Determination of Income Tax Due and Payable If There Is A Given Creditable Withholding Tax

Determination of Income tax due and payable
if there is a given creditable withholding tax:

Juan is a resident citizen, earning purely business income for 2018
taxable year:
Solution:
Gross Sales P 2,800,000
Gross Sales P2,800,000
Cost of Sales 1,200,000 Cost of Sales (1,200,000)
Add: Rental Income
Operating Exp 650,000 (380,000/ .95) 400,000
Operating Exp (650,000)
Rental Income (net of CWT) 380,000 Taxable Income 1,350,000
Other creditable
Sec 2.57.2, RR 2-98, withholding tax
Withholding tax 80,000 on rentals of real and personal
properties is computed as 5% of the
gross rentals
Computation of Tax Due
Tax Due
Solution:
Tax on First 800,000 130,000
Gross Sales P2,800,000 Tax on excess
Cost of Sales (1,200,000) (1.35M – 800K) x .30 165,000
Add: Rental Income Tax Due 295,000
(380,000/ .95) 400,000 Less:
Operating Exp (650,000) CWT on Rental Income
Taxable Income 1,350,000 (400K x 5%) (20,000)
Other CWT (80,000)
Tax Still Due/Payable 195,000
Determination of Income tax due and payable
if there is a given creditable withholding tax:
Juan is a resident citizen, earning purely business income for 2018
taxable year:
Solution:
Cost of Sales 1,000,000 Cost of Sales (1,000,000)
Add: Rental Income
Operating Exp 650,000 (475,000/ .95) 500,000
Operating Exp (650,000)
Rental Income (net of CWT) 475,000 Taxable Income 1,850,000
Other creditable
Sec 2.57.2, RR 2-98, withholding tax
Withholding tax 60,000 on rentals of real and personal
properties is computed as 5% of the
gross rentals
Tax Due:
Tax on First 800,000 130,000

Tax on excess
(1.85M – 800K) x 30% 315,000
Tax Due 445,000
Less: CWT on Rent (25,000)
Less: Other CWT (60,000)
Tax Still Due 360,000
FRINGE BENEFIT
Any goods, service or other benefits furnished or granted by an
employer in cash or in kind, in addition to basic salaries. In short it is a
form of pay which may be in the form of property, services, cash or
cash equivalent to supplement a stated pay for the performance of
services.
Under the tax code, fringe benefits subject to fringe benefit tax
cover only those fringe benefits given or furnished to a managerial or
supervisory employee.
TAX TREATMENT OF FRINGE BENEFIT TAX
Fringe Benefits Part of Basic Salaries Subject to Basic Tax Subject to FBT
given to: or Taxable and CWT on
Compensation compensation
* Rank & File Yes Yes No
* Supervisory/ No No Yes
Managerial
TRUE or FALSE: Both rank & File and managerial employees
received fringe benefits.
FRINGE BENEFIT TAX
It is a monetary burden imposed by the sovereignty on any good,
service, or other benefit furnished or granted by an employer, in cash
or in kind, in addition to basic salaries, to an individual employee, other
than ran and file employee.
The FBT is a final tax imposed on the employee withheld by the
employer, computed at 35% (beginning Jan. 1, 2018 or upon the
effectivity of TRAIN Law) on the grossed-up monetary value (GUMV) of
the fringe benefit granted by the employer to an employee who holds a
managerial or supervisory position.
ITEMS OF FRINGE BENEFITS SUBJECT TO TAX
1. Housing
2. Expense account
3. Vehicle of any kind
4. Household personnel such as maid, driver, others
5. Interest on loan at less than market value
6. Membership fees, dues and other expenses borne by the employer for
the employee in social and athletic clubs and similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health insurance and other non-life insurance premiums
ILLUSTRATION 1
Ana was hired by Earl to be the latter’s secretary and personal
assistant. To enable her to perform her duties well, Earl provided a
condo unit (adjacent to his unit) which Ana could use as her temporary
residence. Is the fair market value of the use of the condo by Ana a
“fringe benefit” that is subject to fringe benefit tax?
ILLUSTRATION 2
Is the fair market value of the use of the condo unit by Ana a
“compensation income” that is subject to basic tax under Section 24A
of the Tax Code and consequently to creditable withholding tax on
compensation income?
According to the tax rules, if the grant of benefits is for the convenience or
advantage of the employer, that is NOT subject to basic tax.
ILLUSTRATION 3
In 2018, Garcia Realty Corporation paid Wilderness Resort,
representing vacation expenses of Mike, an executive of Garcia
Corporation. Is this a taxable fringe benefit?
COVERAGE OF EXAM
1. Classification of taxpayer
2. Determination of taxable income and tax due based on the
classification of taxpayer.
3. Determination of taxable income and tax due provided that
there is a creditable withholding tax given.
4. Definition of Fringe Benefit
5. Definition Fringe Benefit Tax
6. Items subject to fringe tax

Determination of Income Tax Due and Payable If There Is A Given Creditable Withholding Tax

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Determination of Income Tax Due and Payable If There Is A Given Creditable Withholding Tax

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Determination of Income tax due and payable

if there is a given creditable withholding tax:

Tax on First 800,000 130,000

* Rank & File Yes Yes No

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