The article explains the arguments contained in the parties’ submissions to the High Court in the appeal by the Commissioner of Taxation (Commissioner) from the Full Federal Court’s (Full Court) decision in Commissioner of Taxation v Bendel [2025] FCAFC 15 (Bendel).

This follows the Administrative Appeals Tribunal’s (Tribunal) decision in Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074, and the Full Court’s decision in Bendel in February this year.

Parts I and II of Bendel

The Lord of the Rings, Back to the Future, (the original) Star Wars and Indiana Jones, and The Godfather are famous movie trilogies. In the tax world, the High Court hears the final instalment of the Bendel trilogy on 14 October 2025. Or, like The Hunger Games, will the final instalment be in two parts, with the possibility of legislative reform after the High Court decision?

Irrespective, for Bendel watchers, the High Court hearing will be fascinating and undoubtedly lead to many fervent discussions over the coming months before the High Court hands down its decision. That is likely to be in the first half of 2026.

The parties in the appeal are:

the Appellant — being the Commissioner (i.e. the Australian Taxation Office) (ATO); and

the Respondent — being Mr Steven Bendel (Mr Bendel) and Gleewin Investments Pty Ltd (Gleewin Investments), both discretionary beneficiaries of the Steven Bendel 2005 Discretionary Trust (2005 Trust) (collectively, the Taxpayers).

Ahead of the hearing on 14 October 2025, I have summarised below the main issues and the arguments advanced by the parties, drawn from the Appellant’s and Respondent’s submissions. This article does not include the Commissioner’s right of reply to the Taxpayer’s submissions.

For background reading, our summaries of:

the Full Court’s decision can be found here; and

the Tribunal’s decision can be found here.

All legislative references are to the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) or the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

Relevant legislative provisions

By way of background, subsection 109D(3) of the ITAA 1936 states:

In this Division, 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.

Subsection 6-25(1) of the ITAA 1997 states:

Sometimes more than one rule includes an amount in your assessable income:

the same amount may be *ordinary income and may also be included in your assessable income by one or more provisions about assessable income; or
the same amount may be included in your assessable income by more than one provision about assessable income.

…

However, the amount is included only once in your assessable income for an income year, and is then not included in your assessable income for any other income year.

Parties’ submissions

ATO’s submissions

The ATO has put forward two issues:

whether the corporate beneficiary, Gleewin Investments, made ‘loans’ (as defined in subsection 109D(3)) when it acquiesced to the 2005 Trust retaining and using amounts to which Gleewin Investments was presently entitled; and
if so, whether section 6-25 prevents the inclusion in the assessable income of the 2005 Trust of the deemed dividend that Gleewin Investments was taken to have paid to the 2005 Trust under subsection 109D(1).

Taxpayers’ submissions

The Taxpayers have accepted the two broad issues identified by the ATO but have expressed the first issue differently to reflect the facts as found by the Tribunal. Specifically, the Taxpayers framed the first issue as:

Did Gleewin Investments make a ‘loan’, as defined by s 109D(3) to [the 2005 Trust] that was not fully repaid before the relevant ‘lodgment date’ for each relevant income year in which the [the trustee of the 2005 Trust] made Gleewin Investments presented entitled to income of the 2005 Trust but in respect of which no step was taken or event occurred beyond vesting the entitlement to satisfy that entitlement?

Meaning of ‘loan’ in subsection 109D(3) of the ITAA 1936

ATO’s submissions

The ATO argues that the Full Court confined the meaning of ‘loan’ in subsection 109D(3) to a transaction that creates an obligation to repay, or which in substance effects an obligation to repay. That is, the inclusive limbs of subsection 109D(3) were read down.

The definition of ‘loan’ in subsection 109D(3) is inclusive. Inclusive definitions are used in the law to extend the ordinary meaning of a word or phrase and by expressly providing for the inclusion of borderline cases. Extrinsic materials that defined ‘loan’ in similar terms in other provisions in the tax law indicate that the definition was intended to have an extended meaning and covers arrangements that are not strictly loans at law.

The ATO contends that the Full Court’s construction of paragraph 109D(3)(b) is incapable of applying to transactions that contain an obligation to ‘pay’ (not ‘repay’), such as deferred payment terms or the issue of a promissory note.

The ATO also considers that the Full Court erred by reading down paragraph 109D(3)(b) by reference to the terms of paragraphs 109D(3)(a) to (c). In other words, that one or more of the limbs have a particular attribute – i.e. repayment – does not mean that every limb in subsection 109D(3) requires that attribute to be present.

The ATO is of the view that paragraph 109D(1)(a) specifies that a private company ‘makes a loan’, and subsection 109D(4) then provides that ‘a loan is made to an entity at the time the amount of the loan is paid to the entity by way of loan or anything described in subsection (3) is done in relation to the entity’ (Appellant’s emphasis). A ‘harmonious’ construction of subsection 109D(1) requires the word ‘repaid’ in paragraph 109D(1)(b) to be construed to accommodate the situation where no amount was paid to the entity by way of a loan.

The ATO’s submission also explains that the Full Court’s construction gives rise to the possibility of debt forgiveness arrangements enlivening Division 7A (via section 109F of the ITAA 1936), but debt deferral arrangements escape it.

