On 10 June 2026 the High Court handed down Commissioner of Taxation v Bendel [2026] HCA 18. By a 5:2 majority it held that an unpaid present entitlement owed by a trust to a private company beneficiary is not a “loan” for Division 7A purposes. That overturns a position the ATO had administered since December 2009.
If your family trust distributes to a bucket company, this changes how those distributions have been managed for more than a decade. It does not make unpaid entitlements risk-free.
The Bendel decision at a glance
- An unpaid present entitlement (UPE) that is simply left outstanding is not a Division 7A loan
- The ATO has accepted the decision and is withdrawing TD 2022/11
- A UPE that has already been converted into a complying loan is still a loan, and repayments continue
- Subdivision EA and section 100A still apply to unpaid entitlements
- The Government is consulting on legislation to bring UPEs within Division 7A
The background in plain terms
A trust makes a company presently entitled to a share of its income. The company pays tax at 25% or 30%, but the cash stays in the trust and is used by the family group. That unpaid amount is a UPE.
Since 16 December 2009 the ATO’s view was that a company which left a UPE unpaid was providing financial accommodation to the trust, which made it a loan under Division 7A. Unless the UPE was put on a complying loan agreement or, under earlier guidance, held on a sub-trust arrangement, it became a deemed unfranked dividend. From 1 July 2022 the ATO tightened that view again in TD 2022/11.
The taxpayer in Bendel argued that an entitlement which is simply not paid is not a loan. The Administrative Appeals Tribunal agreed in 2023, the Full Federal Court agreed in February 2025, and the High Court has now settled it.
What the High Court decided
A loan for Division 7A purposes requires something to be done: an advance of money, a provision of credit or financial accommodation, or a transaction that in substance effects a loan. A company that does nothing about its entitlement has not lent anything. Not calling for payment is not a transaction.
What the ATO has said since Bendel
The ATO’s Decision Impact Statement, released in late June 2026, sets out how it will apply the decision:
- A UPE simply left outstanding is not treated as a Division 7A loan
- A UPE held on a sub-trust under the earlier practice statement is not treated as a loan
- A UPE that has been converted into a loan, for example by being placed under a complying loan agreement, is a loan and continues to be treated as one
- TD 2022/11 is to be withdrawn and related guidance is under review
- Taxpayers who were assessed on the basis that a UPE was a loan can ask for an amendment or lodge an objection
Why UPEs are still not risk-free
Subdivision EA
Subdivision EA of Division 7A was written for exactly this situation. Where a company has an unpaid entitlement from a trust and the trust makes a payment or a loan to a shareholder of that company or their associate, or forgives a debt they owe, the amount can be a deemed dividend. If the trust is using the bucket company’s money to fund loans or payments to family members, Bendel does not help.
Section 100A
Section 100A applies where a beneficiary is made presently entitled under an arrangement in which someone else actually gets the benefit of the money. The trustee is then taxed at the top marginal rate, and there is no time limit on the ATO amending. A company that is entitled to income it never receives, while the family uses the cash, is the fact pattern the ATO looks for. The exception for ordinary family or commercial dealings is narrower than most people assume.
Legislation is coming
Treasury is consulting on reviving an earlier Budget measure to bring UPEs expressly within Division 7A. The start date, and whether it will apply to entitlements that already exist, are not yet known. Separately, the proposed 30% minimum tax on family trusts from 1 July 2028 gives corporate beneficiaries no offset, which makes distributing to a bucket company uneconomic in any case.
What trustees and directors should do now
- Do not automatically put this year’s UPE on a loan agreement. For years the routine before the trust’s lodgment day was to convert the UPE to a seven-year loan. After Bendel that step can create a Division 7A loan where none existed. Make the decision deliberately.
- Keep servicing existing loan agreements. A UPE that was converted to a loan is still a loan. Minimum yearly repayments at the benchmark interest rate, 8.77% for 2026–27, still have to be made.
- Check how the UPE is documented. The trust deed, the distribution resolutions and the way the amount is described in the accounts all bear on whether it is an unpaid entitlement or has become a loan.
- Look at what the trust did with the money. Loans or payments from the trust to family members bring Subdivision EA into play.
- Review earlier years. If a deemed dividend was assessed, or loan repayments were made only because of the ATO’s former view, an amendment may be available. Amendment periods are limited, generally two years for individuals and small businesses and four years for others.
- Plan the 2026–27 and 2027–28 distributions with the trust minimum tax in mind.
Common questions about Bendel and Division 7A
Does Bendel mean a bucket company can leave its money in the trust indefinitely?
Not safely. The UPE is not a Division 7A loan on its own, but Subdivision EA, section 100A and the proposed legislation all remain live.
I already have a seven-year loan agreement over an old UPE. Can I stop the repayments?
No. The ATO’s position is that an entitlement converted to a loan remains a loan. Get advice before changing or unwinding any existing arrangement.
Does Bendel affect loans from my company to me?
No. An ordinary loan from a private company to a shareholder or their associate is squarely within Division 7A, as it always was. Our article on Division 7A pitfalls covers those rules.
Can I get a refund for earlier years?
Possibly. It depends on what was assessed, to whom, and whether the amendment period is still open. The ATO has said it will consider requests to extend the time to object where the objection arises from this decision.
Need a hand with this?
If your group has a trust with a corporate beneficiary, the position needs to be reviewed entity by entity and year by year. We can trace your unpaid entitlements and loan agreements, identify Subdivision EA and section 100A exposure and tell you whether an amendment is worth pursuing. We are Chartered Accountants and registered tax agents in Cairnlea, in Melbourne’s west.
Related reading
- 30% minimum tax on family trusts from 1 July 2028 explained
- Division 7A pitfalls: taking money out of your own company
- Asset protection for small business owners: what works and what doesn’t
- The 30 June tax planning checklist
- Our full range of services
Sources
- ATO – Bendel case: Decision impact statement
- ATO – High Court decision in Commissioner of Taxation v Bendel
This article is general information only and does not take your personal circumstances into account. It reflects the law and announced measures as at October 2026. Measures described as draft or proposed may change before they are enacted. Speak to us before acting on anything you read here.
