Bendel: Commissioner ‘A loan’ in view that UPE was a loan for Division 7A purposes

The long-awaited High Court decision in Bendel has arrived!

The Court dismissed the Commissioner’s appeal, upholding the position that the unpaid present entitlements (UPEs) of the corporate beneficiary in this case were not ‘loans’ for Division 7A purposes. This means those UPEs are not deemed dividends assessable to the trustee under Division 7A.

The decision comes 16 months after the Full Federal Court’s decision (see our earlier alert), which was closely followed by the ATO’s interim Decision Impact Statement, in which the Commissioner confirmed he would continue administering the law in accordance with TD 2022/11 pending the outcome of the appeal.

While the Commissioner will need to revisit that position in light of the above, the reasons for the decision are nuanced and, as such, the full extent of the practical implications of the decision is not yet clear.

However, the Government’s proposed changes to the taxation of trusts from 2028 are likely to limit the decision’s ongoing importance. We explore these issues further below.

Key takeaways

The High Court confirmed that the UPEs in this case did not give rise to loans and, further, no financial accommodation arose in that regard. This is because:
- The trustee did not have an obligation to pay or repay the UPE. The reasoning relied heavily on both the trust deed and the resolutions that determined the distributions to the beneficiary; and
- Division 7A is underpinned by the notion that there is a transfer of value from a private company to a shareholder or an associate of a shareholder.
The applicability of this decision to UPEs more generally will depend on the specific facts - in particular:
- the wording of the relevant deed and resolution;
- the way the arrangement was accounted for; and
- how it was acknowledged between the parties.
Until the Commissioner issues his response / decision impact statement, it is difficult to predict how he plans to implement this decision.
The Commissioner has confirmed he will revisit his guidance on this issue (such as TR 2010/3 and TD 2022/11) which could be relevant, depending on when the UPE arose. Taxpayers may want to consider seeking an amendment of their income tax return (or objecting), subject to their amendment periods, if they included a deemed dividend in their assessable income in accordance with TR 2010/3 or TD 2022/11 and have not already converted historical positions to Division 7A complying loans.

What happened in Bendel?

Gleewin Investments Pty Ltd (Gleewin) was a corporate beneficiary of the Steven Bendel 2005 Discretionary Trust (2005 Trust) that was made presently entitled to a share of the income of the 2005 Trust for the 2013 to 2017 income years. These entitlements constituted UPEs (which generally arise where the trustee of a trust has made a beneficiary presently entitled to an amount of trust income, thereby triggering the taxing provisions in Division 6, but has not yet actually distributed that income to the beneficiary). In this case, the drafting in the deed for the 2005 Trust provided that any such amount was to be held in a separate trust pending payment to the beneficiary.

Road to the High Court

On 28 September 2023, in Bendel and Commissioner of Taxation [2023] AATA 3074, the (then) Administrative Appeals Tribunal (AAT) held that the UPEs of Gleewin did not give rise to a ‘loan’ under subsection 109D(3) and therefore, could not constitute a deemed dividend for the purposes of Division 7A.

The Commissioner appealed the matter to the Full Federal Court and on 19 February 2025, in Commissioner of Taxation v Bendel [2025] FCAFC 15, the Court handed down a joint judgment upholding the AAT’s decision, predominantly on the basis that the term ‘loan’ as used in the legislation had to be understood in the context of case law interpreting that term. Relevantly, the Court held that a loan required provision of and repayment of a principal of money and therefore the UPEs in this case were not loans and could not fall within the scope of Division 7A.

Following the Full Federal Court decision, the Commissioner released an interim Decision Impact Statement on 19 March 2025 (updated on 13 August 2025 to confirm special leave was granted on 12 June 2025).

The Commissioner appealed the matter to the High Court and on 10 June 2026, in Bendel [2026] HCA 18, the High Court dismissed the Commissioner’s appeal by a 5:2 majority.

High Court’s judgment

The majority of the High Court (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) reached the same conclusion as both the Full Federal Court and AAT, but for different reasons.

The High Court majority first considered whether the UPE of Gleewin constituted a ‘loan’ under ordinary principles. Second, they considered whether the UPEs fell within the expanded definitions in subsection 109D(3), including paragraph (b) (‘the provision of credit or any other form of financial accommodation’) and paragraph (d) (a transaction that is ‘in substance’ a loan). The majority concluded that the UPEs failed each of these tests.

