Key Takeaways
- The High Court in Commissioner of Taxation v Bendel [2026] HCA 18 held that an unpaid present entitlement (UPE) is not automatically a section 109D Division 7A loan merely because a corporate beneficiary leaves it unpaid.
- The majority found that passive inaction by the corporate beneficiary—failing to demand payment—does not, without more, constitute providing credit or other financial accommodation under section 109D(3)(b) or a transaction that in substance effects a loan under section 109D(3)(d).
- The trust deed and trustee resolutions were decisive: amounts set aside were held on separate trusts pending payment and no debtor–creditor relationship arose, so the legal characterisation of the entitlement depended on the deed and resolutions.
- Bendel resolves a key classification issue but does not eliminate Division 7A risk: actual loans, later dealings (payments, offsets, conversions), Subdivision EA, section 100A and other trust-tax provisions can still produce taxation consequences.
- Practical consequences include the ATO withdrawing TD 2022/11 and reviewing guidance, potential objections or amendment opportunities for affected taxpayers (subject to time limits and evidence), and the need for coordinated advice from accountants and tax-disputes lawyers to review deeds, resolutions and subsequent transactions.
The Bendel Division 7A decision confirms that an unpaid present entitlement is not automatically a section 109D loan merely because a corporate beneficiary leaves the entitlement unpaid.
In Commissioner of Taxation v Bendel [2026] HCA 18, the High Court majority held that passive inaction did not amount to providing financial accommodation or entering into a transaction that, in substance, effected a loan.
- The trust deed and trustee resolutions remain critical.
- Passive inaction alone does not create a section 109D loan.
- Actual loans and later dealings with a UPE may still attract Division 7A.
- Subdivision EA and other trust tax provisions may still apply.
Bendel resolves an important classification issue but does not remove every Division 7A risk involving trusts and private companies.
When can an unpaid present entitlement be treated as a Division 7A loan?
An unpaid present entitlement is not automatically a Division 7A loan. In Commissioner of Taxation v Bendel [2026] HCA 18, the High Court majority held that a corporate beneficiary’s passive failure to call for payment did not, without more, amount to making a section 109D loan under the Income Tax Assessment Act 1936 (Cth). The Bendel Division 7A decision establishes that inactivity alone does not constitute financial accommodation or a transaction that, in substance, effects a loan.
The result depended partly on the trust deed and trustee resolutions, under which the amounts set aside were held on separate trusts pending payment. It does not place every corporate beneficiary UPE outside Division 7A. Actual loans, later dealings with an entitlement, Subdivision EA and other trust-tax provisions may still produce taxation consequences.
What happened in Commissioner of Taxation v Bendel?
The Bendel group conducted an accounting and tax agent practice and invested in commercial property syndicates. Its entities included the Steven Bendel 2005 Discretionary Trust, Gleewin Pty Ltd as trustee and Gleewin Investments Pty Ltd as a corporate beneficiary. Mr Bendel owned and controlled both companies and was also a discretionary object of the trust.
For each income year ending 30 June 2014 to 30 June 2017, Gleewin passed resolutions setting aside defined proportions of the trust’s net income for Gleewin Investments and Mr Bendel. Under the trust deed, amounts set aside were to be held on separate trusts pending payment. Gleewin did not pay the relevant amounts to Gleewin Investments, and the company did not call for payment. This produced the corporate beneficiary UPEs at the centre of the dispute.
The Commissioner issued amended assessments to Gleewin Investments on the basis that each entitlement constituted a section 109D loan from the company to the trustee. That treatment engaged Division 7A’s deemed-dividend provisions and altered the resulting taxation of the trust’s net income.
How did the case reach the High Court?
In Bendel and Commissioner of Taxation [2023] AATA 3074, the Administrative Appeals Tribunal held that the unpaid entitlements were not loans under section 109D(3) and set aside the objection decisions. It nevertheless found that amounts representing those entitlements had been lent to Mr Bendel, engaging Subdivision EA.
The Full Court unanimously dismissed the Commissioner’s appeal in Commissioner of Taxation v Bendel [2025] FCAFC 15. It held that the expanded definition did not cover every debt and retained the essential features of a payment or transfer with an obligation to repay.
The Commissioner appealed to the High Court, arguing that acquiescence in the trustee’s retention of the funds provided financial accommodation or an in-substance loan. Preliminary questions also arose about the resolutions, the separate trusts and whether a debtor–creditor relationship existed.
