Most tax cases don’t change how family groups handle trust profits in a practical way. Bendel does. The High Court’s decision on 10 June 2026 finally settled the argument that had shaped trust distribution planning for years. A UPE owed by a trust to a corporate beneficiary is not a Division 7A loan under section 109D(3).
That’s a major win for trustees, bucket companies and advisers who were being pushed into loan agreements and repayment schedules purely because trust profits had been distributed but not physically paid out.
But smart business owners shouldn’t overreact. This isn’t a free pass. It doesn’t switch off Division 7A. It doesn’t neutralise Subdivision EA, section 100A or Part IVA. It doesn’t automatically unwind old paperwork. What it does is remove one specific ATO argument that had driven more than a decade of compliance behaviour.
This is my practical take on the Bendel case explained: Division 7A UPEs and trust distributions, with the focus where it belongs. What the courts decided, what has changed, and what you need to do before 30 June.
Bendel High Court Decision UPEs Are Not Division 7A Loans
The Bendel High Court decision settled the core issue in favour of the taxpayer. The High Court dismissed the ATO’s appeal on 10 June 2026 by a 5 to 2 majority. Steven Bendel won, and there’s no further appeal path. This is now settled law.
For trustees, the practical result is simple. If your family trust makes a beneficiary presently entitled to income and that beneficiary is a company, the unpaid amount is not automatically treated as a Division 7A loan just because the cash stays in the trust.
That matters because many private groups have used bucket companies to receive trust distributions while keeping cash inside the trust for working capital. Under the ATO’s old view, that often forced unnecessary loan documentation and repayment pressure. After Bendel, that specific argument is gone.
Practical rule: Bendel killed one pathway to a deemed dividend. It did not kill the rest of Division 7A.
What Did the High Court Decide in Bendel
The High Court decided the point that mattered most in practice. A trust’s unpaid present entitlement to a corporate beneficiary is not, by itself, a loan for the purposes of Division 7A.
That was the live issue in Commissioner of Taxation v Bendel. Earlier courts had already rejected the Commissioner’s position. The Administrative Appeals Tribunal found the UPEs were not loans, and the Full Federal Court upheld that result in Commissioner of Taxation v Bendel [2025] FCAFC 15. The High Court has now confirmed that approach.
The key statutory point is narrow but important. Section 109D(3) is concerned with a loan, including an advance of money or a transaction that creates an obligation to repay an amount. A UPE does not arise because the company lent money to the trust. It arises because the trustee resolved to distribute income and then did not pay it.
The short version
The trustee owed the company money. That is an obligation to pay.
It was not an obligation to repay borrowed money, and that distinction is what decided the case.
For trustees and accountants, the practical effect is immediate. A standard corporate UPE is no longer automatically pushed into Division 7A just because the cash stayed in the trust after year end. That removes one compliance pressure point that had driven sub-trust arrangements, 7-year loan agreements, and annual minimum repayment calculations in many private groups.
It does not mean every unpaid distribution is now safe. It means this specific deeming pathway has been shut off. The real work now is checking where the risk has shifted, especially if funds have been extracted by shareholders or associates, or if the trust arrangements were implemented in a way that invites scrutiny under other provisions.
Why the ATO Lost the Bendel Case
The ATO lost because it asked the courts to treat an unpaid trust distribution as if it were a loan, and the legislation did not support that step.
The Commissioner’s problem was statutory language. Section 109D(3) deals with a loan, including an advance of money or a transaction that creates an obligation to repay an amount. A standard UPE does neither. It arises because the trustee makes a beneficiary presently entitled and leaves the amount unpaid. The trustee must pay the entitlement. That is different from repaying borrowed money.
That distinction sounds technical, but it is exactly why the ATO failed.
Pay versus repay
A trust debt is not automatically a Division 7A loan. The courts kept returning to that point. If a company beneficiary is owed a distribution, the trust has a liability to pay. That does not mean the company funded the trust or entered into a lending transaction.
For trustees and accountants, that is the practical lesson. Division 7A cannot be triggered just because the amount stayed in the trust after year end. There still needs to be a transaction that fits the loan definition.
Why the financial accommodation argument failed
The Commissioner also argued that leaving the entitlement unpaid gave the trustee financial accommodation. In practice, that was an attempt to say the trust had the use of the company’s money and Division 7A should apply on that basis.
The courts did not accept that reasoning on these facts. The company had not advanced cash. It had not entered into a loan arrangement. It had an unpaid entitlement recorded in the trust accounts.
