Taxability of Educational Assistance Enjoyed by Some Dependents of Faculty Members

November 29, 1999 BIR RULING NO. 189-99 3-98; 2-98-000-00-189-99 Faculty Association, Inc . De La Salle University 2401 Taft Avenue, Manila Attention: Dr . Aurora S . Trance President Gentlemen : This refers to your letter dated January 22, 1999 requesting for a ruling, on the taxability of the educational assistance enjoyed by dependents of some of your faculty members. It is represented that De La Salle University granted an educational assistance called "Tuition Waiver Benefit" (TWB), to be enjoyed by the dependents of its faculty members who have joined De La Salle University before school year 1987-88; that the entitlement to this assistance shall be as provided in page 29 of the 1996 Faculty Manual, and quoted as follows: "2.1 Children of full-time faculty members who were in active service before May 1987 are entitled to a tuition waiver plan at De La Salle University, Manila, La Salle Greenhills and De La Salle-Santiago Zobel School, provided that said children pass the entrance requirements and that said faculty members are in active University service while enjoying the benefits." that once the dependent of the faculty qualifies for the TWB, he/she may then enroll without paying the tuition fee in any program of DLSU; that to continue enjoying the benefit, the qualified dependent should comply with the following restrictions as provided in the 1997-2000 DLSU Student Handbook, pp. B30-31: 1. His/her cumulative GPA at the end of the third trimester of any school year of his/her residence in the University should not be less than 1.0. for freshmen, the cumulative GPA is assessed at the end of three consecutive trimesters starting from the term of entry. 2. He/she should not incur 15 or more units of failure in academic courses by the end of each year if he/she is an upperclassman. If he/she is a freshman, he/she should not fail 18 units or more in academic courses by the end of the third trimester starting from the term of entry. 3. He/she should not have an accumulated failure of 24 units or more in academic courses anytime prior to the trimester when the only remaining load necessary for completion of his/her degree program is 57 or fewer academic units. In reply, please be informed that Section 2.33(A)(9)(b) provides that 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. LibLex Such being the case, since the educational benefit is granted through a competitive scheme, i.e. qualifying exam, such educational assistance shall not be subject to the fringe benefit tax prescribed under Section 33 of the Tax Code of 1997. However, the exemption of any fringe benefit from the fringe benefit tax imposed under Section 33 of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98, shall not be interpreted to mean exemption 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 benefit tax, the same may, however, still form part of the employees' gross compensation income which is subject to income tax, hence, likewise subject to withholding tax on compensation income. Such being the case, the amount of the tuition waiver benefit granted to the children of full time faculty members who were in the active service before May 1987 shall be considered as part of compensation income of said faculty members which shall be subject to withholding tax prescribed under Section 79 of the Tax Code of 1997. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue