The Loan Ranger Rides Again… Into a High Court Wall

The Loan Ranger Rides Again… Into a High Court Wall

Commissioner Loses Div 7A Trust Fight

Commissioner of Taxation v Bendel [2026] HCA 18 

What taxpayers need to know

• The decision in Commissioner of Taxation v Bendel [2026] HCA 18 (‘Bendel’) represents a landmark win for taxpayers against the Commissioner of Taxation (‘Commissioner’). The High Court of Australia upheld the Full Federal Court’s decision that an unpaid present entitlement (‘UPE’) does not, of itself, constitute a ‘loan’ for tax purposes.
• The decision will have significant implications for taxpayers using discretionary trusts and corporate beneficiaries (or ‘bucket companies’) to distribute profits, and has overturned more than 15 years of Australian Taxation Office (‘ATO’) practice.
• Taxpayers should consider awaiting post-decision ATO guidance and apply caution before adopting the ‘set aside’ approach that was a key feature of the Bendel trust resolutions. The impact of the proposed 30% minimum tax on trusts from 1 July 2028, as well considerations around ‘present entitlement’, the ‘deemed dividend’ provisions and existing complying Division 7A loan agreements, should be factored into any decision before taxpayers make changes to their tax affairs.

The ‘Bendel’ decision considered

Issue

The High Court of Australia in Bendel was asked to consider whether UPEs of a corporate beneficiary of a discretionary trust constitute ‘loans’ for the purposes of the Division 7A of the Income Tax Assessment Act 1936 (Cth) (‘ITAA 1936’) anti-avoidance provisions.

Background

The ‘Bendel Group’ constituted various entities controlled by Mr. Steven Bendel, an accountant:

• Gleewin Pty Ltd (‘Gleewin’) was the trustee of the Steven Bendel 2005 Discretionary Trust (‘the 2005 Trust’).
• Mr. Bendel and Gleewin Investments Pty Ltd (‘Gleewin Investments’) were discretionary beneficiaries of the 2005 Trust, and the respondents in this case.

In each of the income years ended 30 June 2014 to 30 June 2017 (‘the Relevant Period’), Gleewin resolved to ‘set aside’ for the benefit of one or each of its discretionary objects (being Mr. Bendel and Gleewin Investments) defined percentages of the net income of the 2005 Trust (‘the Resolutions’). 

The Resolutions during the Relevant Period were made in the following form:

“Distribution of Income: RESOLVED THAT, in exercise of the power of the Trust Deed and every other power enabling in that behalf, the following classes or categories of income of the Trust for the year ending 30 June ... are hereby set aside for the benefit of the following beneficiaries, and in the following amounts and/or proportions, as set out in the table below ... “Also RESOLVED THAT for the avoidance of doubt, regardless of any adjustment to the income of the Trust, the income of the Trust shall be distributed as specified above.”

It was not in dispute that the effect of the Resolution was to make Mr. Bendel and Gleewin Investments presently entitled to a ‘share of the net income’ for the purposes of Division 6 of Part III of the ITAA 1936.

However, under the terms of the 2005 Trust, the amounts ‘set aside’ were required to be held on separate trusts. Gleewin did not pay to Gleewin Investments those amounts set aside by the Resolutions and held on separate trust, and Gleewin Investments did not, at any relevant time, call for payment to be made.

The precise terms of the 2005 Trust Deed were relevant:

• Clause 1(18) of the 2005 Trust Deed defined the term ‘pay’ to include ‘transfer convey and assign’.
• Clause 1(19) of the 2005 Trust Deed defined the term ‘set aside’ to include ‘in relation to a beneficiary… placing sums to the credit of such beneficiary in the books of account of the Trust Fund’. However, the term ‘apply’was not defined in the Deed.
• Clause 3(2)(c) of the 2005 Trust Deed defined the term ‘net income’ and addressed how a determination pursuant to clause 3(1)(a) ‘may be effectually made and satisfied’ by trustee resolution with reference to ‘a sum out of or portion of the net income’.
• Clause 3(5) of the 2005 Trust Deed importantly addressed what was to occur if there was a determination to set aside a portion of net income. It stipulated that such net income is to be held in a ‘separate trust… pending payment’.
• Clause 6(5) of the 2005 Trust Deed applied if clause 3(5) was activated. It conferred on the trustee a power to invest on behalf of the beneficiary the amount set aside in any of the investments ‘authorised’ (by clause 7) ‘in such manner as the [t]rustee in its absolute discretion thinks fit’.

