On 12 June 2025, the High Court granted the Commissioner special leave to appeal the decision of the Full Federal Court in FCT v Bendel [2025] FCAFC 15 (Full Court Decision) that we wrote about here.
At the time of the Full Court Decision, we said that there were several known unknowns. Two of those are now known – the Commissioner applied for special leave, and the High Court granted special leave.
The remaining known unknowns include, when will the High Court decision be handed down, will the appeal be successful or unsuccessful and, if unsuccessful, will the Government change the law and from what date. Quite a lengthy list.
In the meantime, taxpayers and their advisors face the continuing uncertainty that started when the Administrative Appeals Tribunal handed down its decision in Bendel v FCT AATA [2023] 3074 in 2023 that was amplified with the Full Court Decision.
When will the High Court decision be known?
At this stage one can only speculate but, given the interest and impact, the High Court may hear the case in the last quarter of 2025 with a decision possibly in the first quarter of 2026. Those dates could be later.
Therefore, the uncertainty that we saw earlier this year around lodging 2024 income tax returns and dealing with unpaid present entitlements (UPEs) from the 2023 income year is likely to be a feature next year for 2025 income tax returns and 2024 UPEs.
What has the ATO said?
After the application for special leave the Australian Taxation Office (ATO) updated its Interim Decision Impact Statement (IDIS) that we wrote about here.
The ATO did not update the IDIS after the High Court granted special leave. However, on 13 June 2025, Deputy Commissioner Louise Clarke updated who discussion (Clarke Statement) of the Full Court Decision. The Clarke Statement reinforces, and expands, the ATO views in the IDIS:
As set out in the IDIS, the ATO does not intend to revise its current views, in Taxation Determination TD 2022/11, on UPEs.
The ATO is not going to grant a blanket extension of time for affected companies to lodge their income tax returns pending the High Court’s decision in the appeal.
The basis on which UPEs are dealt with may have consequences under other integrity provisions in the tax law, including section 100A and Subdivision EA.
Where a deemed dividend arises because a taxpayer relies on the Full Court Decision, and the ATO is successful in the High Court, the ATO will not grant a blanket exercise of the discretion in section 109RB to disregard the deemed dividends.
Where UPEs are not “converted” to loans, integrity provisions such as section 100A or Subdivision EA could apply and, placing a UPE on Division 7A complying loan terms requires all the elements of section 109N to be satisfied, that is “UPEs must be converted to loans to comply with section 109N”.
If a taxpayer has been, and continues to, follow the ATO guidance then “they will have certainty regardless of the outcome of the High Court proceedings. That is, they will not be facing the prospects of a deemed dividend or potential application of other integrity provisions.”
Aspects of the IDIS and Clarke Statement are controversial.
Allsop J in FCT v Indooroopilly Children Services(Qld) Pty Ltd [2007] FCAFC 16 (Indooroopilly) when criticising the ATO’s administration of the law said the ATO must not administer “the statute in a manner contrary to the meaning and content as declared by the Court”. Indooroopilly was raised after the interim DIS was issued, but the ATO’s approach remains unchanged.
The statement that UPEs “must be converted to loans to comply with section 109N” appears inconsistent with the ATO’s own views. The ATO position is that certain UPEs are loans under section 109D. If they are loans under that definition which applies for the whole of Division 7A, why do the UPEs need to be “converted” to comply with section 109N? The Clarke Statement is also at odds with TD 2022/11 at paragraph 101 where the ATO says:
This Appendix describes how a private company beneficiary and trustee in those circumstances can implement a complying loan agreement, in particular including the timing requirements, so that the financial accommodation does not give rise to a deemed dividend. This is illustrated by examples where:
a UPE is made subject to complying loan terms
a UPE is in fact satisfied and replaced with a new loan …
What to do next?
The ATO in the IDIS and Clarke Statement make it clear that taxpayers who do not comply with the ATO views on UPEs and Division 7A could face consequences:
the ATO will look to other integrity provisions such as section 100A and Subdivision EA; and
if the ATO is successful in the High Court, the ATO will not grant a “blanket” exercise of the discretion in section 109RB.
One could say that the ATO approach is aggressive, but at least taxpayers and advisors have been warned.
Irrespective, there remains a continued period of uncertainty for taxpayers and advisors and the same issues grappled with around lodgment time earlier this year are likely to feature again.
What can one do? Get advice, being mindful of the Full Federal Court Decision and the ATO views in the IDIS and Clarke Statement.
Taxpayers who rely on the Full Court Decision should be satisfied before they do that there could not be issues under section 100A and Subdivision EA and, if the ATO is successful on appeal (or the law changed retrospectively), a section 109RB application may not be successful.
Taxpayers who rely on the ATO views, and the ATO appeal is unsuccessful, and the law is not changed, face the situation where they entered into legally binding agreements for which there was no need (apart from reducing the risk of compliance action or the application of other integrity provisions) but which may have other irreversible consequences.
In the intervening period, perhaps Ringo Starr sums it up well:
It don’t come easy
You know it don’t come easy …
For more information please contact:
Neil Brydges
Principal | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327 | T +61 3 9611 0105
E dsmedley@sladen.com.au
Kaitilin Lowdon
Principal Lawyer
M +61 402 859 214 | T+61 3 9611 0120
E klowdon@sladen.com.au