnel, such as salaries of household help, personal driver of the employee, or other similar personal expenses (like payment for homeowners association dues, garbage dues, etc.) shall be treated as taxable fringe benefits. Sec. 2.33(B)(4), RR No. 3-98

Fringe Benefits Subject to FBT: Interest on loan at less than Market Rate 62 If the employer lends money to his employee free of interest or at a rate lower than 12%, such interest foregone by the employer or the difference of the interest assumed by the employee and the rate of 12% shall be treated as a taxable fringe benefit. The benchmark interest rate of 12% shall remain in effect until revised by a subsequent regulation. This shall apply to installment payments or loans with interest rate lower than 12% starting January 1, 1998. Sec. 2.33(B)(5), RR No. 3-98

Fringe Benefits Subject to FBT: Membership Fees, Dues, and Other Expenses 63 Membership fees, dues, and other expenses borne by the employer for his employee, in social and athletic clubs or other similar organizations shall be treated as taxable fringe benefits of the employee in FULL. Sec. 2.33(B)(6), RR No. 3-98

Fringe Benefits Subject to FBT: Expenses for Foreign Travel 64 a. Reasonable business expenses which are paid for by the employer for the foreign travel of his employee for the purpose of attending business meetings or conventions shall NOT be treated as taxable fringe benefits. In this instance, inland travel expenses (such as expenses for food, beverages and local transportation) EXCEPT lodging cost in a hotel (or similar establishments) amounting to an average of US$300 or less per day, shall NOT be subject to FBT. The expenses should be supported by documents proving the actual occurrences of the meetings or conventions. The cost of economy and business class airplane ticket shall NOT be subject to a fringe benefit tax. However, 30% of the cost of first class airplane ticket shall be subject to FBT. Sec. 2.33(B)(7), RR No. 3-98

Fringe Benefits Subject to FBT: Expenses for Foreign Travel 65 b. In the absence of documentary evidence showing that the employee's travel abroad was in connection with business meetings or conventions, the entire cost of the ticket, including cost of hotel accommodations and other expenses incident thereto shouldered by the employer, shall be treated as taxable fringe benefits. The business meetings shall be evidenced by official communications from business associates abroad indicating the purpose of the meetings. Business conventions shall be evidenced by official invitations or communications from the host organization or entity abroad. Otherwise, the entire cost thereof shouldered by the employer shall be treated as taxable fringe benefits of the employee. Sec. 2.33(B)(7), RR No. 3-98

Fringe Benefits Subject to FBT: Expenses for Foreign Travel 66 c. Travelling expenses which are paid by the employer for the travel of the family members of the employee shall be treated as taxable fringe benefits of the employee. Sec. 2.33(B)(7), RR No. 3-98

Fringe Benefits Subject to FBT: Holiday and Vacation Expenses 67 Holiday and vacation expenses of the employee borne by his employer shall be treated as taxable fringe benefits. Sec. 2.33(B)(8), RR No. 3-98

Fringe Benefits Subject to FBT: Educational Assistance 68 a. The cost of the educational assistance to the employee which are borne by the employer shall, in general, be treated as taxable fringe benefit. However, a scholarship grant to the employee by the employer shall NOT be treated as taxable fringe benefit if: - the education or study involved is directly connected with the employer's trade, business or profession, and - there is a written contract between them that the employee is under obligation to remain in the employ of the employer for period of time that they have mutually agreed upon. In this case, the expenditure shall be treated as incurred for the convenience and furtherance of the employer's trade or business. Sec. 2.33(B)(9), RR No. 3-98

Fringe Benefits Subject to FBT: Educational Assistance 69 b. The cost of educational assistance extended by an employer to the dependents of an employee shall be treated as taxable fringe benefits of the employee unless the assistance was provided through a competitive scheme under the scholarship program of the company. Sec. 2.33(B)(9), RR No. 3-98

Fringe Benefits Subject to FBT: Insurance Premiums 70 The cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, except the following: a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law, such as under the Social Security System (SSS), (R.A. No. 8282, as amended ) or under the Government Service Insurance System (GSIS) (R.A. No. 8291 ), or similar contributions arising from the provisions of any other existing law; and b) the cost of premiums borne by the employer for the group insurance of his employees. Sec. 2.33(B)(10), RR No. 3-98

