The High Court’s landmark decision in Commissioner of Taxation v Bendel [2026] HCA 18 marks a significant development for discretionary trusts and corporate beneficiaries. The decision confirmed that an unpaid present entitlement (UPE) owing to a corporate beneficiary is not, by itself, a loan for Division 7A purposes.
That is a significant departure from the ATO’s long-standing administrative approach. Even so, our view is that the decision may not make a substantial practical difference for many taxpayers, at least in the near term. Trustees and beneficiaries should understand the decision and its possible implications, but they should also recognise that the ATO’s response, future guidance, and any broader policy or legislative developments could still affect how these arrangements are dealt with in practice.
Since 2009, the ATO treated UPEs from a trust to a related private company as capable of being a Division 7A loan on the basis that leaving the entitlement unpaid could amount to the provision of credit or financial accommodation. This meant that where a trust appointed income to a corporate beneficiary but retained the cash, trustees often placed the amount on complying loan terms, commonly with formal loan agreements, minimum yearly repayments, and interest. This approach was shaped by the ATO’s published view and the need to avoid a deemed dividend outcome if Division 7A applied.
The High Court has now concluded that a UPE is not, of itself, a Division 7A loan. A UPE does not necessarily involve an advance of money, a provision of credit, or an obligation to repay a principal sum. That means an unpaid trust distribution to a company beneficiary will not automatically be treated as a Division 7A loan simply because the amount remains unpaid.
For trustees, the immediate practical impact may be more limited than the decision first suggests. While the Court has rejected the proposition that a UPE is, of itself, a Division 7A loan, many trustees will still need to approach these arrangements cautiously because the broader tax risk has not fallen away. In particular, the decision is unlikely to remove the need for careful documentation, close attention to how entitlements are dealt with in practice, and advice on whether other integrity provisions could apply.
For beneficiaries, especially corporate beneficiaries in private group structures, the decision reduces the risk that a UPE will itself produce a deemed dividend under Division 7A. However, that is only part of the picture. In our view, the more significant issue going forward may be whether the arrangement attracts attention under section 100A or other integrity rules.
That concern is not new. In its earlier interim decision impact statement on Bendel, the ATO made clear that it did not intend to depart from its existing administrative approach while the matter remained on foot, and the Commissioner had already brought section 100A into focus as a potential alternative basis for scrutiny where trust distributions and UPE arrangements were seen as problematic. As a result, trustees and beneficiaries should not assume that the reduction in Division 7A risk means the arrangement is now low risk overall. Depending on the facts, section 100A, Subdivision EA and other provisions may still be relevant.
An important practical point is that taxpayers who have already converted UPEs into formal Division 7A complying loan arrangements may not be able to simply exit those arrangements. If a UPE has already been documented as a legal loan, it may be difficult to unwind what has been done in prior years. More broadly, even if Bendel narrows the Division 7A issue, the ATO may continue to scrutinise trust distribution arrangements through the lens of section 100A and other integrity provisions. For that reason, the overall practical position for many taxpayers may not change as much as the decision first appears to suggest.
While Bendel is an important decision, it should not be treated as a sign that trust groups can immediately alter existing arrangements or regard UPEs as materially less exposed overall. Our view is that, for many taxpayers, the practical position may not change significantly at this stage. We recommend that trustees and beneficiaries continue to proceed cautiously, wait for updated ATO guidance, and consider whether section 100A or other integrity provisions may remain the more significant issue.
In the meantime, trustees should review how current UPEs and historical arrangements are recorded, ensure they understand which entitlements have already been placed on Division 7A terms, and seek advice before varying documentation or payment practices. Bendel changes the legal analysis of UPEs under Division 7A, but for many taxpayers the more important question may be how the ATO approaches section 100A and related integrity provisions from here. That position could still evolve as further guidance is issued or if broader legislative changes follow.