For Whom the Bendel Tolls: Division 7A, UPEs, and the loan myth – but is the story over?
On 10 June 2026, the High Court of Australia handed down its decision in Commissioner of Taxation v Bendel [2026] HCA 18, dismissing the Commissioner’s appeal by a 5:2 majority. The decision resolves one of the most significant and long-running disputes in Australian tax law: whether an unpaid present entitlement (UPE) owed by a trust to a corporate beneficiary constitutes a ‘loan’ for the purposes of Division 7A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).
The majority (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) held that a corporate beneficiary’s failure to demand payment of its trust entitlement does not amount to the provision of ‘financial accommodation’ or a ‘transaction’ which in substance effects a loan of money. The decision comprehensively rejects the position the Australian Taxation Office (ATO) has maintained since 2009.
This article examines the decision, its reasoning, and the practical implications for taxpayers and their advisers. A note of caution: whilst the outcome is welcome, the decision does not resolve all issues arising from UPEs, and we still await the ATO’s decision impact statement.
Background facts and legislative history
The facts
The Bendel group included a discretionary family trust (the Steven Bendel 2005 Discretionary Trust (2005 Trust)), its trustee (Gleewin Pty Ltd (Gleewin)), a corporate beneficiary (Gleewin Investments Pty Ltd (Gleewin Investments)), and Mr Steven Bendel who controlled both companies. In each relevant income year, Gleewin as trustee resolved to ‘set aside’ defined percentages of trust net income for various beneficiaries, including Gleewin Investments and Mr Bendel.
Under the terms of the 2005 Trust deed, amounts set aside for a beneficiary ceased to form part of the main trust fund. The trustee instead held those amounts on separate trust for that beneficiary pending payment. Gleewin Investments was presently entitled to its allocated share of trust income and included it in assessable income under section 97 of the ITAA 1936. However, the trustee did not pay those amounts to Gleewin Investments, and Gleewin Investments did not call for payment. Some of the trust funds were deployed within the group, including in arrangements involving Mr Bendel.
The Commissioner issued amended assessments contending that the UPEs were ‘loans’ within the extended definition in section 109D of the ITAA 1936, and that deemed dividends arose under Division 7A. After the ATO denied the taxpayer’s objection, the Administrative Appeals Tribunal in Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074 found for the taxpayer. The Full Federal Court then unanimously dismissed the Commissioner’s appeal in Commissioner of Taxation v Bendel [2025] FCAFC 15. The Commissioner sought and obtained special leave to appeal to the High Court.
Legislative framework
Parliament introduced Division 7A in 1997 (with effect from 1998) to prevent shareholders and their associates from extracting profits from private companies in a tax-free manner through loans, payments, and debt forgiveness. Where Division 7A applies, the recipient is assessed on the relevant amount as an unfranked dividend under section 44 of the ITAA 1936.
Subsection 109D(3) provides an inclusive definition of ‘loan’ which extends to: (a) an advance of money; (b) a provision of credit or any other form of financial accommodation; (c) a payment on behalf of, or at the request of, an entity where there is an express or implied obligation to repay; and (d) a transaction which in substance effects a loan of money.
Subdivision EA of Division 7A, introduced in 2004, deals specifically with circumstances in which a corporate beneficiary has an unpaid present entitlement to trust income and the trustee makes payments or loans to, or forgives debts of, shareholders or associates of the corporate beneficiary. Subdivision EA was Parliament’s targeted response to UPE arrangements. It taxes the shareholder or associate who receives trust funds, rather than treating the UPE itself as a loan.
The ATO’s evolving position
For some years following Division 7A’s commencement, the ATO did not treat UPEs as loans. However, in December 2009 the ATO adopted the view that a corporate beneficiary’s UPE could constitute a ‘loan’ for Division 7A purposes. The ATO expressed this view in Taxation Ruling TR 2010/3 (now withdrawn), Practice Statement Law Administration PS LA 2010/4 (now withdrawn), Taxation Determination TD 2022/11, and Practical Compliance Guideline PCG 2017/13. Notwithstanding widespread disagreement and concern, the ATO’s views were generally complied with because of the consequences of Division 7A applying, resulting in significant compliance costs across the private group sector.
Issues in dispute
The central question before the High Court was whether the failure of Gleewin Investments to call for payment of its UPE, or its acquiescence in the trustee retaining the relevant funds, meant that the corporate beneficiary had made a ‘loan’ to the trustee within the meaning of subsection 109D(3). The Commissioner relied principally on two limbs.
paragraph 109D(3)(b): the UPE amounted to a ‘provision of credit or any other form of financial accommodation’ by Gleewin Investments to the trustee; and
paragraph 109D(3)(d): the arrangement was a ‘transaction which in substance effects a loan of money.’
