On 10 June 2026, the High Court of Australia dismissed the Commissioner’s appeal in Commissioner of Taxation v Bendel [2026] HCA 18 (the Division 7A Bendel decision). The appeal concerned whether an unpaid present entitlement (UPE) owed by a trust to a corporate beneficiary could be treated as a “loan” under the expanded definition in s 109D(3) of Division 7A. The High Court held, by majority, that where the corporate beneficiary simply did not call for payment of the UPE, that fact alone did not amount to the provision of “financial accommodation” and did not “in substance” effect a loan of money. The Court also held, by majority, that on the facts of the case the relevant trust resolutions did not create a debtor-creditor relationship; instead, the amounts were held on separate trust for the corporate beneficiary.

This is a major development for private groups that use discretionary trusts with corporate beneficiaries. For many years, the Australian Taxation Office had maintained the view that UPEs of this kind could amount to Division 7A loans, exposing taxpayers to deemed dividend outcomes unless the arrangement was converted into a complying loan or similar structure. The High Court has now rejected that reasoning in the Bendel facts.

However, the decision does not remove all integrity risk. The ATO has stated that it is considering the implications of the adverse decision and will update its views and practical guidance. The ATO’s previous commentary also indicates their view that Subdivision EA, section 100A and the potential for legislative reform remain very much in play.

Overview of the Case

The case arose from the affairs of Steven Bendel and related entities. In each of the income years ending 30 June 2014 to 30 June 2017, Gleewin Pty Ltd, as trustee of the Steven Bendel 2005 Discretionary Trust, resolved to “set aside” defined percentages of the trust’s net income for its discretionary objects, including Steven Bendel and Gleewin Investments Pty Ltd.

The terms of the trust required the amounts set aside for Gleewin Investments Pty Ltd to be held on separate trust. Gleewin Investments Pty Ltd did not call for payment of those amounts, thereby leaving UPEs outstanding.

The Commissioner issued amended assessments on the basis that those unpaid amounts were “loans” within s 109D(3), leading to deemed dividend consequences.

The Commissioner’s case depended on saying that the unpaid UPEs were effectively loans for Division 7A purposes, even though there had been no traditional advance of money by the company to the trust. This litigation therefore became a test case on the outer limits of the extended statutory concept of a “loan”, particularly the phrases “financial accommodation” and “a transaction which in substance effects a loan of money”.

High Court Decision in Division 7A Bendel

The High Court held, by majority, that not calling for payment of the UPEs did not amount to “financial accommodation” under s 109D(3)(b), nor did it “in substance” effect a “loan of money” under s 109D(3)(d). In addition, the majority held that the trustee’s resolutions did not relevantly effect the distribution of those unpaid amounts in a way that created a debtor-creditor relationship between the trustee and the corporate beneficiary. Rather, the unpaid present entitlements were held on separate trust for the corporate beneficiary.

The majority did not merely say “a UPE is not a loan” in the abstract. Instead, the Court closely examined the trust deed, the trustee resolutions and the surrounding circumstances, and concluded that the legal character of what existed here was not a Division 7A loan. The majority considered the absence of a debtor-creditor relationship to be important on the facts, and also rejected the proposition that mere acquiescence or inaction could itself constitute the provision of financial accommodation.

The result is that the Commissioner’s long-standing interpretation has been rejected in this context. The High Court therefore effectively confirmed that the existence of an unpaid entitlement is not enough, by itself, to turn that entitlement into a Division 7A loan. That conclusion aligns with the way the issue had previously been approached by the Tribunal and the Full Federal Court in the prior decisions on these facts.

Why the Decision Matters

1. Debt is not the same thing as a loan

One of the most important ideas running through Bendel is that Division 7A does not treat every debt as a loan. The Commissioner’s historical position effectively blurred those concepts by arguing that an unpaid amount owing by a trust to a company could be enough to trigger the loan rules. The taxpayer’s argument, by contrast, focused on the statutory language and the commercial character of a loan: there ordinarily needs to be something advanced and something to be repaid, not merely an amount that is owing and remains unpaid.