How does Division 7A apply to loans and unpaid present entitlements?
Division 7A seeks to prevent private-company profits reaching shareholders or associates tax-free through payments, loans, or forgiven debts.
Under section 109D of the Income Tax Assessment Act 1936 (Cth), a private-company loan to a shareholder or associate that remains unpaid at the company’s lodgment day may be treated as a Division 7A deemed dividend, subject to exceptions. “Loan” includes an advance of money, credit or other financial accommodation, a payment involving an obligation to repay, and a transaction that in substance effects a loan.
An unpaid present entitlement arises when a beneficiary is presently entitled to trust income but has not been paid. The Commissioner considered that a company beneficiary knowingly allowing the trustee to retain those funds could amount to financial accommodation and bring a corporate beneficiary UPE within section 109D.
Subdivision EA separately addresses certain payments, loans or forgiven debts provided by a trustee to a shareholder or associate while a private company has an unpaid present entitlement. Bendel therefore resolved a classification issue, not every Division 7A risk involving trusts.
What question did the High Court have to decide?
The central question was whether Gleewin Investments made a section 109D loan to Gleewin as trustee because its unpaid entitlements remained with the trustee, and it did not call for payment. More precisely, did that inactivity provide “credit or any other form of financial accommodation” under section 109D(3)(b), or constitute a transaction that “in substance effects a loan of money” under section 109D(3)(d)?
Before answering that statutory question, the High Court had to determine the legal effect of the trustee resolutions. Did they distribute the amounts or only set them aside? Did they create separate trusts? Did a debtor–creditor relationship arise? Those trust-law questions defined the rights and obligations to which section 109D had to be applied.
What did the High Court decide?
The High Court ordered that the Commissioner’s appeal be dismissed. Gageler CJ, Gordon, Edelman, Steward, and Gleeson JJ formed the five-justice majority. Jagot and Beech-Jones JJ dissented.
The majority held that the resolutions set aside the relevant amounts but did not distribute them. Under the trust deed, the amounts were held on separate trusts for Gleewin Investments pending payment, and no debtor–creditor relationship arose between the trustee and the company.
Gleewin Investments’ passive failure to demand payment did not provide credit or financial accommodation under section 109D(3)(b). Nor was its inactivity a transaction that, in substance, effected a loan under section 109D(3)(d). The company had undertaken no relevant activity or transfer of value capable of constituting the making of a loan.
The dissenting justices would have allowed the appeal. Their Honours considered, in differing reasons, that the company’s knowing decision to leave the entitlements unpaid or give the trustee time to pay amounted to financial accommodation within section 109D(3)(b), even without an ordinary advance of money.
Why did the majority reject the Commissioner’s Division 7A argument?
Why did the trust deed and resolutions matter?
The deed distinguished setting aside income from paying or applying it. An amount set aside ceased to form part of the general trust fund and was held on a separate trust pending payment, with the trustee retaining investment powers. The resolutions specified percentages of net income, providing sufficiently certain trust property. They created fixed separate trusts, not distributions imposing an unconditional duty to pay. No debtor–creditor relationship arose.
Why was doing nothing not financial accommodation?
Section 109D applies when a private company “makes” a loan, while section 109D(4) refers to an amount being paid or another relevant thing being done. The statutory concepts of an advance, provision, payment, or transaction require activity. Financial accommodation required anterior transfer of value, pecuniary assistance or bilateral conduct. Gleewin Investments did nothing: its failure to demand payment neither supplied value nor granted time to pay.
Why was there no transaction that effected a loan?
A transaction ordinarily involves an interchange or interaction between entities. Inactivity or acquiescence in the trustee’s retention of funds was not such a transaction. No money, property, services, or other value moved from Gleewin Investments to the trustee under an obligation of repayment.
How did the wider Division 7A scheme support the result?
Section 109D repeatedly uses repayment concepts. Section 109F(6) separately addresses when a private company’s failure to insist on payment constitutes debt forgiveness. Treating non-insistence as a loan from the outset would sit uneasily with that provision.
Subdivision EA also addresses benefits provided by a trustee to a shareholder or associate while a private company has an unpaid present entitlement. Its structure focuses on the person receiving economic value. The majority did not treat Subdivision EA as the only potentially applicable provision, but its presence and legislative history supported the narrower construction of section 109D.
