10 June 2026 · Commissioner of Taxation v Bendel [2026] HCA 18
Background
For over 16 years, the ATO maintained that when a discretionary trust resolved to distribute income to a corporate beneficiary but did not physically transfer the funds, the resulting Unpaid Present Entitlement (UPE) constituted a loan under Division 7A of the Income Tax Assessment Act 1936.
Under that view, unless the UPE was placed on complying Division 7A loan terms (with interest and principal repayments), the corporate beneficiary was treated as having made a deemed dividend back to the trust, with the attendant tax consequences.
This position, first set out in TR 2010/3 and subsequently entrenched in Taxation Determination TD 2022/11, shaped trust distribution practices across Australia’s private group landscape for more than a decade and a half. The compliance cost of challenging it was beyond the means of most taxpayers. Most simply complied.
The High Court decision
On 10 June 2026, the High Court handed down its decision in Commissioner of Taxation v Bendel [2026] HCA 18, dismissing the Commissioner’s appeal by a 5–2 majority. The Court confirmed what every judicial authority that had examined the question had found: a UPE owed by a trust to a corporate beneficiary does not, of itself, constitute a loan under Division 7A.
The majority’s reasoning was grounded in the text of the legislation. Division 7A requires that the private company actively do something to transfer value. A company simply not calling for payment of its entitlement (doing nothing) does not satisfy the definition of ‘financial accommodation’ or constitute a ‘transaction’ that effects a loan. The Court also noted that Parliament had addressed the UPE question specifically in Subdivision EA of Division 7A, and the ATO’s use of the general loan provisions to capture the same arrangements was inconsistent with that legislative structure.
What this means in plain English
A trust can distribute income to its company beneficiary on paper without that unpaid amount automatically triggering Division 7A consequences. For 16 years, trustees were effectively required (on pain of a deemed dividend) to either physically transfer the funds or put the UPE on formal loan terms with annual repayments. That automatic requirement no longer arises merely from the existence of the UPE.
The position before and after Bendel
| ATO position before Bendel | Position after Bendel | |
|---|---|---|
| A UPE to a corporate beneficiary | Treated as a loan / ‘financial accommodation’ under Division 7A. | Not a loan of itself; mere inaction is not ‘financial accommodation’. |
| If the funds were not called for | Deemed dividend arose unless the UPE was placed on complying Division 7A loan terms. | No deemed dividend arises merely from the UPE existing. |
| Governing guidance | TR 2010/3, then TD 2022/11; in force ~16 years. | TD 2022/11 to be withdrawn; appeal dismissed 5–2 on 10 June 2026. |
The ATO’s response: Decision Impact Statement
Following the decision, the ATO confirmed it is considering the implications and will update its guidance. The key points:
- TD 2022/11 will be withdrawn, and related guidance will be reviewed.
- The ATO has acknowledged a UPE is NOT a loan under section 109D where the company simply does nothing.
- ‘Financial accommodation’ requires active conduct, not mere inactivity.
- Subdivision EA and section 100A may still apply depending on the specific facts and arrangements. This is not a blanket free pass.
- Taxpayers previously assessed on the now-overturned basis may seek an amendment or lodge an objection.
- The ATO will consider the specific facts (trust deed, resolutions, accounting records and dealings) before accepting that an arrangement falls within the Bendel principle.
Important caveats: proceed carefully
Fact-specific
The decision turned on the particular terms of Mr Bendel’s trust deed, which had the effect of creating a separate trust upon distribution. Not every trust deed operates the same way; each deed must be reviewed before assuming Bendel applies.
Existing loan agreements remain operative
Taxpayers who converted UPEs into complying Division 7A loans over the past 16 years are bound by those arrangements. They do not unwind automatically, and altering or terminating them may itself have tax and legal consequences.
Other provisions remain live
Subdivision EA, section 100A and Part IVA are not eliminated by Bendel and may still apply in the right circumstances.
Legislative change is expected
There is broad consensus among practitioners that the Government will legislate to reverse Bendel, potentially retrospectively to 2009. The Budget’s broader attack on trust structures provides the political context. A retrospective fix would effectively mean 16 years of ‘compliant’ taxpayers were right all along for the wrong reasons.
The bigger picture: a Pyrrhic victory?
Bendel arrives at a complicated moment. The Federal Budget proposes a 30% minimum tax on discretionary trust income from 1 July 2028, with no credit available to corporate beneficiaries for tax paid at the trustee level. If that measure passes, distributing income from a trust to a company would result in effective double taxation, and corporate beneficiary structures would become largely unviable from that point forward.
The practical window in which Bendel can be useful (even assuming it is confirmed to apply broadly to different trust structures) may be as short as two or three income years (2026, 2027 and 2028). For many private groups, the headline win is real, but the practical impact is constrained.
Our recommendation
