Since 16 December 2009 the ATO has had the long-held view that when a trust appoints income to a corporate beneficiary (beneficiary company) without making payment, the unpaid present entitlement (UPE) constitutes a “loan” for Division 7A purposes. Accordingly, the UPE must be paid or put on complying Division 7A loan terms or a deemed fully assessable dividend will arise.

This view had not been tested until 28 September 2023 when the Administrative Appeals Tribunal handed down its decision for Steven Bendel and his beneficiary company, Gleewin Investments Pty Ltd (Gleewin). The AAT case found in favour of Mr Bendel and Gleewin ruling that UPEs to Gleewin were not loans. More details regarding the ATO’s historical view and public rulings on this matter, as well as the AAT case analysis, are outlined in depth in this article.

The Commissioner appealed the AAT’s decision to the Full Federal Court which handed down its judgement on 19 February 2025 (Bendel case). In a unanimous decision the Court ruled that UPEs do not fall within the definition of a “loan” for Division 7A.

What does it mean for you?

Private groups will have a lot of questions regarding how Bendel case will impact them both retrospectively and in the future.

The ATO is yet to announce if they intend to appeal the decision to the High Court, this is expected in the coming weeks. Regardless, the ATO will issue a Decision Impact Statement outlining their view on the decision and the impact to taxpayers.

Unless there are immediate lodgement obligations our recommendation is to wait and see what the ATO’s next step is and to contact us to review your arrangements.

Have you been subject to the ATO’s review in the past?

If the ATO has previously imposed additional tax, penalties or interest in relation to UPEs in your family group, please contact us to review the ATO’s decision and discuss the viability of an objection process.

Key takeaways

Here are some key takeaways from Bendel case:

  • UPEs arising from 30 June 2024 onwards: Depending on the lodgement day of the company, consider leaving them as UPEs until we get more certainty.
  • UPEs already converted to loans or sub-trusts: We are hoping the ATO’s Decision Impact Statement or subsequent guidance will address these issues. Without administrative concessions these UPEs may continue to be subject to Division 7A.
  • Loans from a trust to associates of a company with UPEs to that company: A separate section of Division 7A captures these arrangements.
  • Tax considerations going forward: Depending on whether the government decides to change the law and the ATO’s response to Bendel case, trust structures are potentially more attractive if UPEs can be retained in the trust as working capital or reinvestment.

Conclusion

The Bendel case is a landmark tax case that will have significant impact in future tax structuring discussions for private groups.

As each circumstance is different, we recommend that you review your affairs and speak to your HLB tax adviser to discuss and plan what this means for you.

Co – Author Monika Lam Tax Manager Melbourne