Key takeaways 

• On 10 June 2026, the High Court delivered its greatly anticipated decision in Commissioner of Taxation v Bendel.^[1] 
   
• The majority confirmed that a trust’s unpaid present entitlements (UPEs) owed to a corporate beneficiary do not in all cases constitute a ‘loan’ for the purposes of Division 7A of the Income Tax Assessment Act 1936 (Cth).
   
• In doing so, the High Court rejected the ATO’s long-standing position that the amount of the UPE will always result in a deemed dividend in the hands of the trustee (on the assumption that the loan is not on complying Division 7A terms).

This article briefly outlines the facts relevant to the Bendel decision and what it means for trust structures as the 2025-26 financial year comes to a close, other mechanisms the Commissioner has at his disposal and what this all means with the potential incoming changes to the taxation of trusts announced by the Federal Government in the 2026-27 Budget. 

Facts of the case 

To recap the facts of the case, the Steven Bendel 2005 Discretionary Trust (Trust) derived income from the Bendel Group entities, which operated an accounting and tax agent practice and invested in commercial property. During the relevant income years, Gleewin Pty Ltd (Gleewin), as trustee for the Trust, resolved to set aside part of the Trust’s net income (Resolutions) for a corporate beneficiary, Gleewin Investments Pty Ltd (Gleewin Investments). 

Under the terms of the Trust, the amounts set aside were to be held on a separate trust for the benefit of Gleewin Investments. Those payments were not paid to Gleewin Investments and Gleewin Investments did not call for payment to be made. 

In line with the view that the Commissioner has held since 2010, the Commissioner contended that the unpaid present entitlements (UPEs) constituted a ‘loan’ under section 109D, either as a provision of credit or of financial accommodation, or as a loan ‘in substance’. In issuing amended assessments, the Commissioner asserted that Division 7A operated to deem that the Trust had received a dividend from Gleewin Investments. 

The High Court's decision 

On appeal from the Full Federal Court, the High Court rejected the Commissioner’s appeal, holding in a majority judgment that the UPE did not constitute a loan for the purposes of Division 7A. The specific facts of the case which the High Court relied upon and their key findings are summarised below. 

• Under the Trust deed, the Trustee had the power to ‘determine…to pay apply or set aside’ the net income of the Trust to the discretionary objects. The Deed defined ‘set aside’ to include crediting such amounts to a beneficiary in the Trust’s account, rather than requiring an actual distribution of the amount. Once the Trustee determined to set aside a portion of net income, such income was to be held in a separate trust, pending payment. 
   
• In accordance with these terms of the Trust, the Resolutions specifically provided that the amounts were ‘hereby set aside’ in favour of Gleewin Investments (and another beneficiary), rather than being paid or applied to Gleewin Investments.
   
• These terms of the Trust, the specific wording of the Resolutions, and the fact that Gleewin did not admit it was indebted to Gleewin Investments and that Gleewin Investments did not call for payment to be made, meant that: 
  • a debtor/creditor relationship did not exist between Gleewin and Gleewin Investments; 
  • Gleewin Investments’ UPE was held on a separate trust and did not form part of the trust fund once the Resolutions were passed; and
  • there was no unconditional duty for Gleewin to pay Gleewin Investments the UPE.
     
• The two bases which the Commissioner argued that the UPE should be considered as a loan under Division 7A were rejected on the basis that: 
  • under section 109D(3)(b), for the UPE to be considered a ‘provision of … financial accommodation’ required a positive act or initial transfer of pecuniary assistance in some form. Gleewin Investments’ mere inactivity did not satisfy the language of the section; and
  • simply doing nothing or acquiescing to the retention of funds, is not a transaction which in substance effects a loan under section 109D(3)(d). The ordinary meaning of the term ‘transaction’ in the section refers to some interchange or interaction between entities, which did not occur in Bendel. 
     