Fringe Benefits Subject to FBT: Stock Options 71 Any income or gain derived from stock option plans granted to managerial and supervisory employees which qualify as fringe benefits is subject to fringe benefit tax imposed under Section 33 of the Tax Code. The taxable fringe benefit is the difference of the book value (BV)/fair market value (FMV) of the shares, whichever is higher, at the time of exercise of the stock option and the price fixed on the grant date. RMC No. 88-2012 dated December 27, 2012

D.Fringe Benefits that are Exempt from FBT

Fringe Benefits that are Exempt from FBT 73 In general, the fringe benefits tax shall not be imposed on the following fringe benefits: 1. Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; 2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; 3. Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; 4. De minimis benefits; 5. If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or 6. If the grant of the fringe benefit is for the convenience of the employer (CONVENIENCE OF THE EMPLOYER RULE). Sec. 2.33(C), RR No. 3-98

Fringe Benefits that are Exempt from FBT 74 The exemption of any fringe benefit from the fringe benefit tax imposed under Section 2.33 of RR No. 3-98, shall not be interpreted to mean exemption from any other income tax imposed under the Tax Code except if the same is likewise expressly exempt from any other income tax imposed under the Code or under any other existing law. Thus, if the fringe benefit is exempted from the fringe benefits tax, the same may, however, still form part of the employee's gross compensation income which is subject to income tax, hence, likewise subject to a withholding tax on compensation income payment. Sec. 2.33(C), RR No. 3-98

Fringe Benefits that are Exempt from FBT 75 What are DE MINIMIS benefits? The term "DE MINIMIS" benefits which are exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. Sec. 2.33(C), RR No. 3-98

Fringe Benefits that are Exempt from FBT 76 What are the benefits considered as de minimis benefits? The following are considered as de minimis benefits granted to each employee: a. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year; b. Monetized value of vacation and sick leave credits paid to government officials and employees; c. Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; d. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500; e. Uniform and Clothing allowance not exceeding P5,000 per annum; Sec. 2, RR No. 05-2011 dated March 16, 2011; RR No. 08-2012 dated May 11, 2012

Fringe Benefits that are Exempt from FBT 77 f. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per annum; g. Laundry allowance not exceeding P300 per month; h. Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; i. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; j. Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%) of the basic minimum wage on a per region basis. Sec. 2, RR No. 05-2011 dated March 16, 2011

When Benefits Subject to WTW or FBT 78 The rules on the taxability of compensation and fringe benefits are summarized as follows: Classification of the Employee Rank-and-File Non-rank-and-file Managerial employee Supervisory employee Compensation Fringe Benefits Compensation Fringe Benefits Shall be subject to WTW Shall be subject to FBT

DEDUCTIONS FROM GROSS INCOME (SEC 34 NIRC) 1. Premium Payments on Health and/or Hospitalization Insurance (SEC 34) 2. Allowance for Personal Exemption for Individual Taxpayer (Sec 35)

Premium Payments on Health and/or Hospitalization Insurance [SEC 34 (M) NIRC]

SEC. 34. Deductions from Gross Income. Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationship where no deductions shall be allowed under this Section other than under subsection (M) hereof, in computing taxable income subject to income tax under Sections 24 (A); 25 (A); 26; 27 (A), (B) and (C); and 28 (A) (1), there shall be allowed the following deductions from gross income; xxxxxxxxxxxx M) Premium Payments on Health and/or Hospitalization Insurance of an Individual Taxpayer. - the amount of premiums not to exceed Two thousand four hundred pesos (P2,400) per family or Two hundred pesos (P200) a month paid during the taxable year for health and/or hospitalization insurance taken by the taxpayer for himself, including his family, shall be allowed as a deduction from his gross income: Provided, That said family has a gross income of not more than Two hundred fifty thousand pesos (P250,000) for the taxable year: Provided, finally, That in the case of married taxpayers, only the spouse claiming the additional exemption for dependents shall be entitled to this deduction. Notwithstanding the provision of the preceding Subsections, The Secretary of Finance, upon recommendation of the Commissioner, after a public hearing shall have been held for this purpose, may prescribe by rules and regulations, limitations or ceilings for any of the itemized deductions under Subsections (A) to (J) of this Section: Provided, That for purposes of determining such ceilings or limitations, the Secretary of Finance shall consider the following factors: (1) adequacy of the prescribed limits on the actual expenditure requirements of each particular industry; and (2)effects of inflation on expenditure levels: Provided, further, That no ceilings shall further be imposed on items of expense already subject to ceilings under present law.

