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2026

High Court rules in favour of Bendel

SYDNEY, 10 June 2026: High court clarifies tax treatment of trust entitlements.

The High Court of Australia has today handed down its long awaited decision in Commissioner of Taxation v Bendel, dismissing the Commissioner’s appeal and ruling in favour of the taxpayer. The court, by 5:2 majority, confirmed that a beneficiary’s unpaid present entitlement (UPE) to trust income does not, of itself, constitute a loan or other form of financial accommodation for the purposes of Division 7A. 

The decision overturns the Commissioner’s long‑standing view that UPEs owed by trusts to private company beneficiaries can be treated as loans triggering deemed dividend outcomes.  The Court held that, absent an express or implied obligation to repay, a UPE merely reflects an entitlement to income and does not involve the advancement of funds.

“This ruling brings long‑awaited judicial certainty to an area of trust taxation that has been the subject of significant controversy and compliance activity for more than a decade,” says Julie Abdalla, Head of Tax & Legal at The Tax Institute. 

The decision is expected to have broad implications for private groups that use trust and company structures, particularly regarding how retained trust profits are managed and taxed.

Impact on taxpayers

  • Reduced Division 7A exposure: Private company beneficiaries of trusts will no longer automatically face deemed dividends where UPEs remain unpaid.
  • Greater flexibility for trusts: Trustees can retain funds within the trust without triggering Division 7A outcomes, subject to commercial and fiduciary considerations.
  • Potential review of past assessments: Taxpayers may consider objection rights or amendment opportunities where assessments were issued solely on the basis of the Commissioner’s former UPE position.
  • ATO guidance likely to change: Existing Taxation Rulings and administrative practices dealing with UPEs are expected to be revised or withdrawn.

“Taxpayers should nevertheless continue to exercise care, as Division 7A will still apply where funds are actually advanced, loaned, or otherwise made available to shareholders or associates,” says Ms Abdalla.

“We’d expect that following this decision, statutory revision of these rules could be included alongside recent trust tax changes announced in the Federal Budget. This is likely not the final word on this part of the tax legislation.”

“However, this should be a salutary and cautionary lesson for the ATO. The ATO overturned well established and accepted practice in the belief that unpaid trust distributions to companies were loans. This has created over a decade of uncertainty and increased compliance costs, all of which have been proven to be unwarranted. In future we can hope that the ATO will not reverse fundamental and well-established tax practices, without first seeking guidance from the courts.”

The decision does not affect the operation of other integrity provisions, including those that may apply where arrangements involve the use of trusts to inappropriately access concessionally taxed company profits.

ENDS 

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