As discussed here, the recent decision of the Full Federal Court (Court) in FCT v Bendel [2025] FCAFC 15 (Bendel) has been a significant one in the private tax world.

In Bendel, the court considered whether an unpaid trust distribution (i.e., unpaid present entitlement or UPE) to a corporate beneficiary was a ‘loan’ under the expanded definition for Division 7A purposes. The Court found that the UPE conferred on the corporate beneficiary was not a loan under section 109D(3) of Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936).

So what does the Bendel decision mean, if anything, for SMSFs?

Bendel and ‘loans’ under Division 7A

Relevantly, the expanded definition of ‘loan’ under section 109D(3) ITAA 1936 provides that under Division 7A, a loan includes:

an advance of money; and
a provision of credit or any other form of financial accommodation; and
a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and
a transaction (whatever its terms or form) which in substance effects a loan of money.

In Bendel, the Court specifically considered whether the UPE was a ‘provision of credit or any other form of financial accommodation’ (as referred to in section 109D(3)( b) set out above). In applying the principles of statutory construction and interpretation, the Court examined the text, context and purpose of the Division 7A provisions.

The Court held that this definition of ‘loan’ entails an obligation to repay, noting that the concept of a loan involves the provision of a principal sum with an obligation to repay. Accordingly, the UPE did not meet the definition of a loan, since there was no obligation to repay, merely an obligation to pay.

Ultimately, the Court found that, although there existed a debtor-creditor relationship between the trustee and corporate beneficiary, the UPE conferred on the corporate beneficiary was not contingent on repayment, and as such, there was only an obligation to pay.

‘Loans’ under the SIS Act

The Superannuation Industry (Supervision) Act 1993 (SIS Act) contains a similarly broad and inclusive definition of ‘loan’ under section 10(1), providing that a loan ‘includes the provision of credit or any other form of financial accommodation, whether or not enforceable, or intended to be enforceable, by legal proceedings.’

That is, the SIS Act definition of ‘loan’ mirrors the definition under section 109D(3) ITAA 1936 with a key difference: the SIS Act definition includes financial accommodation regardless of enforceability.

The Commissioner of Taxation (Commissioner) has a long-held view that ‘loan’ under section 10(1) is to be given an expansive interpretation. In SMSFR 2009/4 for example, paragraph 11 states that the section 10(1) definition of loan is:

inclusive and expands the meaning of the term substantially beyond the traditional meaning of a ‘loan’ which involves a payment and repayment of an amount of money…it extends the scope of arrangements covered to include arrangements that are in substance financing arrangements deferring the payment of an amount. Such arrangements would include but are not limited to…. arrangements for the deferral of payment or debts or entitlements.

Applying Bendel to the SIS Act

The key question therefore is, does the reasoning in Bendel extend to the SIS Act? Noting the Court’s focus on statutory construction in Bendel, it can be reasonably inferred that whether an arrangement constitutes a ‘loan’ depends on the context and purpose of the term ‘loan’ within the SIS Act. Specifically, for Division 7A purposes, the Court stated that the need for an obligation to repay is central to determining whether an arrangement qualifies as a loan.

While unlike section 109D(3) ITAA36, section 10(1) of the SIS Act does not have other subsections that explicitly refer to repayment, the expanded definition of loan in the SIS Act is likewise used in the context of loans and loan like arrangements.

It is, therefore, reasonable to surmise that the Courts would likewise interpret the use of the phrase “any other form of financial accommodation” to mean, in the SIS Act context, an arrangement that involves the advancement of principal with an obligation to repay and that it would not apply to a mere creditor and debtor arrangement (like a UPE).

For further information please contact:
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au

Philippa Briglia
Special Counsel
T +61 3 9611 0174 | M +61 449 404 801
E: pbriglia@sladen.com.au