2. “Financial accommodation” requires more than doing nothing

The majority rejected the idea that passive non-demand for payment automatically amounts to “financial accommodation”. The Court required something more in the nature of a positive conferral of pecuniary assistance or bilateral dealing, rather than mere inaction. That is significant because the ATO’s prior approach had effectively treated the company’s failure to call in the UPE as the very thing that produced the deemed loan.

3. The separate trust analysis mattered

The High Court summary and secondary commentary both emphasise that the terms of the trust deed required the amounts set aside for the corporate beneficiary to be held on separate trust. That feature helped the majority conclude that the UPEs were not simply part of a debtor-creditor arrangement awaiting payment. Instead, the relevant amounts were segregated in equity and held for the beneficiary on separate trust terms.

4. Statutory context, including Subdivision EA, was important

The majority considered the broader structure of Division 7A relevant, including the existence of Subdivision EA, which specifically addresses trust-company-shareholder arrangements. The point is not that Subdivision EA automatically applied on these facts; rather, it is that Parliament had already made targeted provision for certain trust-related arrangements, and that statutory context weighed against stretching s 109D beyond its proper function.

Practical Implications

The immediate practical significance of Bendel is that a trust’s UPE to a corporate beneficiary is not automatically exposed to Division 7A deemed dividend treatment simply because it remains unpaid. That will be welcomed by many private groups who, for years, have felt compelled to put UPEs onto Division 7A complying loan terms or sub-trust arrangements in order to manage ATO risk. Many taxpayers had effectively conformed with the ATO’s approach since approximately 2009/10, often at real cash-flow cost.

That said, this is not a “do nothing now” decision in the sense of eliminating all tax risk. The ATO has already said it is considering the implications of the adverse decision and will update its Interim Decision Impact Statement with practical guidance. Previous ATO commentary highlights that Subdivision EA, section 100A, and Part IVA remain important considerations.

In particular, the ATO’s earlier impact statement noted that if a corporate beneficiary’s entitlement remains with the trustee without conversion to at least commercially equivalent loan terms, the arrangement may fall outside the “green zone” discussed in PCG 2022/2 and may attract section 100A scrutiny.

In other words, Bendel is best understood as a major correction to the Commissioner’s Division 7A theory, not as a blanket endorsement of all unpaid corporate beneficiary entitlements.

Each arrangement still needs to be reviewed on its facts, including the trust deed, the wording of distribution resolutions, the accounting treatment, any payments to shareholders or associates, and the potential operation of other anti-avoidance provisions.

Key Client Takeaways

The High Court has now confirmed that, on the facts in Commissioner of Taxation v Bendel [2026] HCA 18, an unpaid UPE to a corporate beneficiary was not a Division 7A loan merely because it remained unpaid.

The reasoning turned significantly on the legal character of the arrangement, including the existence of separate trust obligations and the absence of a relevant debtor-creditor relationship.

The decision is favourable for taxpayers, but it does not remove the need to consider Subdivision EA, section 100A, Part IVA, and possible future ATO or legislative responses.

Trustees and advisers should continue to review current-year trust resolutions, legacy UPE arrangements, accounting treatment and any existing Division 7A loan agreements carefully before making structural changes. Existing complying loan agreements do not simply disappear because Bendel was decided in the taxpayer’s favour.

Next Steps / Andersen Perspective

• Monitor ATO updates and practical guidance as the Commissioner considers the implications of the decision.
  
• Review trust deeds, resolutions, and UPE arrangements for compliance with current law and guidance.
  
• Seek professional advice before making structural changes to trust or corporate beneficiary arrangements.

Helpful Links

• ATO: High Court decision in Commissioner of Taxation v Bendel
  
• ATO: Practical Compliance Guideline PCG 2022/2
  
• ATO: Taxation Determination TD 2022/11

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