Bendel decided

12 June 2026

15-year battle won, but is the joy short-lived?

In what is perhaps a short-lived win for taxpayers given the recent Budget announcements, the High Court has handed down its decision in the case of Commissioner of Taxation v Bendel, confirming that an unpaid trust entitlement does not of itself constitute a loan for Division 7A purposes.

High Court findings

In a majority decision, the High Court dismissed the Commissioner’s appeal from the Full Federal Court. The key facts of the case are summarised in our previous newsletters covering Bendel. The High Court’s reasoning came down to three points:

1. No loan was made
   The mere fact that the corporate beneficiary, Gleewin Investments Pty Ltd, was made presently entitled to trust income did not mean it made a “loan” back to the trustee for the purposes of Division 7A.
2. The two essential features of a loan were missing
   For a private company to make a loan, there must be a “transaction” involving positive steps by the company to move value, and an obligation or promise to repay.
   Neither existed here. “Simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan. 
   Gleewin Investments Pty Ltd did nothing. Its mere inactivity cannot satisfy the language of ‘advance’, ‘provision’, ‘payment’ or ‘transaction’.”
3. Subdivision EA told the real story
   Parliament specifically enacted Subdivision EA to deal with UPEs owed to corporate beneficiaries where a trustee, rather than paying out the UPE, makes a payment or loan to (or forgives a debt of) the company’s shareholder or their associate.
   The Commissioner’s decision not to rely on it “greatly undermines the Commissioner’s case.”
   In the Court’s words, the Commissioner “has taxed the wrong taxpayer.”

Is the joy ride over?

The High Court decision is a welcome outcome for the tax profession, having long argued that such UPEs should not have been treated as a loan under Division 7A. However, despite the taxpayer’s win in this case, the joy is likely short-lived given the ATO’s previous announcements that it will continue to apply section 100A to UPEs owed to companies, and in light also of the legislation to be drafted by the Government following their recent ‘trust tax’ Budget proposal, which is expected to significantly impact distributions made by trusts to corporate beneficiaries.

It is possible the Government saw the writing on the wall in the Bendel case, and thus incorporated the ‘trust tax’ proposal into the Budget announcements as a way to discourage distributions to corporates.

Under the proposal, a minimum tax of 30% will be applied to trusts from 1 July 2028 (2029 income year onwards), with no tax credit available to corporate beneficiaries. 

What is the expected impact?

Although the ATO now arguably cannot seek to apply section 109D where trust entitlements to corporate beneficiaries remain unpaid, we expect the impact on trust distributions to companies may be as follows:

Next Steps

The Bendel decision resolves a long-running dispute in taxpayers’ favour, but the landscape remains complex.

The following actions are relevant depending on your circumstances:

1. If you have UPEs that have not been converted to Division 7A loans
   The Bendel decision confirms these are not automatically Division 7A loans. However, section 100A continues to apply where there is a reimbursement agreement, and the ATO has indicated it will pursue this avenue. Do not assume Bendel provides a clean bill of health.
2. If you have UPEs already placed on Division 7A complying loan terms
   These cannot be unwound without risk at this stage. The ATO has not yet indicated whether it will provide relief for taxpayers who took this precautionary step. Await the ATO’s Decision Impact Statement before taking any action.
3. If the ATO previously assessed a UPE as a deemed dividend under Division 7A
   There may be an opportunity to amend prior year tax returns. The standard amendment period is two years for individuals and small business entities and four years for others, running from the date of the original assessment.
4. For 2026 year-end trust distributions
   Distributions to corporate beneficiaries can still be made and considered. However, given the proposed 30% minimum tax applying to trusts from 1 July 2028 with no tax credit available to corporate beneficiaries, the long-term economics of using corporate beneficiaries in trust structures warrants review.
5. Across all trust structures
   We recommend a full review of your trust distribution strategy before 30 June 2026, taking into account the Bendel outcome, the ongoing section 100A risk, and the proposed trust tax changes.

If you would like further information about the contents of this newsletter, please contact your Cooper Partners engagement team on 08 6311 6900.

Authors:
Marissa Bechta, Director – Head of Taxation Advisory 

Maddy Watt, Principal – Technical Quality Tax Leader

This newsletter is current as of 12 June 2026, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.

This information is general advice only and neither purports, nor is intended to be advice on any particular matter.
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