ATO compliance approach to trust liquidity issues due to COVID-19

The ATO has advised that it will not undertake compliance action to consider the validity of a beneficiary’s entitlement, or the application of s 100A of the ITAA 1936, where a trustee is affected by liquidity issues due to COVID-19 and unable to satisfy a beneficiary’s entitlement. This ATO compliance approach is intended to provide relief and certainty to trustees and associated private groups who experience genuine liquidity difficulties as a result of COVID-19.

The ATO acknowledged that trustees may experience liquidity issues due to COVID-19 which may affect their ability to satisfy a beneficiary’s entitlement. For example, where financial institutions impose restrictions that affect the way a trustee can deal with its assets.

Where a present entitlement arose before any effect of COVID-19, in circumstances that were not a reimbursement agreement, trustees may need to make subsequent arrangements to meet the requirements of the financial institution.

If that occurs, the ATO says these arrangements will not invalidate that entitlement or cause s 100A of the ITAA 1936 to apply. For present entitlements conferred at the end of the last tax year, the ATO said it will apply the law based on the facts presented.

The ATO said it will not undertake compliance action to consider the validity of an entitlement or the application of s 100A of the ITAA 1936 in circumstances where a trustee is affected by liquidity issues due to COVID-19 and unable to satisfy a beneficiary’s entitlement. However, it reminded trustees of the importance of complying with the terms of their trust deeds. For cases under review the ATO said it will continue to apply the law.

Stuart Jones is a Senior Tax Writer with Thomson Reuters and a respected commentator on all matters superannuation. Stuart is the author of the Australian Superannuation Handbook and contributes extensively to other Thomson Reuters’ services, including the Australian Tax Handbook.

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