Bendel’s High Court Decision – Taxpayer wins, but what’s next?

The High Court handed down its decision in Bendel’s Case on 10 June 2026. The issue addressed in this case was whether an unpaid present entitlement (UPE) between a trust (Trust) and a beneficiary company (the Beneficiary) is caught by Division 7A where the funds are retained by the trust. The underlying assessment objected against was one where the Commissioner assessed the Beneficiary under s.109D of the ITAA 1936 on the basis that the UPE was a loan. The appeal to the High Court raised directly the application of Division 7A and the construction of the expanded definition of ‘loan’ in s.109D(3). The Commissioner contended that the UPE was a loan being the ‘provision of credit or any other form of financial accommodation’ or were ‘in substance’ loans of money, where a beneficiary does not insist on being paid an UPE by the trustee of the Trust.

The Commissioner posed three preliminary questions about the proper construction and legal effect of the resolutions made by the Trust, namely:

1. whether the resolutions effected a setting aside and then a distribution of the UPE;
2. if the resolutions effected a setting aside of the UPE, and no more, whether separate trusts were created in respect of those amounts; and
3. whether the resolutions gave rise to a debtor/creditor relationship between the Trust and the Beneficiary.

The High Court concluded that:

1. the resolutions effected a setting aside of the UPEs, but not a distribution of those amounts;
2. the UPEs were thereafter held on separate trusts created by the resolutions for the Beneficiary; and
3. no debtor/creditor relationship arose between the Trust and the Beneficiary.

Given the above conclusions, in a 5-2 majority decision, the High Court concluded that the Commissioners argument must be rejected and the appeal be dismissed.

Critically, the High Court noted that:

• in accordance with the trustee’s powers in the Trust deed, the UPE amounts were set aside, and therefrom held on a separate trust with the trustee having the power pending payment to invest or apply or deal with the amount in accordance with its powers under the deed;
• as the amounts were held ‘pending payment’ this created a situation where something more must occur before payment could be effected and before an unconditional duty to pay arises. That is, unless the trustee chooses to pay or admits an indebtedness to the Beneficiary, the Beneficiary would need to call for the amount to be paid; and
• as the Beneficiary had never called for payment of the UPEs the Trust retained the amounts and did not have an unconditional duty to pay.

Accordingly, the UPEs were not a loan and the Beneficiary was not assessed under Division 7A.

The High Court, in coming to its conclusion, also referred to the broader application of provisions within Division 7A, including its context and history, including Subdivision EA (and noting the earlier decision in the Tribunal that the amounts ‘should have been taxed in the hands of Mr Bendel’ via the application of Subdivision EA, and that the Commissioner ‘had taxed the wrong taxpayer – he should have assessed Mr Bendel’).

So, what next?

As noted in previous articles of The Assessment (published on 16 October 2023 and 20 February 2025, and 11 February 2026) we have commented on some of the potential ramifications and things to consider in light of the Bendel case and the approach adopted by the ATO.

• The Bendel decision is contrary to the ATO’s view as from late 2009 that it then actively imposed on taxpayers, a view that was widely questioned in the tax profession when it first came out. (This also raises the wider question of whether the ATO is administering other areas of the law incorrectly, and if so at what cost to taxpayers.)
• What will be the ATO’s reaction to this decision?
  • Will it represent to Treasury for a change in the law?
  • Will it accept the decision and adjust its stance?
• If it does seek to change the law (and the Federal Government agrees), what will that look like and when will it commence from (noting the announcement from the Federal Government earlier this year that, due to the ATO having lost two court cases on the matter, it would amend the law in relation to fixtures and taxable Australian property effective from December 2006 i.e., almost 20 years ago). In our view significant retrospective changes to tax law undermines trust in the tax system.
• If the Commissioner accepts the decision, here are some of the potential consequences to consider:
  • Are prior year UPEs that were put under complying Division 7A loan agreements actually loans, and if so do terms of those loan agreements still need to be complied with? If so, will there be an amnesty to allow these to be unwound without causing additional tax consequences to arise?
  • Taxpayers who have had deemed dividends arise in recent years from the ATO applying TR 2010/3, PS LA 2010/4, and TD 2022/11 should revisit the basis for those deemed dividends and consider whether an objection has merit. Whether the ATO is open to accepting late objections where necessary to correctly apply the law is relevant here.
  • Taxpayers that have been imposed penalties and/or interest costs via the Commissioner’s misapplication of the law could also be revisited.

We also note that the recent announcements in the 2026 Federal Budget regarding proposed changes to the taxation of trusts and the use of beneficiary companies will also need to be considered (when draft legislation is actually released).

Plenty to think about, and despite a final High Court decision providing clarity on the technical issue being sought, the matter is far from resolved.

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