The High Court’s Decision in Commissioner of Taxation v Bendel – Where to from Here

On 10 June 2026, the High Court of Australia handed down its judgment in Commissioner of Taxation (Commissioner) v Bendel [2026] HCA 18, dismissing the Commissioner’s appeal by a 5–2 majority.

The decision conclusively determined that an unpaid present entitlement (UPE) owed by a discretionary trust to a corporate beneficiary was not a “loan” for the purposes of section 109D of Division 7A of Part III of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act).

This represents the culmination of a dispute that began with amended assessments issued by the Commissioner for the income years ended 30 June 2014 to 30 June 2017 and appeals that traversed the Administrative Appeals Tribunal and the Full Federal Court before reaching the High Court.

The decision directly contradicts the administrative position that the Commissioner has maintained since 2009 that a UPE with a corporate beneficiary can amount to a loan under Division 7A, thereby triggering deemed dividend consequences.

It is a landmark decision and provides authoritative guidance on the interpretation of the expanded definition of “loan” in section 109D(3) – a decision that is relevant for the many thousands of private groups that utilise trust and company structures. Having said that, this victory for taxpayers may be short-lived in light of the recent Federal Budget measures relating to trusts.

Outline of Article This article covers the following matters: A. The Key Facts B. The Majority’s Reasoning C. The Dissent D. Practical Implications for Taxpayers E. What Practitioners and Clients Should Do Now

A.     The Key Facts

The case concerned the Bendel group, comprising of several entities that conducted an accounting and tax agent practice and invested in commercial property syndicates.

Gleewin Pty Ltd (Gleewin) was the trustee of the Steven Bendel 2005 Discretionary Trust (the 2005 Trust). Mr Bendel owned all of the issued shares in, and was the sole director of, both Gleewin and the corporate beneficiary, Gleewin Investments Pty Ltd (Gleewin Investments).

In each of the relevant income years, Gleewin resolved to “set aside” defined percentages of the 2005 Trust’s net income for the benefit of Gleewin Investments and Mr Bendel. The trust deed provided that amounts set aside for any beneficiary “shall cease to form part of the Trust Fund and upon such setting aside … shall thenceforth be held by the Trustee on a separate trust for such person absolutely”.

Gleewin did not pay the amounts set aside to Gleewin Investments, and Gleewin Investments did not, at any relevant time, call for payment.

The Commissioner contended that the amounts set aside constituted the “provision of credit or any other form of financial accommodation” by Gleewin Investments to Gleewin (section 109D(3)(b)), or were “in substance” loans of money from Gleewin Investments to Gleewin (section 109D(3)(d)), thereby engaging Division 7A’s deemed dividend provisions.

B.     The Majority’s Reasoning

The majority (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) resolved three preliminary issues before turning to the construction of section 109D(3): first, whether the trustee resolutions effected a distribution or merely a setting aside; secondly, whether separate trusts were validly created; and thirdly, whether a debtor/creditor relationship arose between Gleewin and Gleewin Investments.

No Distribution, Valid Separate Trusts and No Debtor/Creditor Relationship

On the first issue, the majority held that the trustee resolutions effected a setting aside of the UPEs, but not a distribution. The use of the future tense “shall be distributed” and the words “for the avoidance of doubt” in the resolutions merely recorded an obvious future consequence of the setting aside; they did not create an unconditional duty to pay. As the Court stated: “until the call for payment, Gleewin retained the amounts and had no unconditional duty to pay that income”.

As to the second issue, the majority held that the amounts set aside were thereafter held on valid separate trusts created by operation of clause 3(5) of the 2005 Trust Deed, with Gleewin Investments as beneficiary and with a power for Gleewin to invest or deal with the funds pending payment. The Commissioner had argued that any separate trust failed for want of certainty of subject matter, because Gleewin had not identified specific property as belonging to the separate trust. The majority rejected this, holding that the “net income” of the 2005 Trust, defined by reference to section 95 of the 1936 Act, was ascertainable as a proportion of the trust fund at the end of each income year and therefore identified with sufficient certainty the property of the separate trusts.