What does the Bendel Division 7A decision mean for private groups and tax disputes?
For trustees, corporate beneficiaries, directors, and advisers, the immediate task is to identify the legal character of each arrangement. Review the trust deed, trustee resolutions, financial statements, and beneficiary accounts together. Determine whether the entitlement remained passive or was later paid, offset, converted into a loan, advanced, forgiven or otherwise dealt with. The use of trust funds must also be traced to establish whether a shareholder or associate received a benefit that may engage Subdivision EA.
In its Decision Impact Statement, the ATO accepts that a private-company beneficiary’s mere inaction concerning a UPE does not create a section 109D loan. It will withdraw TD 2022/11 and review guidance. However, a UPE already converted into an actual complying Division 7A loan remains a loan. Bendel does not cancel that agreement or remove its repayment requirements.
A taxpayer assessed solely under the former UPE position may be able to seek an amendment or lodge an objection. That is not an automatic refund entitlement. Applicable amendment and objection periods, extension applications, supporting evidence and the effect of continuing recovery action require individual analysis. The practical stages are outlined in the firm’s guidance on ATO audits, objections and appeals. Any associated penalties and interest may require separate review.
Contested matters should be assessed jointly by the client’s accountant or tax adviser and a tax-disputes lawyer, particularly where the documents, accounting treatment and subsequent transactions do not align.
Bendel may change the treatment of some unpaid present entitlements, but actual loans, later transactions and existing Division 7A arrangements still require separate analysis.
Pentana Stanton Lawyers can work alongside your accountant or tax adviser to assess ATO disputes, amended assessments, objections and the legal character of trust arrangements.
Book a ConsultationWhat are the limits of the Bendel decision?
Bendel concerned passive conduct under a particular trust deed and resolutions. Different documents governing discretionary trust distributions may create a debt or legal relationship. Accounting entries, payments, offsets, and later agreements may also show positive dealings beyond leaving an entitlement unpaid.
The decision does not prevent Subdivision EA from applying where trust funds benefit a shareholder or associate. Nor does it displace section 100A where an entitlement arises from a reimbursement agreement outside ordinary family or commercial dealing. Actual loans, converted entitlements and debt forgiveness may still produce Division 7A consequences.
Existing complying Division 7A loan agreements are not automatically undone. Their repayment obligations continue unless lawfully varied or discharged, and forgiveness may itself have tax consequences.
The ATO is reviewing related guidance following the decision. Future legislative amendments or revised administrative guidance should be checked against the relevant income year before any action is taken.
Frequently Asked Questions
Is an unpaid present entitlement still a Division 7A loan after Bendel?
Not merely because it remains unpaid. Passive inaction by the corporate beneficiary does not, without more, create a section 109D loan.
Later payments, offsets, agreements, or transfers of value may change that characterisation and require separate analysis.
Does Bendel apply if the trust deed does not create a separate trust?
The outcome cannot be assumed. The deed and resolutions determine whether the entitlement is held on trust, distributed or recorded as a debt.
Even then, a debt is not automatically a section 109D loan. The company’s conduct and any transfer of value remain important.
What happens if the trust uses the funds for a shareholder or associate?
Subdivision EA may apply if the trustee pays or lends funds to, or forgives a debt of, a shareholder or associate while the company has a UPE.
Section 100A and other provisions may also require consideration.
Can existing Division 7A loan agreements be cancelled after Bendel?
Not automatically. A UPE placed on complying loan terms is an actual loan, and Bendel does not undo the agreement.
Cancellation or forgiveness may produce a Division 7A deemed dividend or other consequences.
Can a taxpayer challenge an earlier ATO assessment based on the former UPE position?
Possibly. A taxpayer assessed because a passive corporate beneficiary UPE was treated as a loan may seek an amendment or object.
Time limits, extension requirements, evidence, and subsequent dealings determine whether relief remains available. A refund is not automatic.
When should advice be sought about a Division 7A dispute after Bendel?
Advice should be sought where an ATO audit, amended assessment or objection concerns an unpaid entitlement, or where trust documents and subsequent dealings may not reflect the same legal relationship. Bendel makes the distinction between passive entitlement and positive activity critical, but it does not resolve every trust-tax consequence.
The tax disputes and litigation service assists with ATO audits, objections, reviews and tax litigation, working alongside the client’s accountant or tax adviser. To discuss a contested tax position, book a consultation.
