Key Highlights

  • The case involved a discretionary trust whose trustee made a related company entitled to trust income over several years but did not pay it.
  • The Commissioner treated the UPEs as loans from the company to the trust, which can produce a deemed dividend under Division 7A.
  • Pitcher Partners summarised the majority's reasoning as requiring something "actively done by the company to transfer value to someone else".
  • Favourable treatment will be grandfathered for arrangements entered into before the ATO's guidance is withdrawn.

When the High Court ruled in June that an unpaid trust distribution owed to a family company is not automatically a "loan", it rejected a position the ATO had applied to private groups for well over a decade. With Parliament returning on 12 October and the next stage of the government's trust tax overhaul expected, many business owners are asking whether old assessments built on the ATO's view can now be reopened.

What the High Court Decided in Bendel

In Commissioner of Taxation v Bendel [2026] HCA 18, decided on 10 June 2026 by a 5:2 majority, the court held that an unpaid present entitlement, or UPE, owed by a trust to a corporate beneficiary is not, without more, a loan for the purposes of section 109D in Division 7A.

The case involved a discretionary trust whose trustee made a related company entitled to trust income over several years but did not pay it. The amounts were instead set aside and largely lent to the individual who controlled both the trustee and the company.

The Commissioner treated the UPEs as loans from the company to the trust, which can produce a deemed dividend under Division 7A. The Administrative Appeals Tribunal and the Full Federal Court both disagreed, and the High Court majority dismissed the Commissioner's appeal.

Pitcher Partners summarised the majority's reasoning as requiring something "actively done by the company to transfer value to someone else". Simply not calling for payment of an entitlement did not meet that test.

How the ATO Has Responded

The ATO has issued a decision impact statement accepting the outcome. Taxation Determination TD 2022/11 is to be withdrawn, Taxation Ruling TR 2010/3 and related guidance are under review, and practice statement PS LA 2010/4 has been marked as withdrawn. Consultation on the statement closed on 24 July 2026.

Favourable treatment will be grandfathered for arrangements entered into before the ATO's guidance is withdrawn.

Most importantly for past years, the statement says taxpayers assessed on the basis that UPEs were loans may seek an amendment if they are still within the relevant amendment period, or lodge an objection if they are outside it. The ATO has said it will consider requests for an extension of time to object.

Amendment or Objection: Working Out Which Path Applies

The route depends on timing. Standard amendment periods are generally two years from the notice of assessment for individuals and small business entities, and four years for many other taxpayers, although different rules can apply in some trust situations.

Where a taxpayer is still inside the window, asking for an amendment is the more straightforward step. Outside it, an objection must be lodged with a request that the Commissioner accept it late. the ATO will consider whether the objection arises from Bendel.

Pitcher Partners has flagged that positions taken for the 2023 and 2024 income years "may now need to be revisited".

Not Every Unpaid Entitlement is in the Clear

The ruling is narrower than some commentary suggests. UPEs that were converted into actual loans, or placed on complying Division 7A loan terms, remain loans, according to Allens and Chartered Accountants ANZ. taxpayers who have already taken those steps may remain exposed to deemed dividend treatment.

Pitcher Partners has noted that the minimum tax, if legislated, could reduce the significance of Bendel for future years.