On the third issue, no debtor/creditor relationship arose between Gleewin and Gleewin Investments. The majority concluded that each of the resolutions “did not create an unconditional duty to pay Gleewin Investments” and that something more had to occur before such a duty arose – either the trustee chose to pay, or the beneficiary called for payment in circumstances where it was entitled to do so. At no relevant time had Gleewin Investments called for payment, nor had Gleewin admitted an indebtedness.

The Construction of Section 109D(3)

On the critical question of statutory construction, the majority rejected the Commissioner’s argument that a beneficiary’s mere forbearance – its failure to insist on payment of a UPE – could constitute a “provision of … financial accommodation” under section 109D(3)(b) or a transaction that “in substance effects a loan of money” under section 109D(3)(d).

The Court held that the provision of financial accommodation “requires some initial or anterior transfer of value or, put in different terms, the supply or grant of some sort of pecuniary assistance, involving some bilateral activity”. Division 7A is directed at the transfer of value from a private company to a shareholder or associate, and implicit in its structure is that the private company does something to effect that transfer.

The majority drew support from the text of section 109D(4), which provides that a loan is made when the amount of the loan is “paid” to the entity or when “anything described in subsection (3) is done in relation to” the entity. The word “done” connotes active conduct; in each case, the legislation requires that the private company is actively doing something to move value from it to someone, which is analogous with the payment of a dividend. Gleewin Investments did nothing – it did not “provide” Gleewin with time to pay; its mere inactivity could not satisfy the statutory language of “advance”, “provision”, “payment” or “transaction”.

Similarly, the majority held that “simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan” for the purposes of section 109D(3)(d), because the word “transaction” by its ordinary meaning refers to some interchange or interaction between entities.

The majority further observed that if the Commissioner were correct, it would mean that any private company beneficiary in a position to invoke the rule in Saunders v Vautier would be taken to have made a loan to the trustee merely by not terminating the trust – “a highly improbable outcome”. Additionally, the majority identified that section 109F(6) – which deems a debt forgiven when a reasonable person would conclude that the private company “will not insist” on payment – would be rendered largely otiose if mere forbearance already constituted a loan under section 109D(3) from inception. That was “not a conclusion that promotes a harmonious and coherent application of Div 7A”.

The Significance of Subdivision EA

The majority placed considerable weight on the statutory context, particularly Subdivision EA of Division 7A.

That subdivision was introduced in 2004 to replace the earlier section 109UB, which had been enacted in 1998 to address the specific circumstance of a private company with a UPE from a trust where the trustee makes a loan to a shareholder of that company. Critically, the legislative solution adopted in section 109UB – and preserved in Subdivision EA – was to tax the shareholder, not the trustee or the corporate beneficiary. The Explanatory Memorandum described the subdivision as applying where a trust with a UPE in favour of a corporate beneficiary “shifts value” by making a loan or payment to a shareholder of that company.

The majority also noted that a 2002 Board of Taxation report had proposed an alternative approach – taxing the trustee or the corporate beneficiary directly “as if there had been no distribution” – but Parliament did not adopt that solution. The Court concluded from this history that Parliament had long been aware of UPEs in favour of corporate beneficiaries and had enacted Subdivision EA as the targeted mechanism to address any revenue concern. The Commissioner could not circumvent that legislative choice by stretching section 109D. In the majority’s words, the Commissioner’s case on the expanded definition of “loan” in section 109D(3) “must therefore be rejected”.

C.     The Dissent

Justices Jagot and Beech-Jones dissented, holding that the Commissioner’s appeal should be allowed. The dissenters differed from the majority on two key points. First, on the meaning of “repaid” in section 109D(1)(b), Justice Jagot reasoned that the undefined term “repaid” should be adjusted to accommodate the breadth of the defined term “loan” in section 109D(3), rather than using the concept of repayment to constrain the definition of loan. On this view, a “loan” in the form of financial accommodation is “repaid” when the thing done to constitute that accommodation is undone – for example, when the beneficiary calls in the debt. Secondly, on the facts, the dissenters held that Gleewin Investments’ decision not to require payment of its entitlements – in circumstances where Mr Bendel controlled all entities and the funds were left in the trust enabling Gleewin to lend money to Mr Bendel – was not mere passive inaction but constituted the active “doing of a thing” amounting to a provision of financial accommodation.

