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Bendel v FCT - ATO’s Treatment of Unpaid Present Entitlements now in Question

Bendel v FCT: ATO’s Treatment of Unpaid Present Entitlements now in Question

Back on 16 December 2009 the Australian Taxation Office (ATO) released its draft Taxation Ruling TR 2009/D8 (later finalised as TR 2010/3) which provided that an unpaid present entitlement (UPE) of a corporate beneficiary was a loan from the corporate beneficiary to the relevant trust for purposes of Division 7A of the Income Tax Assessment Act 1936 (ITAA36). Even though TR 2010/3 was subsequently withdrawn and replaced with Taxation Determination TD 2022/11, the ATO has persisted with its view that a UPE owing to a corporate beneficiary is a loan for Division 7A purposes.

The recent Administrative Appeals Tribunal (AAT) decision in Bendel v FCT [2023] AATA 3074 (Bendel) has raised doubts about the validity of the ATO’s long-standing approach to UPEs. In Bendel, the members of the Tribunal held that a UPE of a corporate beneficiary was not a ‘loan’ within the meaning of section 109D(3) of ITAA36 

Background Facts

Mr Bendel controlled the Bendel Group (Group), which consisted of various entities. The Group’s activities included a suburban accounting and registered tax agent practice and commercial property syndicates.

The relevant entities within the Group were:

  • Gleewin Pty Ltd (Trustee) as trustee for the Steven Bendel 2005 Trust (Trust), which received distributions from other Bendel group entities it held interests in, including the commercial property syndicates that conducted the accounting and registered tax agent practice
  • Gleewin Investments Pty Ltd (Company) — an eligible beneficiary of the Trust
  • Mr Bendel was an eligible beneficiary of the Trust, as well as the sole director and shareholder of both the Trustee and the Company.

The Trust distributed its income to the Company and Mr Bendel in the 2013 to 2017 income years (Relevant Years) in varying proportions and amounts. The Trust distributions to the Company remained unpaid, creating UPEs. The Commissioner commenced an audit of Mr Bendel’s tax affairs, in which it identified that the Company had UPEs. The Commissioner issued amended assessments and administrative penalties on the basis that:

  • the UPEs to prior year trust income were loans within the meaning of s 109D(3), made by the Company to the Trust
  • the loans were taken to be dividends, per s 109D(1)
  • the dividends were taken to be paid out of the profits of the company, per s 109Z
  • the dividends were assessable to the Trust and included in its s 95 net income
  • the beneficiaries who were entitled to the Trust’s income were liable to be assessed under s 97 for a proportion of each dividend.

Mr Bendel and the Company lodged objections to the amended assessments arguing that the UPEs were not loans within the meaning of s 109D(3) on the basis that:

  • Section 109D(3) does not apply to UPEs of corporate beneficiaries because Subdivision EA deals with UPEs.
  • The UPEs were held on a separate trust and therefore s 109D(3) did not apply.
  • The entitlement to income was a function of a trust relationship and not a debtor and creditor relationship.

The Commissioner’s principal argument was that the Company made a loan (as defined) to the Trust, as it provided a form of financial accommodation to the Trust. That is, there was a consensual arrangement between the Company and Trust whereby the Company did not request payment of the entitlements.


The Tribunal found that the balance of the outstanding UPEs to the Company, whether held on a separate trust or otherwise, were not loans to the Trust within the meaning of s 109D(3). The Tribunal stated that the ‘necessary conclusion’ was that:

‘ … a loan within the meaning of s 109D(3) does not reach so far as to embrace the rights in equity created when entitlements to trust income (or capital) are created but not satisfied and remain unpaid. The balance of an outstanding or unpaid entitlement of a corporate beneficiary of a trust, whether held on a separate trust or otherwise, is not a loan to the trustee of that trust.’

As to the interplay between Subdivision EA and section 109D the Tribunal observed that the Commissioner’s interpretation of s 109D would appear to undermine the operation of Subdivision EA. If s 109D operated to treat an unpaid present entitlement from a trust to a corporate beneficiary as a deemed loan it would not be necessary for Subdivision EA to treat the subsequent loan from the trust to a shareholder/associate as a loan.

The Subdivision EA pathway to a Division 7A assessable dividend was not intended to create a second taxable dividend in addition to a s 109D dividend arising out of the same unpaid present entitlement. Nor is Subdivision EA expressed or intended to operate in a limited way, only taxing those circumstances that fall within its terms which do not otherwise fall within s 109D.”


Even though AAT decisions are not binding on the Commissioner, he has recognised the importance of having this matter clarified by the Federal Court. The Commissioner lodged a notice of appeal to the Federal Court against the decision of the Tribunal on 26 October 2023.

The Commissioner has also recently issued an interim statement on the case. Despite the contradictory views of the AAT, the Commissioner has indicated that the ATO does not intend to revise its current approach to private company entitlements to trust income, as set out in Taxation Determination TD 2022/11. In addition, the ATO have also indicated that aside from Division 7A other integrity provisions such as s 100A of ITAA36 can also apply to company beneficiaries with unpaid entitlements to trust income.

Pending the outcome of the appeal, it would appear that the Commissioner is recommending that practitioners and taxpayers take a “business as usual approach” to managing unpaid entitlements of corporate beneficiaries. Regardless of whether the Federal Court overturns the AAT decision, this case is a reminder to practitioners of the complexities associated with the use of trusts and corporate beneficiaries and the complicated landscape that taxpayers are required to navigate where they have to comply with integrity provisions such as Division 7A and s 100A of ITAA36.

For any enquiries related to this update, contact us today.

Meng Lee

Meng, National Tax Director at Andersen Australia, brings 20+ years of experience to his role, supporting all offices with tax technical, strategic, and training expertise. He is a seasoned presenter at CPA Australia and Chartered Accountants ANZ.

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