On the first question, the majority held that the trust resolutions in Bendel did not create an immediate duty of payment between the trustee of the 2005 Trust and Gleewin. There was therefore no ‘obligation of repayment’ arising from an advance of money — an inherent element of a loan under ordinary principles. As the majority held (at [37]):

In light of the foregoing cases, did the Resolutions here create an unconditional duty to pay Gleewin Investments the unpaid present entitlements? Correctly construed, they did not.

On the second question, the majority held that the expanded definitions in subsection 109D(3) still require some form of obligation to repay an amount or value supplied. Merely acquiescing to the non-payment of an amount does not constitute the ‘provision’ of credit or financial accommodation. As the majority held (at [72]), the provision of a financial accommodation:

… requires some initial or anterior transfer of value or, put in different terms, the supply or grant of some sort of pecuniary assistance, involving some bilateral activity. As already mentioned, Div 7A is directed at the transfer of value from a private company to a shareholder, or an associate of that shareholder. Implicit in its structure is that the private company does something to effect that transfer of value.

The majority also made the following additional key observations:

Subdivision EA: The majority noted that Subdivision EA ‘expressly addresses cases of unpaid present entitlements’ and that the facts in Bendel ‘broadly correspond with the circumstances to which Subdiv EA is addressed’. However, the Commissioner did not rely on Subdivision EA in this case. The majority also observed that Parliament’s choice to enact Subdivision EA in the form it did — which taxes the shareholder rather than the trustee or private company — undermines the Commissioner’s construction of section 109D.
Evidence: Some remarks made by both the majority and minority offer important reminders that parties should provide evidence in support of their arguments and bear the burden of making their case.

The majority did not deal with the double taxation arguments raised by Bendel in detail, having found in the taxpayer’s favour on the primary questions. Briefly, this was an alternative argument made by the taxpayer that if the Commissioner succeeded on his Division 7A argument, section 6-25 prevented the amount from being taxed twice in the trustee’s hands (in both the form of a deemed dividend and previously as part of the trust income).

Justices Jagot and Beech-Jones dissented. Justice Jagot would have allowed the appeal, finding (in a detailed dissent) that the UPEs would be loans for the purposes of Division 7A and that the section 6-25 argument would also fail. Justice Beech-Jones agreed substantially with the reasoning of Jagot J but provided his own reasons.

Significance of Bendel and next steps

While the significance of this win for the taxpayer should not be understated, taxpayers should remain cautious before running to amend their tax returns. It will be important to keep in mind:

Not every UPE will necessarily be covered by this judgment. The High Court’s reasoning focused on the terms of the deed of the 2005 Trust and the trust resolutions for the 2013 to 2017 years. Careful consideration of the circumstances of each relevant UPE in light of the Bendel decision will be required before taking any action.
If UPE arrangements were previously converted to Division 7A compliant loans in line with the Commissioner’s previous guidance, this decision does not impact those conversions, and the loans cannot be reverted to trust distribution arrangements.
This judgment underscores the importance of phrasing in a year-end trust distribution resolution and should serve to guide trustees to properly implement their intentions when dealing with trust income in a manner consistent with the trust deed.
The Court’s approach here may inform interpretation of analogous provisions such as the definition of ‘loan’ under the Superannuation Industry (Supervision) Act 1993 (Cth), which is based on similar concepts. This could affect superannuation funds and SMSFs, which are prohibited from lending money to members and are subject to restrictions when borrowing.
The Commissioner may now rely more heavily on Subdivision EA or section 100A into the future, which should put taxpayers that are currently under audit on notice for alternative risk exposures.
The decision may ultimately be of relatively limited utility as the 2026 Budget proposes amendments (see our Budget overview here) which would have the effect of taxing trustees of discretionary trusts that are similar to the 2005 Trust at the rate of 30% (with the exception of entities that are intended to be carved out of those changes such as ‘fixed trusts’ and certain other trusts, including trusts deriving primary production income for which this case may have ongoing relevance). Further, the proposed Budget changes contain measures which, as currently outlined, would disincentivise trustees from making distributions to corporate beneficiaries such as Gleewin (however, we note that these proposed changes will be subject to industry consultation).

In any event, this case does provide some much-needed clarity on the operation of Division 7A, reaffirms the legal characteristics of a loan, and emphasises the importance of supporting your case with persuasive evidence.