The purpose of Division 7A is to expand the operation of section 44 of the ITAA 1936, and the use of the word ‘loan’ (as defined) serves to identify the various means by which a shareholder (or their associate) may temporarily access a private company’s profits. The Full Court’s construction, by giving reference to form over substance, tends to defeat the purpose of the anti-avoidance regime.

Taxpayers’ submissions

The Taxpayers assert that the Commissioner ‘inverts’ the proper process of construction of subsection 109D(3) by seeking to give the word ‘loan’ its broadest possible meaning. This is despite the clear contextual indications that section 109D was intended not to apply to a private company not demanding payment of an amount to which it is entitled, in contrast to subsection 109F(6) or an unpaid present entitlement (UPE) to trust income (as dealt with by former section 109UB and Subdivision EA).

Former section 109UB, which was replaced by Subdivision EA with effect from 12 December 2002, was introduced because ‘it has been argued’ that section 109D does not apply to UPEs.

Subsection 109D(1) provides that a private company is taken to pay a dividend to a shareholder or their associate if:

the company makes a loan to that entity during an income year (paragraph 109D(1)(a)); and

the loan is not fully repaid before the company’s lodgment day for that income year (paragraph 109D(1)(b)).

The Taxpayers’ submission explains that two further aspects of section 109D are important. That is, that section 109D depends on:

the company doing some positive act; and
the company identifying when the loan was made (subsection 109D(4)).

The Taxpayers contend:

Although subsection 109D(3) extends the definition of ‘loan’ beyond its ordinary meaning, its terms must be construed harmoniously with section 109D and Division 7A as a whole.

References to an amount that has, or has not been, ‘repaid’ are important as it is not the making of a loan that causes a dividend to have been taken to be paid by the private company; rather, it is the failure to fully repay the loan before lodgment day.

A loan, as defined in subsection 109D(3), must begin with a payment. If there is no obligation to repay that amount, it is dealt with by section 109C. If there is an obligation, then it is dealt with by section 109D as a loan.

A transaction is not a loan as defined in subsection 109D(3) simply because the shareholder or their associate is obliged to make a payment to the company sometime in the future. The company must first make a payment as defined, without which the shareholder or their associate does not obtain the benefit of the company’s profits.

Section 109D was not intended to apply to transactions that might be ‘credit’ or ‘financial accommodation’ in other statutory contexts, but which do not involve any payments, as defined, by the company. The extension in subsection 109D(3) is limited by statutory context to transactions that involve an obligation to repay an amount.

The Full Court’s construction operates harmoniously both with section 109D and the rest of Division 7A, including provisions such as section 109T (about interposed entities), section 109F (about forgiven debts), and Subdivision EA (as well as its predecessor, former section 109UB).

The 2005 Trust made actual loans to Mr Bendel. Those loans were possible only because Gleewin Investments did not call for amounts to be paid to it. ‘At the heart of this case is the Commissioner’s failure to rely on Subdivision EA in respect of loans made by [the 2005 Trust] to Mr Bendel’.

Finally, the Taxpayers submitted that to the extent the Commissioner perceives that a trust retaining the use of income to which a private company has been made presently entitled without paying tax under section 99A of the ITAA 1936 is a mischief, that was not a mischief perceived by Parliament. That is, of course, subject to particular legislative caveats where Parliament deemed it appropriate, for example, sections 100AA and 100A of the ITAA 1936. Division 7A was not intended to, and does not, operate as one of those caveats.

Section 6-25 ‘same amount’

ATO’s submissions

The ATO argues that subsection 6-25(1) of the ITAA 1997 prevents double inclusion in a taxpayer’s assessable income for an income year only of the ‘same amount’, which requires that the amounts are identical in nature. According to the Commissioner, a Division 7A deemed dividend and prior year trust income share only a historical connection and are not the ‘same amount’.

Taxpayers’ submissions

The Taxpayers contend that the deemed dividend amount (in Year 2) equals the trust income (in Year 1) that was set aside but unpaid. Accordingly, those two amounts are the ‘same amount’. This means that subsection 6-25(1) bars reinclusion of Gleewin Investment’s share of the 2005 Trust’s net income, which was assessed to the company under section 97 of the ITAA 1936, based on the share of the trust income to which it was presently entitled.

Relief sought and consequence

ATO’s submissions

The ATO submits that:

the appeal should be allowed; and

the decisions of the Tribunal and the Full Court should be set aside and remitted for determination according to law.

Taxpayers’ submissions

The Taxpayers submit that:

the appeal should be dismissed; and

alternatively, if section 109D applies to treat the UPEs for the relevant years as loans for Division 7A purposes, section 6-25 should prevent the reinclusion of these amounts in the assessable income of the 2005 Trust.

Closing comments

Many in the tax profession will be keenly following the hearing in the High Court on 14 October 20025, and eagerly awaiting the High Court’s decision, likely in the first half of 2026. Whichever way the decision falls, there will be implications for taxpayers and the ATO, and possible legislative reform.

We will continue to provide updates and developments on the Division 7A treatment of UPEs as they come to hand.

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

Kaitilin Lowdon
Principal Lawyer
M +61 402 859 214 | T+61 3 9611 0120
E: klowdon@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

Edward Hennebry
Special Counsel
T +61 3 9611 0113 | M +61 428 439 730
E ehennebry@sladen.com.au