That accounting treatment still matters. If the books, resolutions, and beneficiary accounts are poorly handled, the facts can start to look different. Trustees should make sure their year end resolutions and beneficiary ledgers line up with the legal position. A clear trust accounting process for distributions and beneficiary entitlements helps show that the amount arose as a distribution debt, not as a disguised financing arrangement.
Bendel turned on a narrow point with big consequences. An obligation to pay a trust entitlement is not the same as an obligation to repay a loan.
That helps, but it does not finish the job. Accountants still need to review whether anything happened after the entitlement arose, especially payments, drawings, set-offs, or use of funds by shareholders or associates. That is where the remaining risk now sits.
What Is a UPE
A UPE, or unpaid present entitlement, is created when a trust makes a beneficiary presently entitled to trust income, but the cash isn’t paid out.
In plain English, the trust says: this amount belongs to the beneficiary. The bank account says: the cash is still sitting here.
That’s common in family groups. A discretionary trust may distribute income to a company beneficiary before 30 June, but keep the funds in the trust to support stock purchases, wages, tax instalments or general working capital. The company is still entitled to the amount. It just hasn’t been paid yet.
Simple way to think about it
A UPE is a bit like a formal IOU created by the trust distribution resolution.
If you want the mechanics behind trust distributions and entitlements, this is closely tied to how trust accounting works in practice.
Why UPEs became such a problem
For years, the tax issue wasn’t whether the entitlement existed. It was whether leaving it unpaid caused a second tax problem under Division 7A. Bendel answered that point for ordinary UPEs to corporate beneficiaries.
How Bendel Changes Division 7A Planning
The main planning change is this. Trustees no longer need to assume that every unpaid corporate beneficiary entitlement must be pushed into a complying Division 7A loan arrangement just to avoid a deemed dividend.
That’s a significant shift for private groups that use trust distributions to a bucket company as part of broader business structuring advice.
What used to happen
Under the ATO’s former approach, advisers often had to choose between unattractive options:
- Pay the cash out to the company so the UPE didn’t sit there.
- Put in place a complying loan agreement and start principal and interest repayments.
- Use sub-trust style arrangements and carry extra administration.
Those steps were often driven by the ATO view, not by commercial logic.
What changes now
After Bendel, a standard UPE to a corporate beneficiary isn’t itself a Division 7A loan. That gives trustees more flexibility over cash flow. The trust may be able to retain funds for genuine business or investment purposes without triggering section 109D(3) merely because the entitlement stays unpaid.
The ATO still publishes Division 7A guidance on its website, and Division 7A still applies to genuine loans, payments and forgiven debts. That hasn’t changed.
What doesn’t work anymore
What doesn’t work is lazy thinking. Bendel is not a reason to stop documenting trust decisions. If anything, documentation matters more now because the argument has shifted away from “is the UPE a loan?” to “what happened with the funds?”
If the trust keeps the cash, be ready to explain why. Working capital is a reason. Sloppy bookkeeping is not.
What the Decision Means for Family Trusts
For family trusts, Bendel is a practical cash flow decision as much as a legal one. The decision is especially important because it affected an estimated 800,000+ trusts in Australia, according to commentary cited by Wolters Kluwer on the implications of Bendel.
I’ve seen this play out in real reviews. One family group had been converting bucket-company UPEs into complying loan arrangements under the old ATO position. When the Full Federal Court ruled for Bendel, we paused that process and reviewed the whole structure. The immediate benefit was straightforward. Less forced cash movement, fewer artificial repayments, and more capital left inside the trust where the business needed it.
The practical upside
For many trustees, Bendel means:
- More working capital flexibility inside the trust
- Less pressure to create unnecessary loan paperwork
- Cleaner year-end distribution planning
Families still need proper resolutions, trustee records and beneficiary accounts. If you’re setting up or reviewing the structure itself, the underlying trust framework still matters. This sits alongside decisions about family trust setup and ongoing use.
What the Decision Means for Bucket Companies
Bucket companies still work after Bendel. The difference is that trustees and accountants can stop treating every unpaid present entitlement to a company beneficiary as an automatic Division 7A loan problem.
That is a real improvement, but it does not turn a bucket company into a set-and-forget strategy.
A bucket company is still a company beneficiary. If the trust resolves income to that company and does not pay the cash, the company can still be presently entitled. After Bendel, that unpaid entitlement is not itself brought in as a loan under section 109D(3). For many groups, that removes a layer of forced loan agreements, minimum yearly repayments, and year-end restructuring that existed mainly to satisfy the ATO’s former view.
