The ATO has officially responded to the Full Federal Court’s recent decision in Commissioner of Taxation v Bendel [2025] FCAFC 15, a ruling that has sparked significant interest across the accounting and private business sectors.
This case dealt with the treatment of unpaid present entitlements (UPEs) from trusts to private companies and whether these should be considered loans under Division 7A (and potentially taxed as deemed dividends). The Court found they are not.
This is a major shift from the ATO’s long-standing position and may have serious implications for how family groups and businesses manage trust distributions and company entitlements. In response, the ATO has now filed for special leave to appeal to the High Court and released an Interim Decision Impact Statement (IDIS) explaining how it will handle related matters in the meantime.
A Quick Recap: What Happened in the Bendel Case?
In the Bendel case, a private company was made presently entitled to trust income, but the funds were not paid out, creating what’s known as a UPE. The ATO’s traditional view is that if these UPEs remain unpaid, they may be deemed to be loans under Division 7A—triggering tax consequences in the form of deemed dividends.
However, the Full Federal Court disagreed, stating that a UPE is not a loan and therefore does not trigger Division 7A. This finding contradicts the guidance in TD 2022/11, which has been the ATO’s official position until now.
ATO’s Response: Holding Firm (for Now)
Although the Court sided with the taxpayer, the ATO is not backing down just yet. It has lodged an application to appeal the decision and stated in its interim guidance that:
- The ATO will not revise its current view under TD 2022/11 until the appeal process concludes;
- In the meantime, the ATO will pause decisions involving this issue, including:
- Amended assessments,
- Private ruling applications relating to UPEs and Division 7A,
- Objection decisions for previous assessments (unless legally required to proceed);
- Amended assessments,
- If a decision must be made (e.g. due to review deadlines or taxpayer requests), the ATO will apply its existing view.
Other Tax Risks: Watch for Section 100A
The ATO also reminds taxpayers that Section 100A of the Income Tax Assessment Act 1936 may still apply. This provision allows the ATO to disregard a trust distribution if it’s made under a reimbursement agreement—that is, if the beneficiary is made presently entitled to income but the money is used or redirected for someone else’s benefit.
However, if the arrangement is made as part of ordinary commercial dealings, Section 100A may not apply. The ATO refers to its Practical Compliance Guideline (PCG 2022/2), which outlines low-risk scenarios that are unlikely to attract ATO scrutiny.
According to the PCG:
- If a trust makes a company entitled to income, and keeps the funds as a working capital loan on commercial terms, the ATO won’t usually take action;
- If the funds are retained without converting them into a proper commercial loan, the ATO may investigate further.
Why This Matters to You
If you run a family trust, own a private company, or are part of a private group structure, this case and the ATO’s response are particularly relevant. Many businesses have relied on UPE arrangements to manage tax efficiently. The Bendel decision could provide new opportunities—but also risks, especially if the High Court overturns the ruling.
For now, it’s crucial to:
- Understand how UPEs are treated under your trust arrangements;
- Review any unpaid entitlements to ensure they’re properly documented or converted to commercial loans;
- Avoid relying solely on the court decision, as the ATO has not changed its view yet;
- Prepare for possible future adjustments based on the High Court’s final decision.
Need Expert Guidance? Boa & Co. Can Help.
If you’re unsure how the Bendel case and the ATO’s response may impact your business, now is the time to seek expert advice. At Boa & Co. Chartered Accountants, we help clients:
- Review trust structures and UPE arrangements;
- Understand Division 7A and Section 100A risks;
- Set up compliant inter-entity loan agreements;
- Prepare for future ATO audits or objections.
Don’t wait until the rules change again. Get clarity and peace of mind today by contacting our team at 1300 952 286, emailing us at [email protected], or visiting www.boanco.com.au.
Your trust deserves trusted advice—talk to Boa & Co. to make sure you’re protected.