Question Tag: Trust Income Tax

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)