The Bendal Decision: High Court Dismisses ATO Appeal

The High Court recently held, by majority, that unpaid present entitlements (‘UPEs’) owing

to a corporate beneficiary were not “loans” for the purposes of Division 7A.

Facts

Mr Bendel controlled Gleewin Pty Ltd, which was the trustee of the Steven Bendel 2005

Discretionary Trust (‘Bendel Trust’), and Gleewin Investments Pty Ltd (‘Gleewin Company’),

a corporate beneficiary of the Bendel Trust.

 

In the 2013 to 2017 income years, the trustee of the Bendel Trust resolved to “set aside”

most of the trust income for the benefit of the Gleewin Company. These trust entitlements

were not paid to the Gleewin Company (i.e., they were UPEs), and the Gleewin Company did

not call for payment of its entitlement to trust income.

 

The Commissioner issued amended assessments on the basis that the UPEs were loans

within the meaning of S.109D(3) of the ITAA 1936 (being the provision of credit or financial

accommodation by the Gleewin Company) and, as they were neither repaid nor put on

complying terms, deemed dividends had effectively arisen to the Bendel Trust.

 

The taxpayers objected to the amended assessments and the imposition of penalties. The

Commissioner disallowed the objections.

 

The dispute proceeded to the Administrative Appeals Tribunal, where it was determined

in favour of the taxpayers, then to the Full Federal Court, where it was also determined in

favour of the taxpayers, and finally the Commissioner appealed to the High Court.

Decision

The High Court found in favour of the taxpayers, by a majority of 5:2. The majority held that

Gleewin Company’s failure to demand payment of the UPEs did not constitute the provision

of financial accommodation to the trustee of the Bendel Trust, stating that: “there is no

“provision… of financial accommodation” for the purposes of S.109D(3)(b) when a private

company does nothing.” [Emphasis added]

 

The High Court (majority) emphasised that Division 7A is directed at transfers of value

from a private company to a shareholder or associate, and that implicit in its structure is a

requirement that the private company actively does something to bring about that transfer.

For example, under the extended definition of a loan in S.109D(3), a loan includes an

“advance” of money, the “provision” of financial accommodation, the “payment” of an

amount in defined circumstances, or a “transaction” which in substance effects a loan

of money. Moreover, S.109D(4) states that a loan is made when anything described in

S.109D(3) is “done”.

 

In each case, the legislation requires the private company to actively do something to

move value from it to someone else, in a manner analogous to the payment of a dividend.

By contrast, Gleewin Company did nothing (i.e., it did not “provide” Bendel Trust with

time to pay). As such, it was held that the Gleewin Company did not provide financial

accommodation to the Bendel Trust, meaning no ‘loan’ arose for Division 7A purposes.

 

Editor: While Bendel represents a significant taxpayer win, it is important to bear in mind

that Subdivision EA of Division 7A may still apply where a UPE exists between a corporate

beneficiary and a trust. Careful consideration should also be given to the potential application

of S.100A of the ITAA 1936.

Also note that, on 26 June 2026, the ATO released its Decision Impact Statement.

Ref: FCT V Bendal [2026] HCA 18