The High Court has delivered its long-awaited decision in Commissioner of Taxation v Bendel [2026] HCA 18, providing clarity on the treatment of unpaid present entitlements (UPEs) under Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936).

Key issue before the Court

The key question was whether a corporate beneficiary, with present entitlement (PE) to trust income but not calling for payment, is considered to have provided “financial accommodation” to the trustee, and therefore made a loan under s109D of the ITAA 1936. This issue has been debated since the Australian Taxation Office (ATO) first set out its administrative position more than 16 years ago.

Facts in brief

The Steven Bendel 2005 Discretionary Trust made Mr Bendel and his company, Gleewin Investments Pty Ltd, presently entitled to income for the 2013–2016 years through resolutions to “set aside” amounts under a separate trust. Mr Bendel controlled both the trustee and Gleewin. The Commissioner treated these unpaid amounts as Division 7A loans, issuing amended assessments on that basis.

The High Court’s decision

By a 5:2 majority, the High Court dismissed the Commissioner’s appeal. The Court confirmed that the UPEs, ‘without more’, were not the provision of 'financial accommodation' or a transaction 'which in substance effects a loan' and, therefore, not a loan for s109D purposes. The UPE did not create a debtor–creditor relationship unless the beneficiary called for payment. 

Crucial were the particular trust deed and the nature of the trustee’s resolutions. The trustee resolved to “set aside” trust income for the corporate beneficiary, which created a PE but did not create an unconditional obligation to pay. Instead, the amounts were held on a separate trust “pending payment”. Further action—such as the beneficiary calling for payment—was required before any debtor-creditor relationship arose. Nor did the accounting entries establish an admission of indebtedness sufficient to change that conclusion.   

The Court held there was no "provision ... of financial accommodation" for s109D(3)(b) purposes when a private company does nothing. The provision of financial accommodation required some initial or anterior transfer of value – i.e. the supply or grant of some sort of pecuniary assistance, involving some bilateral activity.

The Court also found there was no transaction which in substance effected a loan of money within s109D(3)(d) as simply doing nothing or acquiescing to the retention funds was not a transaction which in substance effects a loan. 

Role of Subdivision EA

The decision highlights the importance of Division 7A’s broader framework. The Court pointed to Subdivision EA, which can apply where a company has a UPE and the trust subsequently provides value to a shareholder/associate who can actually access or use the funds. This supports the conclusion that Parliament did not intend UPEs by themselves to be treated as loans under s109D. 

ATO’s decision impact statement (DIS)

Responding to the Bendel decision, the ATO has indicated in the DIS that where a:

• corporate beneficiary has taken no action in relation to its UPE, the ATO will not treat it as a Division 7A loan, regardless of whether it is held on a separate trust. However, if the UPE is satisfied, replaced or restructured in a way that constitutes a loan, Division 7A may apply.
• corporate beneficiary has a UPE and the trust (including any relevant separate trust) provides payments, loans or debt forgiveness to a shareholder/associate, the ATO may consider applying Subdivision EA.
• UPE arises from an arrangement to reduce tax and benefit another party outside ordinary family or commercial dealings, the ATO may apply section 100A, taxing the trustee at the top marginal rate.

The ATO also highlights the need to carefully examine the particular facts and circumstances in determining the character of an amount to which a beneficiary has PE. The High Court examined the legal effect of the trust deed clauses, trustee resolutions, the accounting records and the beneficiary calling for their entitlement. Their commentary indicates a beneficiary’s PE could be dealt with in a way which gives rise to a presently enforceable debt owed by the trustee to the beneficiary. 

Implications for previous arrangements

The DIS sets out implications for previous arrangements, including:

• UPEs simply left outstanding will not, ‘without more’, be loans
• UPEs set aside and held on separate sub-trusts in accordance with PS LA 2010/4 (withdrawn) will not be loans
• UPEs made subject to complying loan terms are, as a matter of fact, loans, and will continue to be treated consistently as loans.

Taxpayers who have been assessed on the basis that UPEs ‘without more’ were loans for s109D purposes may seek an amendment or lodge an objection, for returns within and outside the amendment periods respectively. For objections outside the standard time limits, the ATO will consider extension of time requests.

Implications for affected advice or guidance

The ATO will withdraw TD 2022/11 and will review its related guidance for amendment or withdrawal.

Next steps

To determine the appropriate treatment of UPEs, trustees and advisers should review the following:

• trust deed terms – consider whether the terms require the trustee to “set aside” the amount, hold the amount on separate trust pending payment, or to “pay or apply” the amount
• trustee resolution terms – consider whether the trustee resolves to “set aside” an amount or to distribute/pay/apply the amount, i.e. create an unconditional obligation to pay the beneficiary
• accounting records of the parties – consider whether the records include any admission of indebtedness or evidence an unconditional liability
• any other dealings in respect of that amount (e.g. making it subject to a loan agreement or the beneficiary has called for the amount).

Potential legislative amendments

The High Court’s reasoning highlights that UPEs, in themselves, do not fall within the current legislative framework of Division 7A. Any legislative amendments to address this will need to be considered alongside the 2026–27 Federal Budget proposal to introduce a 30% minimum tax on trust distributions and the double tax impact on corporate beneficiaries.