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June 22, 2026
In our previous article, Important Tax Cases: Commissioner of Taxation v Bendel, we examined the Full Federal Court’s decision and its potential implications for trusts, unpaid present entitlements (UPEs) and Division 7A.
The High Court has now dismissed the Commissioner’s appeal, confirming that an unpaid present entitlement owed by a discretionary trust to a corporate beneficiary is not automatically a loan for Division 7A purposes.
The decision brings long-awaited clarity to an issue that has influenced trust distribution planning and Division 7A compliance for more than a decade. However, while the legal question may now be settled, the practical implications will depend on each trust’s circumstances, structure and objectives.
For many trustees, the more important question is not simply what the High Court decided, but what the decision means for existing arrangements and future planning.
The High Court rejected the Commissioner’s long-held position that a UPE owed by a trust to a corporate beneficiary should automatically be treated as a loan under section 109D of Division 7A.
In broad terms, the Court found that the unpaid entitlement in the Bendel case did not create the type of debtor-creditor relationship required for Division 7A to apply.
This means the ATO’s administrative approach, which has treated many UPEs as loans since 2010, has now been overturned by Australia’s highest court. As a result, trustees and advisers now have judicial certainty on a question that has been the subject of significant debate and compliance activity for many years.
One of the most important aspects of the Bendel decision is that it turned heavily on the specific terms of the trust deed before the Court. Not all trust deeds operate in the same way.
As a result, the decision should not be interpreted as confirmation that Division 7A will never apply to unpaid trust distributions. The legal characterisation of a UPE will depend on the trust deed, distribution resolutions and surrounding facts.
The outcome can also depend on the wording used in distribution resolutions, not only the deed. In Bendel, the trustee resolved to “set aside” income in a way the deed treated as held separately for the beneficiary, rather than as an amount owed to it. Resolutions that instead describe income as paid, loaned or credited as a loan may be interpreted differently. Keeping distribution minutes consistent with the terms of the deed is therefore an important part of the picture.
Trustees who have historically distributed income to corporate beneficiaries may wish to review their trust deed and distribution processes before assuming the Bendel outcome automatically applies to their circumstances.
Many private groups have implemented complying Division 7A loan agreements over the past 16 years in response to the Commissioner’s former position on UPEs. The High Court’s decision does not automatically unwind those arrangements.
Existing loan agreements remain legally operative and should not be altered or terminated without considering the potential tax consequences. In some circumstances, changes to existing arrangements may themselves trigger Division 7A outcomes. Reviewing these arrangements before making any changes may help avoid unintended consequences.
UPEs are often recorded in a trust’s financial statements against a beneficiary loan account or similar heading, largely as a matter of administrative convenience.
Following Bendel, trustees and advisers may wish to review whether the accounting treatment of a UPE is consistent with the legal position reflected in the trust deed and distribution resolutions. While accounting records do not determine the legal character of an entitlement, inconsistencies between the two may warrant further review.
While the High Court has clarified the application of section 109D, other integrity provisions continue to apply.
Subdivision EA can apply where funds associated with a UPE owed to a corporate beneficiary are used to provide a loan or financial benefit to a shareholder or associate of that company.
Where applicable, the provision may still result in a deemed dividend outcome regardless of the Bendel decision.
Section 100A remains an important consideration for trust distributions.
Broadly speaking, the provision may apply where a beneficiary is made presently entitled to trust income but another party ultimately receives the benefit of that distribution. Where it applies, the trustee rather than the beneficiary may be assessed on that income at the top marginal rate.
Section 100A was not considered in the Bendel case and applies independently of the Division 7A question the High Court decided. Its application depends heavily on the facts of each arrangement and continues to be an area of ATO focus.
Broader anti-avoidance provisions such as Part IVA also remain relevant where arrangements are implemented primarily to obtain a tax benefit. The existence of a UPE alone does not trigger Part IVA, however the overall arrangement and purpose of the structure remain important considerations.
The Bendel decision does not alter the operation of these provisions.
The High Court’s decision provides an opportunity to review existing arrangements rather than assume a particular outcome.
Depending on your circumstances, it may be worth reviewing:
As with many tax matters, the technical answer is only one part of the picture. The broader implications often extend beyond tax and may influence how a structure supports long-term family and business goals.
The Bendel decision arrives while the taxation of discretionary trusts is already under review.
As part of the 2026-27 Federal Budget, the Government announced a proposed 30% minimum tax on discretionary trust income from 1 July 2028, applied at the trustee level. Under the proposal as announced, corporate beneficiaries would not receive a credit for tax paid by the trustee. Because much of the planning affected by Bendel involves distributions to corporate beneficiaries, this is a particularly relevant consideration.
These measures are proposed only and are not yet law, and their final form, timing and detail may change as any legislation progresses. Even so, they are a reminder that the certainty Bendel provides applies to the current environment. Trust distribution planning is generally best considered over a multi-year horizon rather than a single income year.
The Budget also flagged a proposed rollover relief window from 1 July 2027 to assist the transfer of assets out of discretionary trusts. Groups with significant assets held in trust structures may wish to begin reviewing their options well ahead of any changes taking effect.
The Bendel decision provides important clarity on the treatment of unpaid present entitlements and Division 7A. However, trust planning rarely involves a single issue in isolation.
Trust structures often sit at the intersection of tax planning, asset protection, business ownership, succession planning and family wealth objectives. Understanding how these elements interact remains just as important as understanding the outcome of a particular court case.
For many trustees, now may be an appropriate time to review existing arrangements and consider whether their trust structure continues to support their broader tax, business, succession and family wealth objectives.
A UPE arises when a trust makes a beneficiary presently entitled to income but does not physically pay the amount. UPEs are commonly used in discretionary trust structures, particularly where corporate beneficiaries are involved.
No. The High Court confirmed that the UPE in Bendel was not a loan for Division 7A purposes. Whether the same outcome applies to another trust will depend on the trust deed, distribution arrangements and specific circumstances.
Not necessarily. Existing agreements remain legally operative and changes may create unintended tax consequences. Professional advice should be obtained before making any changes.
No. Section 100A operates independently of Division 7A and remains relevant to many trust distribution arrangements.
Trustees may wish to review their trust deed, distribution resolutions, existing UPE arrangements and any Division 7A loan agreements before making changes. The implications of the Bendel decision will vary depending on the structure and circumstances involved.