The dissent’s reasoning is significant because it identifies the factual boundary of the majority’s decision: where a controlling mind actively arranges for a corporate beneficiary not to call for payment, and that arrangement enables the trust to lend funds to the controller, a differently constituted court may have reached a different result. This may also inform any future legislative reform.

D.     Practical Implications for Taxpayers

The Commissioner’s Position Is Untenable

The High Court’s decision renders the Commissioner’s longstanding administrative practice since 2009 untenable. The ATO has acknowledged this is an “adverse decision” and has indicated it will update its interim Decision Impact Statement to provide practical guidance. TD 2022/11, which confirmed the ATO’s view that UPEs fall within Division 7A, will necessarily require revision, as will the related guidance in TR 2010/3.

The Decision Is Fact-Specific: Trust Deed Wording Matters

Taxpayers must appreciate that the majority’s reasoning was closely tied to the specific wording of the 2005 Trust Deed and the form of the resolutions. In particular, the deed’s clause 3(5) – which provided that amounts set aside “shall cease to form part of the Trust Fund” and be held on separate trust – was critical to the Court’s finding that no debtor/creditor relationship arose. Not all trust deeds contain equivalent language. Deeds that provide for amounts to be “paid” or “applied” to beneficiaries, or which do not create sub-trust mechanisms, may produce different legal consequences and may not attract the benefit of this decision.

Accordingly, an immediate step for taxpayers is to review the wording of their clients’ discretionary trust deeds to determine whether a similar sub-trust arrangement arises under their terms. Caution should be exercised before implementing any amendments to trust deeds to ensure there are no unintended consequences, such as trust resettlements.

Taxpayers Who Have Already Complied

A significant practical difficulty remains for taxpayers who have, over the past 16 years, followed the Commissioner’s administrative guidance and converted UPEs into complying Division 7A loans or sub-trust arrangements.

Those taxpayers have entered into binding loan agreements which cannot easily be unwound. Practitioners should advise such clients to await ATO guidance before taking any steps, as the ATO may well take the position that past compliance actions are “locked in”.

Taxpayers who were assessed and paid additional tax as a result of the Commissioner’s now-rejected interpretation may wish to consider whether objections or amendment requests remain available within applicable time limits.

Division 7A Continues to Apply in Other Circumstances and Other Tax Integrity Provisions May Apply

It is essential to appreciate that this decision does not abolish Division 7A’s operation in trust scenarios. Subdivision EA continues to apply where a trust with a UPE in favour of a corporate beneficiary makes an actual loan or payment to a shareholder of that company.

Similarly, section 100A of the 1936 Act (concerning reimbursement agreements) remains a potent tool in the ATO’s arsenal.  We expect the ATO to deploy this with greater vigour. Section 100A may apply where distributions are not paid in cash to nominated beneficiaries. The general anti-avoidance rule in Part IVA also remains available to the Commissioner. Taxpayers must exercise care to ensure that any arrangements do not attract scrutiny under these provisions.

The Intersection with the 2026–27 Federal Budget

The timing of the High Court’s decision, delivered less than a month after the 2026–27 Federal Budget, creates a striking intersection with the Federal Government’s announced trust tax reforms. The Budget measures may represent the Federal Government’s legislative response to the very outcome the High Court has now confirmed.  Practitioners must consider both the decision and the reforms together when advising clients.

Minimum 30 Per Cent Tax on Discretionary Trusts

On 12 May 2026, the Federal Government announced that from 1 July 2028, trustees will pay a minimum tax of 30 per cent on the taxable income of discretionary trusts.

Beneficiaries other than corporate beneficiaries will receive non-refundable credits for the tax payable by the trustee. Critically, corporate beneficiaries will not receive credits for tax paid by the trustee on amounts distributed to them, a design feature that effectively produces double taxation on trust distributions to companies.

Effective End of the “Bucket Company” Strategy

The budget’s denial of credits for corporate beneficiaries has been widely characterised as spelling the end of the long-established practice of trusts distributing to corporate beneficiaries to cap the effective tax rate at the company rate.