The practical question is different now. It is no longer, “Do we have a UPE loan?” It is, “What happened to the cash, and who benefited from it?”
What trustees and accountants need to check
The main risk area has shifted to the use of funds after the distribution is made. If trust cash that should support the company’s entitlement is used for a shareholder, director, or associate, the file still needs review. That can bring Subdivision EA into play, and in the wrong facts, section 100A also needs attention.
| Practical issue | Post-Bendel position |
|---|---|
| Company is made presently entitled, but cash remains in the trust | UPE itself is not automatically a Division 7A loan |
| Trust funds are later paid, loaned, or applied for a shareholder or associate | Separate Division 7A and Subdivision EA review is still required |
| Distribution is recorded poorly or appears tax-driven without commercial coherence | Section 100A risk remains |
The common mistake is assuming the company entitlement is now harmless. It is not. Bendel removed one argument. It did not remove the need to trace funds, document entitlements properly, and check who received the benefit of the money.
For 30 June planning, bucket companies still need disciplined execution. Trustees should confirm the distribution resolution is valid, the company beneficiary has been properly appointed under the deed, the entitlement is recorded clearly in the accounts, and any later payments or loans involving group members are reviewed before year end, not after the fact.
Can Existing Division 7A UPE Loans Be Reviewed
In this situation, trustees need to slow down and get advice before changing anything.
Some historic positions can be reviewed. Others can’t. A major unresolved practical issue has been what to do with older UPEs where the ATO had maintained a contrary administrative position, including whether taxpayers should amend returns or object to assessments, as discussed in TaxBanter’s commentary on historic UPEs after Bendel.
Arrangements that are usually locked in
If a UPE was already formally converted into a complying Division 7A loan, that arrangement is generally not something you just pretend never happened. Valid loan documentation and repayments already put in place need separate analysis.
The same goes for older sub-trust arrangements. They don’t all produce the same result, and they shouldn’t be unwound casually.
Assessments may still be wrong
If the ATO assessed you on the basis that a UPE itself was a Division 7A loan, and there was no proper independent loan transaction, Bendel may support an amendment request or objection, subject to the normal time limits.
That review usually starts with:
- Identify the year involved
- Check whether an assessment was issued
- Confirm whether there was only a UPE, or an actual loan as well
- Review whether objection or amendment periods are still open
Where the facts are messy, I’d rather see a file reviewed properly than have someone try to “fix” it with a journal entry.
If you need that sort of review, a Tax Health Check booking is one practical way to map the issues before lodging anything.
What Risks Still Remain After Bendel
The biggest post-Bendel mistake is thinking Division 7A has somehow disappeared. It hasn’t.
Bendel closed off one argument. It did not remove the broader integrity rules around trust distributions and private company benefits. A practical takeaway often missed is that the decision can reduce Division 7A pressure on a narrow class of UPEs while increasing the need for tighter cash-management discipline elsewhere, as noted in this discussion of remaining post-Bendel risks.
The trap
People assume that because the UPE is not a loan, the cash can be used freely inside the group.
That’s wrong.
The risks still in play
- Subdivision EA where trust funds connected to a corporate beneficiary entitlement are later lent or paid to a shareholder or associate
- Section 100A where the tax beneficiary and the economic beneficiary aren’t really the same person
- Part IVA if the overall arrangement is contrived
Subdivision EA Still Matters
Subdivision EA is where many post-Bendel problems will sit.
The point of this rule is to stop private groups bypassing Division 7A by interposing a trust. Even if the UPE itself is not a loan from the company to the trust, the law can still look at what the trust later does with money that remains in the structure.
How the risk arises
A common pattern looks like this:
- The trust distributes income to a corporate beneficiary.
- The entitlement remains unpaid.
- The trust then pays or loans money to a shareholder of that company, or to that shareholder’s associate.
That later payment or loan can trigger Subdivision EA.
Don’t ask only whether the UPE is a loan. Ask where the cash went next.
Practical review points
Trustees should trace:
- Loans to directors or family members
- Private expenses paid from trust accounts
- Journal entries that clear drawings without real cash movement
- Payments to associated entities that benefit shareholders
This is the pitfall I see most often. Clients think Bendel fixed the UPE issue, so they stop looking at downstream transactions. That’s exactly where trouble starts.
Section 100A Risks After Bendel
Bendel gives no protection from section 100A.
