Bendel Case: What the High Court’s Decision Means for Trusts, Corporate Beneficiaries and Division 7A 

The High Court has delivered one of the most significant trust taxation decisions in recent years, rejecting the Australian Taxation Office’s long-standing position that certain unpaid trust distributions automatically trigger Division 7A. 

While the decision reached in Commissioner of Taxation v Bendel [2026] HCA 18 provides welcome certainty for many private business groups, it does not mean unpaid present entitlements are now free from scrutiny. 

Background to the Bendel Case 

Many private business groups operate using a discretionary trust with a corporate beneficiary.  

At the end of a financial year, a trust may distribute some of its taxable income to the corporate beneficiary. However, instead of physically paying the cash to the company immediately, the amount often remains within the trust, creating an Unpaid Present Entitlement (UPE).  

This can be a useful tax and asset planning tool through:

For years, advisers have faced uncertainty because the ATO considered many unpaid present entitlements owed to corporate beneficiaries to be Division 7A loans. This meant business owners often entered into complying loan agreements and made annual repayments simply to avoid deemed dividend consequences. 

The Bendel Case  

Steven Bendel ran an accounting practice through a group of entities. A discretionary trust he controlled distributed income to a corporate beneficiary (a company he also owned), but instead of paying the money out, the trustee just ‘set it aside’ in the books each year. The cash stayed in the trust and was largely lent to Mr Bendel personally. 

The ATO argued the unpaid entitlement itself was a Division 7A loan. 

What the Bendel Case Changed  

For more than a decade, the Australian Taxation Office (ATO) maintained that these UPEs could constitute a ‘loan’ under Division 7A of the Income Tax Assessment Act 1936. If so, the amount could potentially be treated as a deemed dividend unless certain requirements were satisfied. 

The Bendel case challenged that long-standing interpretation. 

What did the High Court decide? 

The High Court upheld the earlier Full Federal Court decision and found that simply leaving a UPE unpaid does not, by itself, create a loan for Division 7A purposes. 

The Court concluded that: 

• Under the wording of that particular trust deed, the trustee’s resolutions created a separate trust over the amounts that had been set aside for the corporate beneficiary. In the circumstances of Bendel, no debtor-creditor relationship arose between the trustee and the corporate beneficiary. 

• A corporate beneficiary merely choosing not to demand payment does not amount to providing ‘financial accommodation’; 

• For a Division 7A ‘loan’ to exist, the private company must actively do something – advance money, provide credit, or make some kind of arrangement. Simply sitting on your hands and not asking for payment is not doing anything. It is not a loan. 

• Division 7A should not be interpreted so broadly that every unpaid entitlement becomes a deemed dividend. 

The decision rejects the ATO’s long-standing administrative view that these arrangements could automatically constitute Division 7A loans. 

Importantly, the High Court’s reasoning was heavily influenced by the wording of the relevant trust deed. Different trust deeds may produce different outcomes. 

Double the Tax

During the litigation, the High Court raised concerns that the Commissioner’s interpretation could have taxed the same underlying economic amount twice: first as trust income in the hands of the corporate beneficiary, and then again as a deemed dividend under Division 7A.

The Court considered this difficult to reconcile with Parliament’s intention, and instead found that Division 7A was never designed to operate in this way. 

Are unpaid trust distributions now risk-free? 

No. 

While the High Court rejected the ATO’s Division 7A argument in the Bendel circumstances, the decision should not be viewed as a blanket exemption for all UPE’s. 

The trust deed wording, the resolutions, and the specific facts all matter. If you have a corporate beneficiary structure, speak to your Aintree Group adviser for advice specific to your situation. 

Every trust structure remains different, and outcomes will continue to depend on how distributions are made, documented and ultimately used. 

Importantly, even if UPE unpaid is not itself a Division 7A loan, subsequent arrangements involving those funds may still trigger Division 7A or Subdivision EA if money is later paid or lent to shareholders or their associates. 

The Implications 

The ATO has already confirmed that other integrity provisions may still apply depending on the facts, including: 

• Subdivision EA, which can apply where trust funds are later provided to shareholders or their associates through loans, payments or forgiven debts.
• Section 100A, which targets certain trust reimbursement arrangements designed to obtain tax benefits. 

On top of this, the ATO may look to apply other anti-avoidance provisions to UPEs.  

Following the High Court’s decision, the ATO has confirmed it will withdraw Taxation Determination TD 2022/11 and review a number of other publications dealing with unpaid present entitlements and Division 7A. 

What should business owners do now? 

The ATO has now released a Decision Impact Statement outlining how it intends to administer the decision while it reviews its broader guidance on Division 7A. 

Business owners should use this decision as an opportunity to review how their trust structure currently operates. 

It is worth revisiting your structure as the ATO updates its administrative guidance following the High Court’s decision. 

This may include reviewing: 

• Trust distribution resolutions; 
• Unpaid present entitlement arrangements; 
• Division 7A loan agreements; 
• Corporate beneficiary strategies; 
• Trust deed provisions; and 
• The interaction between tax, legal and succession planning objectives. 

We’re here to help. 

The Bendel decision provides welcome certainty for many trust structures, but it doesn’t remove the need for careful planning. Trust distributions continue to involve complex tax, legal and succession considerations, and getting the structure right remains just as important as ever. 

A well-designed structure should not only comply with current law but also continue supporting your broader commercial goals. 

At Aintree Group, our accountants, lawyers and advisers work collaboratively to ensure your structure is both compliant and aligned with your long-term objectives.