Discretionary Payments

TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

Question

Chief Zeta created a Trust many years ago for the benefit of his four children, Alpha, Beta, Cepha, and Delphi. A lawyer was appointed as the Trustee to his Estate.

For the year ended 30 September 2014, the Trust income amounted to ₦3,120,000. Each of the beneficiaries receives an annuity of ₦150,000 every year while the expenses incurred on the administration of the Trust was ₦57,500 per annum. The trustee is on a remuneration of 2% of the Computed Income.

Chief Zeta instructed that discretionary payments of ₦22,500, ₦17,500, ₦15,000, and ₦12,500 respectively should be made to Alpha, Beta, Cepha, and Delphi respectively. In addition, nine of the ten portions of the remainder of the Computed Income should be shared equally among the four children.

Chief Zeta has requested you to supervise the administration of the above Trust.

You are requested to:

a. State the basis of assessment of Estates, Trusts or Settlements. (1 Mark)

b. Identify the persons chargeable to Income Tax under the Trust or Settlement created by Chief Zeta. (3 Marks)

c. Compute the income of the Trust. (3 Marks)

d. Determine the amount due to each beneficiary. (6 Marks)

e. Explain how the Computed Income should be apportioned and how the Income Tax burden will be shared by all the parties. (Ignore Withholding tax). (2 Marks)

Answer

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Tags: Beneficiaries, Computed Income, Discretionary Payments, Estates, Income Tax, Trusts
Level: Level 2

Topic: Taxation of Trusts and Estates
Series: MAY 2015

TAX – Nov 2015 – L2 – Q7 – Taxation of Trusts and Estates

This question requires the computation of income tax payable by trustees and the amount due to beneficiaries from the settlement of Chief Sarki Oliver for the 2010 year of assessment.

Question

Chief Sarki Oliver died peacefully in his sleep on 31 December 2009. He is survived by three children – Jimmy, Ngozi, and Charles. Two Trustees were appointed for the Settlement created in favor of the children to ensure that they were not badly affected by the demise of their father. Details presented by the two Trustees for the year ended 31 December 2010 are as follows:

Income	N’000
Rental income (gross)	225,000
Trading income	250,000
Dividends (gross)	170,000
Interest on bank deposit	107,500
Sundry income	105,000
Total Income	857,500

Additional Information: (i) The Interest income is from Super Bank plc
(ii) Administrative and other expenses amounted to N32,000
(iii) Interest on debt repayment by the Settlement was N25,000
(iv) Fixed annuity to a beneficiary was N41,000 (Gross)
(v) Each beneficiary is entitled to 1/5 share of the net distributable income
(vi) Under the terms of the Trust Deed, the Trustees made discretionary payments to:

Jimmy N30,000
Ngozi N26,000
Charles N15,000
(vii) Capital allowances – N64,000
(viii) Trustees’ remuneration: Fixed amount of N25,000 each plus 2% of Computed Income
(ix) The children have no other income.

In view of the recent agitation by the extended family members, you were contracted as
a consultant to compute the following:

Required:
a. Compute the income tax payable by the Trustees on the Trust income. (8 Marks)
b. Calculate the amount due to each beneficiary of the Settlement. (7 Marks)

Answer

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Tags: Beneficiaries, Capital allowances, Discretionary Payments, Income Tax, Trust Income
Level: Level 2

Topic: Taxation of Trusts and Estates
Series: NOV 2015

TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

Question

Mr. Bulamoyoh who lived in the Eastern part of Nigeria died testate in January 2015. He had three children: Moses, Peter, and Nana, but left his business with the trustees. Moses, the eldest son, thought he should be fully in charge of his father’s entire business and told the trustees not to bother about the payment of tax. The trustees claimed that they had a statutory obligation to render yearly tax returns for the estate to the relevant tax authority.

You are provided with the following information:
(i) Net profit of the business as adjusted for tax purposes for the year ended June 30, 2018 was N10,270,000.
(ii) Qualifying property, plant, and equipment acquired during the year ended June 30, 2018 were:

Motor vehicles: N3,650,000
Plant and machinery: N1,250,000
Furniture: N220,000
(iii) The tax written down value of motor vehicles acquired prior to the current year was N345,000, out of which N315,000 is to be allowed as an annual allowance in the current assessment year.
(iv) Moses, Peter, and Nana are entitled to ¼ each of the net distributable income.
(v) Fixed annuity paid to a beneficiary was N250,000.
(vi) Interest on debt repayment by the trustees was N120,000.
(vii) Trustees’ fixed remuneration was N260,000 per annum.
(viii) Administration and other expenses by the trustee amounted to N45,000.
(ix) The trustees, in line with the terms of the trust deed, made the following discretionary payments to the children:
Moses: N310,000
Peter: N225,000
Nana: N460,000

Required:
(a) Explain the following terminologies:
(i) Trust (1 Mark)
(ii) Beneficiary (1 Mark)
(iii) Life tenant (1 Mark)
(b) Compute capital allowances for the relevant year of assessment. (8 Marks)
(c) Compute the income tax payable by the trustees on the income for the relevant year of assessment. (9 Marks)
(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Beneficiary, Capital allowances, Discretionary Payments, Trust, Trust Income Tax
Level: Level 2

Topic: Taxation of Trusts and Estates
Series: MAY 2019

TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

Question

Chief Zeta created a Trust many years ago for the benefit of his four children, Alpha, Beta, Cepha, and Delphi. A lawyer was appointed as the Trustee to his Estate.