Preliminary questions also arose about the legal effect of the trustee’s resolutions, including: whether they created separate trusts; whether a debtor-creditor relationship arose between the trustee and Gleewin Investments; and whether section 6-25 of the Income Tax Assessment Act 1997 (ITAA 1997) would prevent double taxation if the Commissioner’s construction otherwise succeeded.
Arguments of the parties
The Commissioner’s arguments
The Commissioner contended that the Full Federal Court had read the concept of ‘loan’ too narrowly by requiring an anterior transfer of money and an obligation to repay. The Commissioner argued that the expression ‘provision of credit or any other form of financial accommodation’ is deliberately broad and should encompass a private company beneficiary allowing time for the trustee to pay an amount presently due or simply refraining from demanding payment. Alternatively, the Commissioner submitted that the UPE arrangements were ‘transactions which in substance effect a loan of money.’
Before the High Court, the Commissioner further argued that the resolutions created an unconditional duty on the trustee to pay and established a debtor-creditor relationship, or alternatively that no separate trust arose for want of certainty. The Commissioner placed significant reliance on the purpose of Division 7A, namely, preventing private company profits from being accessed by shareholders or associates informally and without tax consequences.
The taxpayer’s arguments
The taxpayer argued that section 109D requires a private company to do something: to advance money, to provide credit, to make a payment, or to enter into a transaction. Mere inaction or a failure to demand payment does not constitute a ‘loan.’ A UPE is a trust-law entitlement; the corporate beneficiary is not the lender. The words ‘repay’ and ‘loan’ necessarily involve an obligation to return value that has been supplied, rather than simply an obligation to pay trust income.
The taxpayer further submitted that Subdivision EA specifically addresses UPE cases and should not be bypassed to produce a different and broader taxing outcome.
The taxpayer also argued that, if the Commissioner were correct on section 109D, section 6-25 of the ITAA 1997 operates to prevent inclusion of the amount of the "loans" in the assessable income of the trust because those "same" amounts have already been taxed as part of the income of the trust.
The majority decision
The majority comprehensively dismissed the appeal, with several key findings.
The majority held that the trustee’s resolutions set aside the UPE amounts but did not distribute them. The terms of the 2005 Trust deed and the resolutions created separate trusts for Gleewin Investments. Critically, they did not create a debtor-creditor relationship between Gleewin (as trustee) and Gleewin Investments. The accounting entries recording the UPEs did not constitute an admission of indebtedness sufficient to establish such a relationship.
The majority rejected the Commissioner’s construction of paragraph 109D(3)(b). The ‘provision of credit or any other form of financial accommodation’ requires some initial or anterior transfer of value, or the supply or grant of pecuniary assistance, involving bilateral activity. Division 7A targets a transfer of value from a private company to a shareholder or associate; its structure implies that the company does something to effect that transfer. Doing nothing, or failing to insist on immediate payment of a UPE, does not amount to a ‘provision’ of financial accommodation.
Paragraph 109D(3)(d) also did not apply. Doing nothing, or acquiescing in the retention of funds by a trustee, does not constitute a ‘transaction’ which in substance effects a loan of money. The word ‘transaction’ ordinarily involves interchange or interaction, or: some positive act or dealing between the parties.
The majority placed considerable weight on the legislative context and history of Division 7A, particularly Subdivision EA. Parliament’s decision to introduce Subdivision EA as a targeted mechanism addressing UPEs in 2004 was significant. The legislature chose to tax shareholders or associates who received trust funds in specified circumstances, rather than adopting a broader rule treating the mere retention of a UPE by the trustee as a deemed dividend. An expansive reading of the general ‘loan’ definition should not circumvent this legislative choice.
As the majority’s construction resolved the matter, it was unnecessary to decide the section 6-25 double taxation issue.
Dissenting judgments
Jagot J would have allowed the appeal. Her Honour considered that the extended definition of ‘loan’ in subsection 109D(3), particularly the concept of financial accommodation, should not be confined to cases involving a payment subject to an obligation of repayment. In her analysis, ‘repaid’ should be read flexibly to accommodate the breadth of the defined term, including the ‘undoing’ of the thing done to provide the financial accommodation. On the facts as her Honour viewed them, Mr Bendel controlled the relevant entities, Gleewin Investments did not require payment, and the UPE remained with the trust. That combination amounted to financial accommodation by the corporate beneficiary. Jagot J also rejected the taxpayer’s section 6-25 contention.