M) Premium Payments on Health and/or Hospitalization Insurance of an Individual Taxpayer. - the amount of premiums not to exceed Two thousand four hundred pesos (P2,400) per family or Two hundred pesos (P200) a month paid during the taxable year for health and/or hospitalization insurance taken by the taxpayer for himself, including his family, shall be allowed as a deduction from his gross income: Provided, That said family has a gross income of not more than Two hundred fifty thousand pesos (P250,000) for the taxable year: Provided, finally, That in the case of married taxpayers, only the spouse claiming the additional exemption for dependents shall be entitled to this deduction.

Summary: The insurance shall be taken by the individual taxpayer himself and/or for his family; The amount being claimed shall not exceed P2,400.00 a year or P200.00 a month per family; The family has a gross income of P250,000.00 or less for the taxable year.

Allowance for Personal Exemption for Individual Taxpayer [Section 35 - NIRC]

Underlying Laws and Revenue Regulations Section 35 of the National Internal Revenue Code RA 9504 [Minimum Wage Law] Revenue Regulation10-2008 85

RA 9504 Minimum Wage Law AN ACT AMENDING SECTION 22, 24, 34, 35, 51, AND 79 OF REPUBLIC ACT NO. 8424, AS AMENDED OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE OF 1997 86

What is a minimum wage earner? The law defines a minimum wage earner as a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non- agricultural sector where he or she is assigned.

What is minimum wage? A [statutory] minimum wage* is defined as the rate fixed by the Regional Tripartite Wage and Productivity Board. *The minimum daily wage in the National Capital Region for non-agricultural workers now stands at Php466.00. For other private sector works, the minimum wage is at P429.00.

Salient features of income tax exemption of MWEs. The income tax exemption of minimum wage earners covers the statutory minimum wage, holiday pay, overtime pay, nigh- shift differential pay and hazard pay. 89

Salient features of income tax exemption of MWEs. Honoraria, commissions, fringe benefits and other benefits in excess of the allowable statutory amount of Php30,000.00. The taxpayer shall no longer enjoy the privilege of being a MWE, and therefore, his/her entire earnings will be subject to income tax and consequently, from withholding tax. 90

Salient features of income tax exemption of MWEs. MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, in addition to compensation income, are not exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, holiday pay, overtime pay, night shift differential pay and hazard pay, etc. shall still be exempt from withholding tax. 91

Salient features of income tax exemption of MWEs. MINIMUM WAGE EARNER

The personal and additional exemptions for individual taxpayers: Type of taxpayerOld LawNew Law Single20,000 50,000 Head of Family25,000 50,000 Married individuals32,00050,000 Additional exemption for each qualified dependent/child 8,00025,000

Salient features of income tax exemption in RA 9504 All individuals will have a maximum of P50,000 annual income tax exemption. This simply means that a person earning a gross annual salary of P180,000 (excluding the mandatory 13th month pay, which is tax free) per year will only pay income tax on the P130,000. The new exemption is for all persons whether single, married or head of the family. In the old tax code, RA 8284 it gave single individuals only a Php20,000 exception, head of families Php25,000 and married individuals Php32,000.

Salient features of income tax exemption in RA 9504 For married couples, the new law increase the additional exemptions based on the number of their children. In the old law, each couple is allowed an exemption of Php8,000 per child up to 4 children. The new law increases the exemption to Php25,000 per child up to 4 children. Therefore, a family with 4 children will have a maximum of Php200,000. It is a substantial increase from the previous Php96,000 per family with 4 children. In theory, a family with 4 children earning exactly or below Php200,000 per year will l[pmk,m be subject to income tax.

Thank You.

1.SORIANO, Cesar Nickolai 2.JAMONER, Winnie Claire 3.DULNUAN, Gina Mae 4.IBANGGA, Christopher Bernard TAX I REPORTING ATTY BUNDAC AUSL 2013-2014.

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