Chief Zeta has requested you to supervise the administration of the above Trust.

You are requested to:

a. State the basis of assessment of Estates, Trusts or Settlements. (1 Mark)

b. Identify the persons chargeable to Income Tax under the Trust or Settlement created by Chief Zeta. (3 Marks)

c. Compute the income of the Trust. (3 Marks)

d. Determine the amount due to each beneficiary. (6 Marks)

e. Explain how the Computed Income should be apportioned and how the Income Tax burden will be shared by all the parties. (Ignore Withholding tax). (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Beneficiaries, Computed Income, Discretionary Payments, Estates, Income Tax, Trusts
Level: Level 2

Topic: Taxation of Trusts and Estates
Series: MAY 2015

TAX – Nov 2015 – L2 – Q7 – Taxation of Trusts and Estates

This question requires the computation of income tax payable by trustees and the amount due to beneficiaries from the settlement of Chief Sarki Oliver for the 2010 year of assessment.

Question

Income	N’000
Rental income (gross)	225,000
Trading income	250,000
Dividends (gross)	170,000
Interest on bank deposit	107,500
Sundry income	105,000
Total Income	857,500

Jimmy N30,000
Ngozi N26,000
Charles N15,000
(vii) Capital allowances – N64,000
(viii) Trustees’ remuneration: Fixed amount of N25,000 each plus 2% of Computed Income
(ix) The children have no other income.

In view of the recent agitation by the extended family members, you were contracted as
a consultant to compute the following:

Required:
a. Compute the income tax payable by the Trustees on the Trust income. (8 Marks)
b. Calculate the amount due to each beneficiary of the Settlement. (7 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Beneficiaries, Capital allowances, Discretionary Payments, Income Tax, Trust Income
Level: Level 2

Topic: Taxation of Trusts and Estates
Series: NOV 2015

TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

Question

Motor vehicles: N3,650,000
Plant and machinery: N1,250,000
Furniture: N220,000
(iii) The tax written down value of motor vehicles acquired prior to the current year was N345,000, out of which N315,000 is to be allowed as an annual allowance in the current assessment year.
(iv) Moses, Peter, and Nana are entitled to ¼ each of the net distributable income.
(v) Fixed annuity paid to a beneficiary was N250,000.
(vi) Interest on debt repayment by the trustees was N120,000.
(vii) Trustees’ fixed remuneration was N260,000 per annum.
(viii) Administration and other expenses by the trustee amounted to N45,000.
(ix) The trustees, in line with the terms of the trust deed, made the following discretionary payments to the children:
Moses: N310,000
Peter: N225,000
Nana: N460,000

Answer

Find Related Questions by Tags, levels, etc.

Tags: Beneficiary, Capital allowances, Discretionary Payments, Trust, Trust Income Tax
Level: Level 2

Topic: Taxation of Trusts and Estates
Series: MAY 2019

Question Tag: Discretionary Payments

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TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

TAX – Nov 2015 – L2 – Q7 – Taxation of Trusts and Estates

This question requires the computation of income tax payable by trustees and the amount due to beneficiaries from the settlement of Chief Sarki Oliver for the 2010 year of assessment.

TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

TAX – Nov 2015 – L2 – Q7 – Taxation of Trusts and Estates

This question requires the computation of income tax payable by trustees and the amount due to beneficiaries from the settlement of Chief Sarki Oliver for the 2010 year of assessment.

TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

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TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

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TAX – Nov 2015 – L2 – Q7 – Taxation of Trusts and Estates

This question requires the computation of income tax payable by trustees and the amount due to beneficiaries from the settlement of Chief Sarki Oliver for the 2010 year of assessment.

You're reporting an error for "TAX – Nov 2015 – L2 – Q7 – Taxation of Trusts and Estates"

TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

You're reporting an error for "TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates"

TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

You're reporting an error for "TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates"

TAX – Nov 2015 – L2 – Q7 – Taxation of Trusts and Estates

This question requires the computation of income tax payable by trustees and the amount due to beneficiaries from the settlement of Chief Sarki Oliver for the 2010 year of assessment.

You're reporting an error for "TAX – Nov 2015 – L2 – Q7 – Taxation of Trusts and Estates"

TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

You're reporting an error for "TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates"

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