Section 100A is concerned with reimbursement agreements. In plain English, the risk appears when the trust distributes income to one entity, but someone else gets the actual benefit, especially where the arrangement was put in place for a tax advantage and doesn’t fit within ordinary family or commercial dealing.
Why bucket company arrangements still need care
A distribution to a company beneficiary can still be challenged if the facts suggest the company was used as a tax parking point while other parties enjoyed the money or benefit.
That means trustees should be able to explain:
- why the company received the distribution
- why the entitlement remained unpaid
- how the retained funds were used
- who benefited from that use
What helps
Good section 100A files usually have:
| Helpful evidence | Why it matters |
|---|---|
| Trustee resolution drafted correctly | Shows the entitlement was genuinely created |
| Clear working capital rationale | Supports a commercial explanation for retaining funds |
| Records of actual fund use | Helps test whether someone else enjoyed the benefit |
| Consistent accounting treatment | Reduces contradictions between tax and bookkeeping records |
If the arrangement only makes sense because it cuts tax, expect scrutiny.
Practical Checklist Before 30 June
The best post-Bendel response is not celebration. It’s a disciplined file review.
This is the order I run through with trustees and accountants before year end.
Review this year’s resolutions
Make sure the draft trust resolution does what you think it does. Check who is made presently entitled, when that entitlement arises, and how the books will record it.
Don’t leave the legal effect to the software.
Map Subdivision EA exposure
Trace any cash that remains in the trust after a corporate beneficiary entitlement arises.
Look for:
- Loans to shareholders or associates
- Private use of trust funds
- Payments on behalf of related parties
Check old arrangements
Historic UPEs need to be separated into categories:
- Bare UPEs that may have been wrongly treated as loans
- Complying Division 7A loans already documented
- Sub-trust arrangements requiring separate analysis
- Prior years still within amendment or objection windows
Document the commercial reason
This is the point I hammer with clients. Documentation is your best defence. Assume the ATO will ask why the UPE stayed unpaid, and make sure the file answers that question clearly.
Useful reasons might include working capital, debt servicing, inventory funding, or preserving liquidity inside the trust. The explanation needs to match what transpired.
Good tax outcomes usually survive because the facts were documented, not because someone found a clever label after the event.
Final pre-30 June actions
- Confirm beneficiary resolutions are valid
- Check whether any trust-to-individual loans exist
- Review prior-year UPE treatment
- Align accounts, minutes and tax positions
- Get advice before unwinding old documents
General information only. This article is not personal tax, financial or legal advice, does not create a client relationship, and you should seek advice from a registered tax agent or other qualified adviser. Current as at 10 June 2026.
Frequently Asked Questions
Did Bendel win in the High Court
Yes. The High Court dismissed the ATO’s appeal on 10 June 2026 by a 5 to 2 majority. The taxpayer won and the law on this issue is now settled.
Is a UPE a loan after Bendel
No, not merely because it is a UPE owed by a trust to a corporate beneficiary. The High Court confirmed that a UPE is not a loan under section 109D(3) because it creates an obligation to pay, not to repay.
Does Bendel remove Division 7A
No. Division 7A still applies to genuine loans, payments and forgiven debts. Bendel only removed one specific argument about unpaid present entitlements.
Can trusts leave UPEs unpaid
Yes, a trust can leave a UPE unpaid. But that doesn’t end the analysis. You still need to consider how the funds are used, whether Subdivision EA is triggered, and whether section 100A is relevant.
Does Subdivision EA still apply
Yes. Bendel does not neutralise Subdivision EA. If trust funds tied to a corporate beneficiary entitlement are later paid or lent to a shareholder or associate, Subdivision EA may still produce a deemed dividend result.
Can the Government change the law after Bendel
Yes. A legislative response remains possible. Governments can amend tax law after major court decisions. Any response would need to be reviewed carefully if and when it happens.
Should old Division 7A arrangements be reviewed
Yes. Old UPE positions should be reviewed, especially where assessments were raised on the basis that a UPE itself was a loan. But arrangements already converted into complying loans usually can’t be assumed away without proper analysis.
What should accountants do now
Accountants should review current-year distribution resolutions, map Subdivision EA exposure, identify historic UPEs and old sub-trust arrangements, and document the commercial reason for leaving any entitlement unpaid. They should also keep an eye on the final ATO response and any legislative change.
If you want help reviewing UPEs, trust distributions, historic Division 7A positions or bucket company structures, Nanak Accountants and Associates can assist with a practical file review before year end.