Basis for assessment

The Commissioner issued notices of amended assessment to Mr. Bendel and Gleewin Investments for the Relevant Period. The Commissioner’s basis for the amended assessments was that the amounts set aside for the discretionary objects of the 2005 Trust by the Resolutions (referred to as ‘the UPEs’):

1. constituted the ‘provision of credit or any other form of financial accommodation’ by Gleewin Investments to Gleewin as trustee (s. 109D(3)(b)); or
2. ‘in substance’ effected a loan of money from Gleewin Investments to Gleewin as trustee (s. 109D(3)(d)), and were therefore ‘loans’ as defined in s. 109D(3) of the ITAA 1936.

Section 109D(3) of the ITAA 1936 states:

Loans treated as dividends

What is a loan?

(3) In this Division, loan includes:

(a) an advance of money; and

(b) a provision of credit or any other form of financial accommodation; and

(c) a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and

(d) a transaction (whatever its terms or form) which in substance effects a loan of money.

The Commissioner’s argument in Bendel aligned with more than 15 years of ATO administrative practice pursuant to Taxation Ruling TR 2010/3 ‘Income Tax: Division 7A loans: trust entitlements’, Practice Statement Law Administration PS LA 2010/4 ‘Division 7A: trust entitlements’ and Taxation Determination TD 2022/11 ‘ Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of ‘financial accommodation’?’. In that administrative guidance, the ATO view was that taxpayers should treat UPEs as loans.

Procedural history

Mr. Bendel and Gleewin Investments objected to the Commissioner’s amended assessments, then appealed the Commissioner’s decision to reject the objection.

On 28 September 2023, the Administrative Appeals Tribunal (as it was then known) (‘the Tribunal’) in Re Bendel and Federal Commissioner of Taxation (2023) 117 ATR 464 set aside the Commissioner’s decision to the extent that those amended assessments included the amount the Commissioner characterised as ‘loans’ to the trustee resulting in the deemed payment of dividends to the trustee under s. 109D(1) of the ITAA 1936.

On 19 February 2025, the Full Federal Court of Australia (Logan, Hespe and Neskovcin JJ) in Federal Commissioner of Taxation v Bendel (2025) 307 FCR 544 dismissed the Commissioner’s appeal of the Tribunal decision and affirmed that a UPE does not, of itself, constitute a ‘loan’ for tax purposes.

On 12 June 2025, the Commissioner was granted special leave to appeal the Full Federal Court’s decision.

On 10 June 2026, the High Court of Australia delivered its decision in Bendel.

Decision

The High Court was split 5-2 (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ dismissed the Commissioner’s appeal; Jagot and Beech-Jones JJ dissented).

Majority judgement

The majority held that, absent an express or implied obligation to repay, a UPE only reflects an entitlement to income and does not involve the advancement of funds. At [6], the majority rejected the Commissioner’s argument that:

the expanded definition of “loan” in s 109D(3) encompasses the circumstances wherein a beneficiary does not insist on being paid an unpaid present entitlement by the trustee…

Preliminary issues

The High Court hearing resolved preliminary questions that had not been considered in the Tribunal and Full Federal Court proceedings. The majority held that:

• The Resolutions effected a ‘setting aside’, not a ‘distribution’ of the net income. The term ‘pending payment’ in clause 3(5) of the 2005 Trust Deed signified that something more than mere payment had to occur (such as a call for payment by the beneficiary) before an unconditional duty to pay arose. The use of the term ‘distributed’ in the Resolutions did not change that position.
• The separate trusts under clause 3(5) were validly created by the Resolutions. The Resolutions identified with sufficient certainty the property to be subject to the separate trusts (the ‘net income’, as defined). Their Honours considered this position consistent with the reasoning in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq) (2000) 202 CLR 588, where a trust over a proportionate amount of proceeds did not fail for uncertainty.
• No debtor / creditor relationship arose. The High Court rejected the Commissioner’s reliance on the entries in the ‘Beneficiaries Current Account’ in the 2005 Trust’s balance sheets as a basis for arguing that there was an unconditional duty to pay Gleewin Investments, since those entries may have reflected the setting aside of amounts subject to the separate trusts.

Construction of s. 109D(3) of the ITAA 1936

Having resolved the above preliminary issues, the majority turned to the statutory construction of s. 109D(3) of the ITAA 1936.

As to s. 109D(3)(b) of the ITAA 1936, the majority held that there was no ‘provision… of financial accommodation’ when ‘a private company does nothing’ (at [72]). In what is perhaps one of the High Court’s more elaborate statements, the majority at [72] held that:

The provision of financial accommodation requires some initial or anterior transfer of value or, put in different terms, the supply or grant of some sort of pecuniary assistance, involving some bilateral activity… Div 7A is directed at the transfer of value from a private company to a shareholder, or an associate of that shareholder. Implicit in its structure is that the private company does something to effect that transfer of value… [Gleewin’s] mere inactivity cannot satisfy the language of “advance”, “provision”, “payment” or “transaction”.