The budget announcement therefore could be seen as the Federal Government’s pre-emptive strike against taxpayers who might otherwise have benefited from the High Court’s decision in the future (by distributing to corporate beneficiaries).

Potential for Retrospective Legislative Change

Practitioners should not discount the prospect of retrospective legislative change that deems UPEs to be loans for Division 7A purposes, potentially with effect from 2009. Indeed, the 2018-19 Federal Budget had announced (though not legislated) reforms to Division 7A that included bringing UPEs within the statutory definition of “loan”. The dissenting judgments may provide the Federal Government with a ready-made framework for such reform, particularly Justice Beech-Jones’s reasoning that giving or granting time to pay a debt constitutes financial accommodation. Such an approach would neutralise the benefit of the decision for all but the specific taxpayer involved.

The Gap Period: 2026–2028

Of immediate practical significance is the period between now and 1 July 2028, when the new trust tax reforms are due to commence.

During this window, trusts with corporate beneficiaries presently entitled to trust income are, on the authority of the High Court, not required to treat UPEs as Division 7A loans subject to the application of other provisions in the tax legislation as mentioned above.

However, whether the Federal Government announces an interim measure to fill this gap remains to be seen.

A Broader Risk: Does the Decision Undermine Present Entitlement?

Critically, the majority’s reasoning raises an important concern.  The majority’s finding that the trust resolutions did not create an unconditional duty to pay support a broader challenge to the concept of “present entitlement” itself. Present entitlement under Division 6 requires a present legal right to demand and receive payment.  The trust resolutions in Bendel adopt language that are seen in trust resolutions in practice. If the High Court has held that such trust distribution resolutions create no unconditional duty to pay, the Commissioner need not seek to characterise UPEs as loans at all; he could instead attack the underlying present entitlement, with the consequence that the trustee would be assessed on the undistributed income at the top marginal rate under section 99A.  This raises an issue that affect trusts generally and beyond the Division 7A rules reviewed by the High Court.

E.     What Practitioners and Clients Should Do Now

In light of the judgment and the impending reforms, practitioners should consider the following:

1. For clients who have followed the ATO’s administrative approach since 2009 and converted UPEs to Division 7A loans, it is prudent to await the ATO’s updated Decision Impact Statement before seeking to unwind those arrangements. Where past years’ UPEs have been converted to a loan under a complying loan agreement, those documents need to be implemented in accordance with their terms, leaving such loans as still subject to Division 7A rules.
2. For clients who chose not to comply with the ATO’s view and have been the subject of audit or amended assessments, the decision provides a clearer basis upon which to challenge those assessments, subject to applicable time limits for objections and amendments. Noting however that the factual circumstances, including the specific trust deed, are critical.
3. For current-year planning (the 2025–26 income year and possibly 2026–27), the decision confirms that a UPE with a corporate beneficiary is not of itself a loan under Division 7A. However, practitioners must remain alert to Subdivision EA (which is triggered where the trust makes an actual loan to a shareholder while a corporate UPE is outstanding), to section 100A, and to Part IVA.
4. Practitioners should also review the accounting treatment of UPEs. Where a UPE is recorded in the trust’s balance sheet as a “beneficiary loan account” or current liability, consideration should be given to whether that presentation is consistent with the legal characterisation that exists under the trust deed and resolutions. If the intended position is that the amount is held on separate trust (as opposed to a form of debt), the accounts should reflect this. Alignment between the legal structure and the accounting presentation may avoid the creation of unnecessary evidentiary risk in future audits.
5. Practitioners should be cautious about forgiving pre-16 December 2009 UPEs that have been grandfathered under the Commissioner’s previous administrative concessions. Forgiveness of such amounts may trigger the application of Division 7A on alternative grounds, including as a forgiveness of a debt under section 109F.
6. Looking further ahead, the announced minimum trust tax from 1 July 2028 will fundamentally alter trust distributions to companies. The status of this measure should be monitored.
7. Clients should begin considering whether restructuring out of discretionary trusts may be appropriate, noting that the Government has offered expanded rollover relief for three years from 1 July 2027 to facilitate such transitions. The exact nature of this relief is still to be confirmed in the exposure draft legislation.