The High Court of Australia has dismissed the Commissioner’s appeal in the Bendel case, ending a long-running dispute over how family trust distributions to a company beneficiary are taxed. In a 5:2 majority, the High Court confirmed that a beneficiary’s unpaid present entitlement (UPE – an amount of trust income allocated but not actually paid out) does not, by itself, count as a “loan” or other form of “financial accommodation” under Division 7A. This outcome overturns the ATO’s long standing position that trusts leaving income unpaid to a corporate beneficiary could trigger a deemed dividend. The ruling provides long awaited clarity for many private business and family groups using trusts and bucket company structures however, other tax integrity measures may still apply, and legislative changes may still follow.
For most information on the background to Division 7A and the ATO guidance in 2010, refer to our earlier article – Trust Distributions to Corporate Beneficiaries – ATO’s Division 7A views incorrect!
A recap – the Bendel dispute
In Bendel’s case, the ATO applied its broad Division 7A view, issuing amended tax assessments for the 2014 – 2017 income years which included the unpaid trust entitlements as deemed dividends in the trust’s and Mr Bendel’s incomes. Mr Bendel disputed those assessments, arguing the ATO was misapplying the law since no actual loans were made. This set off a protracted legal battle through multiple tribunals and courts, culminating in the High Court’s decisive dismissal on 10 June 2026.
ATO position vs the taxpayer’s argument
The Commissioner argued that when a company beneficiary allows its trust entitlement to remain unpaid, it is effectively lending those funds back to the trust. In the ATO’s view, the company provided “financial accommodation” to the trust, meaning the unpaid entitlement fell within the extended definition of a “loan” in Division 7A. This interpretation was intended to prevent families from using company beneficiaries (e.g., “bucket” companies) to accumulate trust income at lower corporate tax rates whilst the cash was retained by the trust or used elsewhere. The ATO contended that in Mr Bendel’s case, each year’s UPE should be treated as a Division 7A loan, triggering a deemed dividend to the trust which was then included in Mr Bendel’s taxable income through the trust taxation rules. This resulted in substantial additional tax payable.
Mr Bendel maintained that no genuine loan had occurred. He argued that an unpaid trust entitlement is simply an entitlement owed to the company, not a loan of money from the company, because no funds were advanced or repaid. The trust deed in this case explicitly required any income allocated to the company to be held on a separate sub-trust (until called for), meaning no conventional debtor-creditor relationship arose between the trust and the company. Absent any transfer of value or obligation to repay, Mr Bendel contended that the Division 7A “loan” definition was not satisfied, and the Commissioner was improperly trying to tax the same income twice (once as company profit, and again as a deemed dividend to the trust’s beneficiaries).
Significance of the High Court decision
The High Court’s majority opinion upheld the Full Federal Court judgement. The Justices emphasised that merely giving the trust more time to pay a beneficiary (i.e. not immediately distributing a UPE) does not involve an advance of money or an obligation to repay and thus does not fall under the statutory definition of a loan in Division 7A. The High Court noted that Division 7A already includes other provisions which directly deal with situations in which trust funds are actually paid or lent to shareholders, and it was not intended that every uncalled trust entitlement be automatically treated as a loan.
Cautionary road ahead for taxpayers and advisers
- For family and business groups which use trust structures, the immediate impact is positive. This outcome has been welcomed by taxpayers as a victory for predictability and fairness, correcting what some saw as an ATO overreach. After over a decade of disputes and ATO compliance activity on the issue, private company beneficiaries of trusts will not automatically be subject to Division 7A for leaving entitlements unpaid, providing more flexibility in managing trust cash flow and reinvestment without triggering deemed dividends. Taxpayers with recent tax assessments based solely on the ATO’s now-discredited view should be reviewed and such taxpayers may consider seeking a formal objection or amendment to their tax returns. However, the ATO’s position on how such previous assessments will be dealt with is currently unknown. The ATO have confirmed they will be reviewing previous decision impact statements and update them for the High Court decision as required.
- Although a welcomed end, significant caution remains warranted and the decision does not give free rein to shift profits to companies tax free. Other anti-avoidance provisions can still apply to trust-company arrangements if funds are actually transferred or used for shareholders’ benefit including, Subdivision EA, the reimbursement rule in Section 100A as well as general anti-avoidance rule in Part IVA. All may be avenues the ATO might use more aggressively now that Division 7A proved unsuccessful. We may also yet see new legislation from Treasury to specifically bring UPEs within the definition of a “loan” for the purposes of Division 7A, effectively unwinding the High Court’s decision.
- It is also important to note that the High Court’s reasoning in Bendel was influenced by the specific terms of the trust deed. In this case, the deed required any corporate beneficiary’s share to be held on separate sub-trust and did not impose an unconditional obligation to pay immediately. Other trusts with different deed wording (e.g. automatically converting unpaid entitlements to loans between the trust and company) could face different outcomes. Advisers should review their client’s trust deeds to ensure similar protective language is present but should also be careful not to introduce unintended consequences if considering deed amendments. In many cases, it will be prudent to seek legal advice.
What’s next?
Although the ATO was defeated in Bendel, the Government may yet have the final word if the proposed 30% trust minimum tax announced in the 2026-27 Federal Budget is enacted. In practical terms, that proposal would become the primary mechanism for ensuring discretionary trust income is taxed at no less than 30% going forward. This proposed measure has attracted widespread industry concern about double taxation on distributions to corporate beneficiaries and the disproportionate, punitive impact on small and family-owned businesses. If and when the Government legislates the 30% minimum tax on trust distributions, it is unlikely trusts will be making distributions to corporate beneficiaries which negates the impact of this decision in the future.
Taxpayers and advisers should remain alert to revised ATO guidance and potential law reform in the wake of Bendel, and continue to use trust–company structures cautiously, ensuring arrangements are defensible and consistent with both the letter and spirit of the law. To discuss this matter in the context of your business, please contact your local Moore Australia office today.