• The statutory context indicated that, despite the expanded definition of ‘loan’ in section 109D, a loan still involves a transfer of value accompanied by an obligation of repayment due to the repeated references to amounts being ‘repaid’ in the legislation. No such obligation existed in Bendel as Gleewin Investments never required the UPE to be paid to them. 
   
• The legislative history confirms that Parliament deliberately addressed UPE arrangements in specific provisions, rather than extending section 109D to capture them. This reflects a sustained policy choice to target shareholders in UPE arrangements and indicates that section 109D was not intended to apply to mere forbearance or UPEs.

Alternative mechanisms at the Commissioner’s disposal 

While the Bendel decision is a win for taxpayers, there are other existing and independent powers the Commissioner could potentially exercise to bring a UPE to account which include the following:

• Subdivision EA is a targeted provision and applies where a UPE is owed to a corporate beneficiary of a trust, and the UPE is used to provide a loan or other financial benefit to a shareholder (or their associate) of the corporate beneficiary. If Subdivision EA is found to apply, the amount of the loan or benefit will be considered a deemed dividend of the corporate beneficiary. This is the usual way in which the Commissioner targets UPE arrangements. 
   
• Section 100A is a targeted anti-avoidance provision that applies where a beneficiary becomes presently entitled to trust income via a ‘reimbursement agreement’. This involves arrangements where a beneficiary becomes presently entitled to income of a trust estate in circumstances where a benefit is also provided to someone other than the beneficiary (for example, the trustee itself) and it can objectively be said that the arrangement was entered into for the purpose of getting that tax benefit. Where this section applies, the Commissioner may disregard a beneficiary’s present entitlement to that income and assess the trustee on that income at the top marginal rate.  
   
• Part IVA contains general anti-avoidance provisions that apply where there is an arrangement or scheme under which there is a dominant purpose to obtain a tax benefit. If the Commissioner determines that the Part IVA applies to a scheme, the Commissioner has the power to cancel the tax benefit which has been derived under the scheme and issue amended assessments. 

While the Commissioner is aware of the potential application of these powers in lieu of Division 7A as they were noted in the Commissioner’s Decision Impact Statement issued in the wake of the 2025 Federal Court decision, it is not clear at this stage how the Commissioner will apply them in the context of UPEs. The Commissioner may give guidance if a Decision Impact Statement is released following the High Court decision.

Key considerations for trustees prior to 30 June 2026

Following the High Court’s decision so close to 30 June 2026, trustees and their advisors may wish to carefully review current trust arrangements prior to the end of the financial year by considering:

• the potential application of Subdivision EA, Section 100A, and Part IVA where a trust deals with UPEs;
   
• available objection rights for prior financial years where the Commissioner assessed a trustee as receiving a deemed dividend in relation to a UPE;
   
• whether the terms of the discretionary trust deed and relevant distribution resolutions are similar to Bendel, as the High Court’s decision in Bendel was based on a close analysis of the trust arrangements and terms of the trust deed; and
   
• whether current UPE arrangements which have been converted to complying Division 7A loans need to continue to satisfy the rules under Division 7A.

Furthermore, the implications of the decision must also be considered alongside the Federal Government’s announcement as part of the 2026-27 Federal Budget of a proposed 30% tax on discretionary trusts from 1 July 2028. Under these changes, it is anticipated that tax is to be paid at the trustee level and that corporate beneficiaries will not receive any credit for the tax paid by the trust on their distributions. The role of corporate beneficiaries in trust distribution structuring is likely to diminish as a result of this ‘double taxation’ if the changes come into effect. The impacts of the Bendel decision will need to be reassessed if these proposed changes become law.

Although the Bendel decision brings clarity to many structures which use discretionary trusts to distribute income to corporate beneficiaries, the decisions applicability to specific structures need to be considered closely. Once the Commissioner provides guidance as to his interpretation of the decision, the flow-on effects of the decision will be able to be applied by trustees with more certainty (subject to proposed changes to the use of trusts and corporate beneficiaries if the proposed changes in the 2026-27 Federal Budget become law).