The High Court of Australia dismissed the Commissioner's appeal in Commissioner of Taxation v Bendel HCA 18 by a 5–2 majority on 10 June 2026, clarifying that unpaid present entitlements (UPEs) held by corporate beneficiaries do not constitute "loans" under Division 7A of the Income Tax Assessment Act 1936 (Cth). The decision ends over a decade of uncertainty regarding the tax treatment of trust structures and has immediate implications for Australian private companies and discretionary trusts.
In the landmark decision of Commissioner of Taxation v Bendel HCA 18, the High Court of Australia dismissed the Commissioner’s appeal by a 5–2 majority, providing critical judicial clarification on the intersection of trust law and anti-avoidance tax rules.
The Court held that unpaid present entitlements (UPEs) belonging to a corporate beneficiary are not treated as “loans” under Division 7A of the Income Tax Assessment Act 1936 (Cth) simply because they remain unpaid.
The ruling confirms the Full Federal Court’s earlier decision in Bendel [2025] FCAFC 15 and settles a question that has shaped trust distribution practices for over a decade.
The core dispute and Division 7A
The dispute centred on whether a private company, Gleewin Investments, made “loans” to Gleewin Pty Ltd (the trustee of the Steven Bendel 2005 Discretionary Trust) by failing to call for the payment of trust income set aside for its benefit between 2014 and 2017.
Division 7A is intended to prevent private companies from making tax-free distributions of profits to shareholders or their associates through payments, loans, or forgiven debts. The Commissioner argued that by remaining “passive” and not demanding payment, the corporate beneficiary provided “financial accommodation” to the trustee, which falls under the expanded definition of a “loan” in section 109D(3).
The majority’s rejection of “financial accommodation”
The majority (Gageler CJ, Gordon, Edelman, Steward, and Gleeson JJ) rejected the Commissioner’s broad interpretation for several key reasons:
- Inactivity vs. action: The Court ruled that a “provision” of financial accommodation requires some form of active transfer of value or bilateral interaction. Mere inactivity or the failure of a beneficiary to insist on its rights does not constitute a “transaction” or a “provision” of accommodation.
- Trustee-beneficiary relationship: The Court found that the resolutions to set aside income did not create a standard debtor-creditor relationship. Instead, the amounts were held on separate trusts for the corporate beneficiary. This meant the trustee had a continuing duty to invest and manage those funds for the beneficiary, rather than a simple “unconditional duty to pay” a debt.
- Double taxation concerns: The Court noted that the Commissioner’s construction would lead to “problematic” double taxation. The same amount of income would be taxed first in the hands of the corporate beneficiary (under trust distribution rules) and then taxed again in the following year as a “deemed dividend”.
Statutory context and Subdivision EA
A significant factor in the ruling was the existence of Subdivision EA, which was enacted specifically to address UPEs in trust structures. The Court observed that when Parliament addressed the issue of value being “shifted” from a trust to a shareholder through unpaid entitlements, it chose to tax the shareholder receiving the benefit, not the trustee.
The majority concluded that the Commissioner was essentially attempting to use the general “loan” provisions in section 109D to achieve an outcome that Parliament had already specifically addressed—and limited—elsewhere in the law.
Judicial clarification and impact
This decision upholds the earlier ruling of the Full Federal Court and brings an end to over a decade of uncertainty regarding the tax treatment of UPEs.
For private groups, the ruling is highly significant for Australian business structures that commonly utilise discretionary trusts with corporate beneficiaries to manage wealth and business income.