Beech-Jones J largely agreed with Jagot J’s construction and conclusion, emphasising that deferral of a current debt or obligation to pay can amount to the provision of credit or financial accommodation. His Honour would also have allowed the appeal and rejected the section 6-25 argument.
The dissenting judgments highlight that the question was not beyond argument. Nonetheless, the 5:2 majority provides a clear and authoritative statement of law. (The count is 10:2 if the earlier decisions are included.)
Implications and outlook
The decision represents a major taxpayer victory and comprehensively rejects the Commissioner’s long-standing position on UPEs and Division 7A. That said, advisers and taxpayers should not over-generalise the result. Several practical considerations and risks remain.
Fact-specific outcomes
The outcome in Bendel turned on the terms of the specific trust deed, the wording of the distribution resolutions, the accounting treatment, and the evidence regarding the nature of the relationship between the parties. Differently drafted trust deeds or resolutions may not produce the same result. Where a debtor-creditor relationship exists, or there is an admission of indebtedness, an express loan arrangement, or some other positive transaction, Division 7A may still apply. Taxpayers should not simply disregard UPEs they have “converted” to Division 7A complying loans under previous ATO guidance without undertaking a careful review.
Subdivision EA, section 100A, and Part IVA
Even where a UPE does not constitute a loan under section 109D, Subdivision EA remains relevant where the trustee uses trust funds to make payments or loans to, or forgives debts of, shareholders or associates of the corporate beneficiary. Taxpayers should not overlook this ongoing exposure. Following the Bendel decision, the ATO is also likely to increase its focus on section 100A reimbursement agreement provisions, Part IVA general anti-avoidance provisions, and other integrity rules.
ATO response
The ATO indicated on 10 June 2026 it is considering the implications of the High Court’s decision and will update its guidance including its interim decision impact statement. For now, TD 2022/11 and PCG 2017/13 remain in place, but the ATO is expected to revise or withdraw them. Taxpayers should not assume that all issues are settled and should exercise caution before making wholesale changes to existing arrangements until the ATO clarifies its position.
Legislative reform
Given the significance of the decision and the ATO’s historical reliance on its now-rejected position, legislative amendment remains a possibility. Any retrospective amendment would raise significant policy concerns. Separately, the 2026 Federal Budget announced proposed reforms to the taxation of discretionary trust distributions, including measures aimed at distributions to corporate beneficiaries, to take effect from 1 July 2028. Whilst the details of those reforms remain subject to consultation, they may reduce the future practical significance of UPE arrangements for some private groups. Advisers should carefully monitor both the ATO’s administrative response and the legislative timetable.
Practical steps for advisers and taxpayers
In light of the decision, we recommend the following:
Review trust deeds and annual distribution resolutions to determine whether the reasoning in Bendel applies to the specific arrangements.
Identify all UPEs owing to corporate beneficiaries and note their age and quantum.
Check financial accounts and beneficiary loan or current accounts for any evidence of debtor-creditor relationships or admissions of indebtedness.
Identify whether UPEs have been converted to Division 7A complying loans or placed on sub-trust and consider whether those arrangements should be maintained or unwound.
Consider amendment periods and objection rights for prior year assessments.
Assess ongoing exposure under Subdivision EA, section 100A, Part IVA, and commerciality and documentation requirements.
Await ATO guidance before making wholesale changes to existing structures.
Conclusion
Bendel is a landmark decision in Australian tax law. The High Court has definitively held that a corporate beneficiary’s unpaid present entitlement is not, without more, a ‘loan’ for Division 7A purposes. The Court has rejected the Commissioner’s more than 16-year long position, and taxpayers who incurred compliance costs in response to that position are entitled to feel vindicated.
However, this is not the end of the story. The decision turns on its facts, and the ATO retains other tools (including Subdivision EA, section 100A, and Part IVA) to address arrangements it considers abusive. Legislative reform is possible. Advisers and taxpayers should act carefully and methodically, review their specific circumstances, and await the ATO’s updated guidance before drawing definitive conclusions about the implications for their own affairs.
If you have questions about how the Bendel decision affects your arrangements, please contact our tax team.
Neil Brydges
Principal | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
Enbrydges@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327 | T +61 3 9611 0105
Edsmedley@sladen.com.au
Kaitilin Lowdon
Principal Lawyer
M +61 402 859 214 | T +61 3 9611 0120
Eklowdon@sladen.com.au
