Quezon City Christian Academy

April 2, 2008 BIR RULING [DA-218-08] Section 32 (B) (7) (e) (iv) Quezon City Christian Academy 52 Marian Cuenco St. Brgy. Lourdes, Quezon City Attention: Mr. Ko Beng Sum President Gentlemen : This refers to your letter dated July 10, 2007 requesting, in effect, for a ruling that the benefits being provided by your school to its employees are de minimis benefits in accordance with Revenue Regulations (RR) No. 8-2000, as amended by RR No. 10-2000: As represented, Quezon City Christian Academy (QCCA) grants its employees the following benefits: 1. Monthly meal cash allowance PhP1,550 for supervisory employees PhP1,250 for rank and file employees 2. Monthly rice subsidy PhP1,000 for supervisory employees PhP1,000 for rank and file employees 3. Monthly grocery subsidy PhP1,000 for supervisory employees PhP1,000 for rank and file employees 4. Monthly clothing allowance and cost of uniform PhP250 for supervisory employees PhP250 for rank and file employees 5. Monthly medical cash allowance to dependents of employees PhP125 for supervisory employees PhP125 for rank and file employees 6. Cash gifts given during major anniversary celebrations such as Chinese New Year and Teachers' Day/Confucius Day, not exceeding PhP5,000 per employer per annum In reply, please be informed that Section 2.78.1 (B) (11) (b) of RR No. 2-98, as amended, implementing Section 32 (B) (7) (e) (iv) of the Tax Code of 1997 reads: "(B) Exemptions from withholding tax on compensation. The following income payments are exempted from the requirement of withholding tax on compensation: xxx xxx xxx (11) Thirteenth (13th) month pay and other benefits. xxx xxx xxx (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. xxx xxx xxx" The above provision is amended by RR No. 8-2001, as further amended by RR No. 10-2001 clarifying certain benefits/privileges received by employees which are not considered as items of income and therefore not subject to income tax and consequently, to the withholding tax and likewise amends the enumeration of the items of de minimis benefits that are exempt from fringe benefits tax under Section 2.33 (C) of RR No. 3-98, implementing Section 33 of the Tax Code of 1997, as amended. Section 2 of RR No. 8-2000, as amended further clarifies that "other benefits" and de minimis benefits are not the same. For purposes of determining the PhP30,000 ceiling in "other benefits," the two are treated differently in that the amount of de minimis benefits conforming to the limits prescribed under RR 8-2000, as amended shall not be considered in determining the PhP30,000 ceiling of "other benefits" provided under Section 32 (B) (7) (e) of the Tax Code of 1997. The regulations does not provide for a ceiling with regard to de minimis benefits. However, it provides for a limit in the amount of each de minimis benefit such that if the employer gives more than the limit prescribed, the excess of the PhP30,000 ceiling/limit shall be taxable to the employee receiving the benefits. Both "other benefits" and de minimis benefits do not form part of the employees' taxable compensation income and are, therefore, not subject to withholding tax on wages under Section 79 in relation to Section 24 (A) both of the Tax Code of 1997, as amended. (cited in BIR Ruling No. 001-2007 dated January 10, 2007) Based on the foregoing, we now rule on the issues before us 1. Monthly meal cash allowance The PhP1,550/PhP1,250 monthly meal allowance may be tax-exempt subject to the standards set for de minimis thresholds for fringe benefits under RR No. 3-98, as amended by RR No. 8-2000 and as further amended by RR 10-2000 and to the conditions set for the benefits to be exempt pursuant to the tests of convenience of the employer and the promotion of health, goodwill, contentment, or efficiency of the employees under Section 2.78.1 (A) (2) and (3) of RR 2-98, as amended. Pursuant to RR No. 8-2000, as amended, meal allowance not exceeding 25% of the daily minimum wage may only be considered de minimis meal benefit and therefore, tax exempt if the employee is working overtime. The excess over this amount shall be considered "other benefits" as contemplated under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997. The excess of the meal allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed PhP30,000 (BIR Ruling No. DA-264-2004 dated May 17, 2004). 2. Monthly rice subsidy The rice allowance benefit in the amount of PhP1,000 per month is within the limitation set by RR No. 8-2000, as amended. Accordingly, the rice allowance in the amount of P1,000 per month is subject to neither income tax on compensation nor fringe benefits tax. 3. Monthly grocery subsidy Inasmuch as it is not among those enumerated as de minimis benefit, monthly grocery subsidy in the amount of PhP1,000 may still be considered as "other benefits" not subject to withholding tax under Section 79 of the Tax Code provided that such "other benefits," inclusive of allowances/benefits, shall not, in the aggregate, exceed P30,000 when added to the 13th month pay. Any amount in excess of the P30,000 ceiling shall be taxable to the employee receiving the benefits. 4. Monthly clothing allowance and cost of uniform To the extent of P3,000.00 per annum, any provision for uniform and clothing allowance shall be considered de minimis benefit. By implication the excess of P3,000.00 granted to all your employees as clothing allowance shall no longer be de minimis and therefore, shall accordingly be subject to the appropriate income tax (RR No. 8-2000, as amended). 5. Monthly medical cash allowance to dependents of employees RR No. 8-2000, as amended, recognizes medical allowance in the amount of PhP125 to dependents of employees not exceeding PhP750 per employee per semester or PhP125 per month as de minimis . On this basis, the grant of monthly medical cash allowance to dependents of your employees shall be considered de minimis . 6. Cash gifts given during major anniversary celebrations such as Chinese New Year and Teachers' Day/Confucius' Day, not exceeding PhP5,000 per employer per annum The cash gifts during major anniversary celebrations not exceeding PhP5,000 per employee per annum are within the limitation set by RR No. 8-2000, as amended by RR No. 10-2000. Accordingly, the cash gifts are not subject to income tax nor to the fringe benefits tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service