The majority referred to the text of s. 109D to support the above position, noting for instance that s. 109D(1) applies when a private company ‘makes’ a loan.

As to s. 109D(3)(b) of the ITAA 1936, the majority held that the Commissioner’s arguments under s. 109D(3) (d) were no different from those under s. 109D(3)(b), and failed for the same reasons. Simply doing nothing, or acquiescing to the retention of funds, is not a ‘transaction’ which in substance effects a loan; the word ‘transaction’ by its ordinary meaning refers to some interchange or interaction between entities.

Double taxation issue

The majority determined that, because the taxpayers succeeded on the above issues, it was unnecessary to consider the issue of double taxation under section 6-25 of the Income Tax Assessment Act 1997 (Cth).

Departure from Full Federal Court reasons

The Full Court did not consider the preliminary issues.

Further, although the majority agreed with the Full Court’s decision that the Commissioner’s appeal should be dismissed, the majority departed from the Full Court’s reasons for doing so.

The Full Court at [79] in that decision held that s. 109D(3) (b) of the ITAA 1936 should be construed as referring to a provision of financial accommodation involving ‘an obligation to repay an identifiable principal sum’. The High Court majority disagreed, holding at [73] that s. 109D(3)(b) is not to be construed as limited in that manner. Rather, the majority held that that provision extends to any transfer of value from a private company burdened with an obligation of repayment of the value supplied. That is, the majority accepted that some form of obligation to repay is required but rejected the Full Court’s view that the obligation must relate to the repayment of an identifiable sum of money.

Dissenting judgments

Separate dissenting judgments were delivered by Jagot and Beech-Jones JJ, who held that the Commissioner’s appeal should be allowed and the matter remitted to the Tribunal. The key variances to the majority decision are summarised below.

Preliminary issues

• The separate trusts under clause 3(5) were not validly created by the Resolutions. Jagot J held that no separate trusts should be found to have been constituted and that clause 3(5) of the 2005 Trust Deed merely effected an irrevocable alteration of beneficial entitlements in the 2005 Trust as a whole.
• A debtor / creditor relationship did arise. Jagot and Beech-Jones JJ both found that a debtor / creditor relationship existed.

Construction of s. 109D(3) of the ITAA 1936

The dissenters held that the term ‘financial accommodation’ does not require a payment or transfer of value.

A ‘loan’ can be ‘made’ by the doing of a thing, which in the dissenters’ view included refraining from acting. The dissenters held that Gleewin Investments actively decided not to require payment.

Finally, both dissenters agreed that Subdivision EA was not an exclusive code excluding s. 109D, but held that this supported the Commissioner’s case because the provisions could operate concurrently. For instance, the term ‘repaid’ in s. 109D(1)(b) is not defined and should be adjusted to accommodate the inclusive definition of a ‘loan’. To confine ‘repaid’ to its ordinary meaning rendered ‘otiose’ s. 109D(3) (b) and s. 109D(4).

Double taxation issue

The dissenters regarded double taxation concerns as irrelevant to the construction of s. 109D.

Key takeaways

• While the Bendel decision undoubtedly represents a positive outcome for taxpayers, taxpayers should apply caution in adopting the ‘set aside’ approach that was a key feature of the Bendel trust resolutions.
• The Federal Government’s 2026-27 Budget announcement of a minimum 30% tax on non-testamentary discretionary trusts from 1 July 2028 will, if enacted, offset the benefit of the decision in Bendel.
• The ATO will likely look to apply other anti-avoidance provisions to taxpayers with similar circumstances to Bendel, and where funds were actually loaned or advanced to shareholders or their associates. For instance, Division 7A, subdivision EA of the ITAA 1936 can still produce a deemed dividend if a trust with a UPE to a private company makes a payment or loan to a shareholder or a shareholder’s associate: Subdivision EA was not raised as an issue in Bendel. Section 100A of the ITAA 1936 may also produce a ‘present entitlement’ arising from a reimbursement agreement.
• Taxpayers with existing Division 7A loan agreements which comply with the ATO’s existing guidance will continue to be subject to the terms of those agreements and will not be entitled to refunds. The Bendel decision does not displace those agreements and it is unlikely that taxpayers will be able to unwind those agreements.
• The decision however remains relevant to taxpayers with prior year UPEs that were not placed on complying loan terms (although this is likely to be a fairly small number), and to taxpayers with similar facts to Bendel currently the subject of a review, audit or dispute with the ATO. The outcome in Bendel may result in reduced Division 7A exposure and greater flexibility for trusts to retain funds.
• The ATO will likely release a Decision Impact Statement and further guidance post-Bendel decision. Taxpayers would be well minded to await the release of such guidance before taking steps to change their tax affairs.

Other authors: Leah Serafim, Senior Associate