On 10 June 2026, the High Court handed down its decision in Commissioner of Taxation v Bendel [2026] HCA 18. By a 5-2 majority, the Court held that an unpaid present entitlement — a UPE — owed by a trust to a corporate beneficiary is not, of itself, a loan for the purposes of Division 7A.
If your business distributes trust income to a company, this decision directly affects you. It ends almost two decades of debate — and it rejects the position the ATO had maintained and enforced since 2009. On 26 June 2026, the ATO issued its Decision Impact Statement in response, confirming how it will administer the law going forward.
Run a trust-and-company structure? The Bendel decision changes the Division 7A analysis — and any loan agreements put in place under the old ATO position are worth reviewing now.
Book a Free Consultation →What the Case Was About
A common structure in Australian private business: a discretionary trust runs the business or holds investments, and distributes income to a corporate beneficiary — a "bucket company" — taxed at the company rate. Often, the entitlement is recorded but the cash stays in the trust, working in the business. That unpaid amount is the UPE.
Since 2009, the ATO's position — set out in Taxation Ruling TR 2010/3 and later Taxation Determination TD 2022/11 — was that a UPE left unpaid became a loan from the company to the trust for Division 7A purposes. Unless placed on complying loan terms with annual principal and interest repayments, it could be taxed as an unfranked deemed dividend.
Bendel was the first judicial challenge to that position. The taxpayer won at the Administrative Appeals Tribunal, won again at the Full Federal Court, and has now won at the High Court.
What the High Court Decided
The Court held that a company's failure or inaction in calling for payment of a UPE is not, of itself, the making of a loan. A loan for Division 7A purposes requires more than an entitlement left uncalled — and the ATO's extended reading of the loan definition was rejected.
The ATO's Decision Impact Statement, issued 26 June 2026, confirms the practical effect: UPEs that have simply been left outstanding will not, without more, be treated as loans. TR 2010/3 has been withdrawn, and TD 2022/11 will not be applied prospectively. However, any dealing with the funds that amounts to an actual payment or loan can still engage Division 7A.
What the Decision Did Not Change
Bendel settled the loan question. It did not remove all tax risk from unpaid entitlements — and three provisions remain fully in play:
- Subdivision EA — where a trust with a UPE owing to a company makes a payment or loan to a shareholder of that company (or their associate), Division 7A can still apply through Subdivision EA.
- Section 100A — where the economic benefit of a trust distribution flows to someone other than the named beneficiary under a reimbursement agreement, s100A can deem the arrangement ineffective for tax purposes. The ATO has signalled continued focus here.
- Part IVA — the general anti-avoidance rule remains available for schemes entered into with a dominant purpose of obtaining a tax benefit.
Separately, the 2026–27 Federal Budget proposed a 30% minimum tax on discretionary trust income from 1 July 2028. That measure is unaffected by Bendel — and it may reshape whether corporate beneficiaries remain attractive at all from 2028 onward.
What to Do If You Run a Trust-and-Company Structure
Many private groups spent the past 15 years structuring around the ATO's former position — placing UPEs on sub-trust arrangements or converting them to complying Division 7A loans. The Decision Impact Statement confirms those arrangements remain legally operative. They do not simply fall away because the underlying ATO view was wrong.
Three practical steps are worth taking now: review any complying loan agreements or sub-trust arrangements put in place for UPEs and whether they should be maintained, varied, or wound up; consider the position of UPEs left outstanding, including whether Subdivision EA or s100A could apply to how the funds are being used; and factor the proposed 2028 trust tax into any decision about future distributions to corporate beneficiaries.
How Phan Campbell & Associates Can Help
At Phan Campbell & Associates in Footscray, our accounting and legal teams work together on exactly this kind of question — the tax treatment of your trust distributions and the legal documents that sit underneath them.
Because we are a combined firm, a review of your structure covers both sides in one engagement: the Division 7A and trust tax analysis, and the loan agreements, trust deed provisions, and resolutions that give it effect. If your group has UPEs on its books — managed or unmanaged — now is the right time to review the position.
Frequently Asked Questions
1. What did the Bendel decision change about Division 7A?
On 10 June 2026, the High Court held by a 5-2 majority that an unpaid present entitlement owed by a trust to a corporate beneficiary is not, of itself, a loan for Division 7A purposes. This rejected the position the ATO had maintained since 2009.
2. Is a UPE still subject to any tax risk after Bendel?
Yes. Subdivision EA of Division 7A, section 100A (reimbursement agreements), and Part IVA can still apply depending on how the funds are used. Bendel settled the loan question only — it did not remove all tax risk from unpaid entitlements.
3. Should I review my trust loan agreements after Bendel?
Yes. Many groups placed UPEs on complying Division 7A loan terms or sub-trust arrangements in reliance on the ATO's former position. The ATO's Decision Impact Statement confirms those arrangements remain legally operative — so they should be reviewed rather than assumed to have fallen away.
4. Does the proposed 2028 trust tax still apply after the Bendel decision?
Yes. The proposed 30% minimum tax on discretionary trust income from 1 July 2028 is a separate Federal Budget measure and is unaffected by Bendel. If you run a trust-and-company structure, book a free consultation with Phan Campbell & Associates to review your position.