Commissioner of Taxation v Bendel: what it means for trusts and Division 7A

A trust allocates income to a company but does not pay the cash. Has the company automatically made a Division 7A loan? Commissioner of Taxation v Bendel answers that question, but it is not permission to ignore the documents or use the money privately.

On 10 June 2026, the High Court dismissed the Commissioner’s appeal in Commissioner of Taxation v Bendel [2026] HCA 18. The majority rejected the argument that the corporate beneficiary’s failure to demand payment, on the arrangements before it, amounted to a loan under section 109D. For business owners using a family trust and a corporate beneficiary, the practical task is to distinguish an unpaid entitlement from an actual loan and check what happened to the funds.

First, what is an unpaid present entitlement?

A beneficiary can become presently entitled to trust income without immediately receiving cash. An amount that remains unpaid is commonly called an unpaid present entitlement, or UPE. A company receiving that entitlement is often called a corporate beneficiary or, informally, a bucket company.

An unpaid entitlement does not mean the income has escaped tax. In Bendel, the corporate beneficiary included its share of the trust’s net income in its assessable income. The separate dispute was whether the unpaid amounts also triggered the Division 7A loan rules. The High Court judgment explains that distinction.

What did the High Court decide?

The decision was by a 5:2 majority. Under the relevant trust deed and resolutions, the amounts set aside for the company were held on separate trusts. The majority found that no debtor-creditor relationship had arisen from those arrangements.

Simply leaving the entitlement unpaid did not, in those circumstances, provide financial accommodation or amount to a transaction that in substance effected a loan. The Court’s judgment summary sets out the finding. The trust deed and the legal effect of the resolutions mattered, not merely the label used in the accounts.

The useful distinction is between an entitlement awaiting payment and a transaction creating a loan. That is a legal and factual question. It cannot be settled just by renaming a ledger account.

One $100,000 balance can describe different arrangements

Consider a fictional family business trust that allocates $100,000 of income to a corporate beneficiary. The following examples illustrate questions to investigate, not conclusions about a particular trust.

Look beyond the amount outstanding

What happened?	What needs checking?
The entitlement remains unpaid, with no further dealings.	Whether the deed, resolution and surrounding facts give rise to a UPE of the kind considered in Bendel.
The parties subsequently enter into a loan arrangement.	The actual rights and obligations created. The origin of the balance does not prevent a later loan from being a loan.
The trustee lends money to the company’s shareholder or an associate while the entitlement remains unpaid.	Subdivision EA, including its conditions, timing and available exclusions.
The distribution is part of an arrangement that benefits someone other than the beneficiary.	Whether section 100A or another integrity provision applies to the arrangement.

These are separate inquiries. The Income Tax Assessment Act 1936 contains the loan rules, Subdivision EA and section 100A. The absence of a bank transfer to the company does not, by itself, prove that no loan or other relevant transaction exists.

What Bendel does not switch off

Actual loans and existing agreements. Do not stop repayments or cancel an agreement simply because the balance originally arose from a UPE. Where a complying Division 7A loan exists, the interest, term and minimum yearly repayment requirements still need attention. The ATO’s Division 7A guidance remains relevant to loans and private use of company money.

Benefits provided through a trust. Subdivision EA can apply to certain trustee payments, loans or debt forgiveness benefiting a shareholder or associate where a private company has an unpaid trust entitlement. Bendel did not remove those provisions.

Reimbursement agreements. Section 100A requires a separate assessment where a beneficiary’s entitlement arises from an arrangement that benefits another person and has the relevant tax-reduction purpose. Its exclusions, including ordinary family or commercial dealing, must also be considered. An unpaid entitlement does not automatically establish either compliance or a breach.

Build a review around the evidence

Start with the current trust deed and amendments, the signed trustee resolutions and the company and trust ledgers. Reconcile each outstanding amount by year. Then add loan agreements, repayment schedules, correspondence requesting payment and records showing how the money was used.

For each balance, ask your adviser to identify the legal arrangement, the transactions that followed and the tax obligations that remain. Keep a simple action register: the issue, supporting documents, person responsible and next deadline. A single total called “beneficiary loan” is not a useful substitute for that history.

The trustee makes the distribution decision under the deed. Accounting entries should record the legal events, not manufacture a different version afterwards. Where the documents are unclear, obtain advice before changing them or moving money.

Separate the court decision from future reforms

In its 3 September 2026 announcement, the Government said legislation addressing the previously announced UPE measure would be progressed separately from the core discretionary-trust minimum-tax reforms. A court decision, an administrative response and a proposed law are different things. Check the law and commencement dates relevant to the year being reviewed before implementing a change.

The practical response to Bendel is a documented review, not a blanket reversal of old entries. Bring the trust documents and the movement in each beneficiary balance to the same conversation. Our tax and accounting support can help identify what needs attention, with legal advice on the trust arrangements where required.