What now for unpaid present entitlements and corporate beneficiaries?
The High Court’s decision in Commissioner of Taxation v Bendel is a significant development for private groups that distribute trust income to corporate beneficiaries. It rejects the ATO’s long-held position that the mere existence of an unpaid present entitlement can itself amount to a Division 7A loan – but it does not remove the broader tax risks associated with UPE arrangements.
At a glance
On 10 June 2026, the High Court dismissed the Commissioner’s appeal in Bendel. On the facts before the Court, the corporate beneficiary’s unpaid present entitlements were not “loans” for section 109D purposes. The ATO has accepted the decision, but has expressly flagged that other provisions – including Subdivision EA and section 100A – may still apply.
Why Bendel matters
For many years, private groups have commonly appointed trust income to a private company beneficiary – often referred to as a “bucket company” – while leaving some or all of that entitlement unpaid. The ATO’s published approach treated certain UPEs as financial accommodation and therefore as loans for Division 7A purposes, requiring the arrangement to be managed under the Division 7A rules to avoid a deemed dividend.
Bendel tested that position directly. The High Court, by majority, rejected the Commissioner’s argument that the corporate beneficiary’s failure to demand payment of the UPE was enough to constitute financial accommodation within the extended definition of a loan.
What did the High Court decide?
The trust deed and resolutions in Bendel were important. The trustee resolved to set aside amounts of net income for the corporate beneficiary. The Court concluded that those amounts were held on separate trusts and that no debtor-creditor relationship arose between the trustee and the company. In those circumstances, the UPEs were not loans within section 109D(3).
The decision is therefore highly significant, but it should not be reduced to a blanket proposition that every UPE is outside Division 7A. The legal character of the entitlement, the trust deed, the resolutions and any later dealings with the amount remain relevant.
What has the ATO said?
The ATO has indicated that it accepts the High Court’s decision and has issued guidance addressing its practical consequences. Its position recognises that a private company beneficiary’s inaction in relation to an unpaid entitlement is not, without more, sufficient to produce the Division 7A loan outcome previously asserted.
The ATO has also made clear that other provisions remain relevant. In particular, Subdivision EA can apply where a trust has an unpaid entitlement to a private company and the trust makes certain payments, loans or debt forgiveness arrangements to shareholders or their associates. Section 100A may also be relevant to reimbursement agreements involving trust distributions.
Does this mean UPEs can now simply be left outstanding?
No. Bendel removes an important automatic Division 7A concern, but it does not make UPEs a risk-free funding mechanism. A group still needs to understand what legally happens to the entitlement after the distribution resolution and how the funds are subsequently used.
