Implications from Bendel: What It Means for Unpaid Present Entitlements

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A landmark Full Federal Court decision in Bendel has overturned more than 15 years of ATO practice on the taxation of unpaid present entitlements (UPEs), sending ripples through the tax landscape for discretionary trusts across Australia.

Key Takeaway from the Case

The Court held that a UPE from a trust to a corporate beneficiary is not a loan under section 109D(3) of Division 7A of the Income Tax Assessment Act 1936. The reasoning is straightforward: a UPE is an obligation to pay, not an obligation to repay. This distinction means Division 7A is not automatically triggered by a simple UPE.

Why It Matters

With over 800,000 discretionary trusts in operation, this ruling has major implications. For years, taxpayers and advisers have structured arrangements in line with the ATO’s 2009 view that treated UPEs as loans for Division 7A purposes. The Court’s clarification suggests many of those arrangements may not have been necessary.

However, this does not mean UPEs are “safe” across the board. Complex arrangements can still trigger Division 7A under other provisions, including subdivision EA. Integrity rules such as sections 100A and 99B of the Act also remain relevant.

What Bendel Is Not

The decision does not:

  • Provide a blanket exemption for UPEs from Division 7A.
  • Eliminate the risk of other anti-avoidance measures being applied.
  • Automatically allow taxpayers to unwind arrangements made under ATO guidance (TR 2010/3 and PS LA 2010/4).
  • Resolve uncertainty around “grandfathered” pre-2009 UPEs.

Practical Next Steps

On 12 June 2025, the High Court has granted Commissioner of Taxation special leave to appeal the Federal Court decision.   The High Court (as at 12 September 2025) has yet to hear the case.   There are key actions trustees and advisers should consider now:

  • Review prior year arrangements to assess Division 7A exposure under the clarified law.
  • Lodge protective objections to preserve rights in open years.
  • Consider Section 109RB applications where past mistakes were made based on ATO guidance.
  • Maintain compliance with repayment obligations on existing arrangements until the ATO issues a formal position.
  • Monitor other integrity measures that could still apply to UPEs.

Looking Ahead

The Bendel case highlights the complexity of trust taxation and the challenges of aligning practice with evolving judicial interpretation. While it provides welcome clarity, the judgment is not the end of the story. Further ATO guidance, or even legislative amendment, is expected.

What This Means for You

Trustees, business owners, and advisers should act now to ensure their trust structures remain compliant and tax-effective.

👉 At Richard A Bobb Chartered Accountants, we can:

  • Review your trust arrangements in light of Bendel
  • Identify risks or opportunities under Division 7A
  • Help you lodge protective objections and maintain compliance
  • Provide tailored strategies to protect your wealth and business succession plans

📞 Contact us today to book a Trust Health Check and safeguard your financial position.

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