High Court decision in Bendel: What it means for trusts, Division 7A and your 30 June planning

The Bendel decision is a major shift in trust taxation, but it’s not a green light to act.We’re advising clients to pause, understand the implications, and seek guidance before making 30 June decisions.

High Court decision in Bendel: What it means for trusts, Division 7A and your 30 June planning

The High Court has now handed down its decision in Commissioner of Taxation v Bendel, dismissing the ATO’s appeal and providing long-awaited clarity on the treatment of trust distributions to corporate beneficiaries.

This is a significant development for private groups using trust structures. However, while the decision clarifies the legal position, it does not represent a complete reset of how these arrangements will be administered in practice.

What was the issue?

For more than a decade, the ATO has treated unpaid present entitlements (UPEs), where a trust allocates income to a company but does not physically pay it, as a form of loan under Division 7A.

This approach required many businesses to:

• Put those amounts on complying loan agreements
• Make principal and interest repayments
• Or risk being assessed on deemed dividends

The courts have now rejected that interpretation.

The High Court has confirmed that a UPE, in itself, does not constitute a “loan” for Division 7A purposes, as it reflects an obligation to pay rather than an obligation to repay an amount. 
Why this matters

The decision shifts the legal interpretation of how UPEs interact with Division 7A and may, in certain circumstances, provide greater flexibility in how trust distributions are managed.

At a high level, it suggests that:

• UPEs may not automatically trigger Division 7A as loans
• Trusts may, depending on the facts, retain funds without the need for formal loan agreements
• There may be increased flexibility in short-term cashflow and distribution planning

However, this will depend heavily on individual circumstances and how the rules are applied in practice.

Important: This is not a green light to act

While the outcome is favourable, there are several important cautions.

Do not revisit historical arrangements without advice

We do not recommend going back and attempting to unwind or alter prior-year arrangements without first seeking advice.

• Historical outcomes depend on the documentation and actions taken at the time
• Existing Division 7A loan agreements remain in place
• Retrospective changes may trigger anti-avoidance provisions or unintended consequences

There may be limited cases where review is appropriate, but this should only be done carefully and with advice.

The ATO’s position is still evolving

Although the High Court has clarified the legal position, the ATO has not yet released detailed guidance on how it will administer this decision.

In the past, the ATO has maintained its position while litigation progresses, and we expect:

• Further guidance or interpretative updates
• Clarification on how existing arrangements will be treated
• Ongoing scrutiny of trust structures

Until this is released, there remains a level of practical uncertainty.

Other integrity rules still apply

This decision is limited to how Division 7A applies to UPEs, it does not remove the broader tax integrity framework.

Even where Division 7A may not apply:

• Other provisions (such as anti-avoidance rules) may still be relevant
• The commerciality and documentation of arrangements remain critical
• Structures that inappropriately defer or avoid tax may still be challenged

In short, this is not a “free pass” on trust distributions.

A potential shift, but not necessarily a long-term solution

While the decision may provide additional flexibility in the near term, any planning should be considered in the context of broader tax developments.

From 1 July 2028, proposed reforms are expected to introduce a minimum 30% tax outcome for certain trust distributions, which may reduce the longer-term benefit of distributing to corporate beneficiaries.

As a result:

• Any benefit arising from retaining UPEs may be limited in duration
• Longer-term structures should be reviewed with these changes in mind

What should you do before 30 June?

This decision comes at a critical time, with trust distribution resolutions needing to be finalised before 30 June.

Do not make last-minute structural changes based solely on this decision.

Instead:

• Proceed with your current distribution strategy unless advised otherwise by your business adviser, speak to us before implementing changes
• Ensure documentation is finalised correctly and on time

From a business advisory perspective

The Bendel decision is one of the most important developments in trust taxation in recent years. However, it clarifies a specific legal issue, it does not remove complexity or risk from trust structures more broadly. The priority now is to act carefully and in an informed way.

Talk to PKF before making significant changes

With 30 June approaching, now is the right time to review your trust distribution strategy.

If you are considering changes or want to understand how this decision may impact your group, please contact your PKF adviser before taking any action.