The ATO Finally Loses: What the High Court's Bendel Decision Means for Your Trust

Published: 11 June 2026

After years of legal battles, the tax world got the answer it had been waiting for. On 10 June 2026, the High Court of Australia handed down its decision in Commissioner of Taxation v Bendel [2026] HCA 18 — and the ATO lost. Decisively.

In a 5:2 majority ruling, the High Court confirmed what the Administrative Appeals Tribunal and the Full Federal Court had already found: an unpaid present entitlement (UPE) from a discretionary trust to a corporate beneficiary is not a loan under Division 7A of the Income Tax Assessment Act 1936. This is arguably the most significant trust tax decision in over a decade, and its implications are wide-reaching for business owners, accountants, and advisers across Australia.

Background: What Was This All About?

To understand why this matters, it helps to know how trusts and companies are often used together in tax planning.

A common structure involves a discretionary (or family) trust that distributes income to a company — often called a "corporate beneficiary" — as part of an effective tax strategy. When income is allocated to the company but not physically paid out, the company holds what is known as an unpaid present entitlement, or UPE. The money effectively sits in the trust and is used as working capital, while the company has a legal right to receive it at some point.

For over 15 years, the ATO took the position that these UPEs are "loans" for Division 7A purposes. Why does that matter? Because Division 7A is an anti-avoidance rule designed to prevent private company profits being accessed by shareholders without paying tax. If a UPE is treated as a loan, it needs to be formalised on specific complying terms — minimum interest rates, maximum repayment periods — or it gets treated as an unfranked deemed dividend, triggering immediate tax consequences.

The ATO's view, first published in Taxation Ruling TR 2010/3 and later updated in Taxation Determination TD 2022/11, effectively meant that many trust arrangements had to be restructured, documented, and serviced as formal loans — or face hefty tax bills.

The Legal Journey

The case centres on Melbourne accountant Steven Bendel and the tax treatment of UPEs flowing from a trust to a related company, Gleewin Investments.

September 2023 — The Administrative Appeals Tribunal (AAT) ruled against the ATO, finding that UPEs are not loans under s.109D(3) of Division 7A.

February 2025 — The Full Federal Court unanimously upheld the AAT's decision in Commissioner of Taxation v Bendel [2025] FCAFC 15, confirming that a genuine loan requires an obligation to repay a principal sum — not merely an obligation to pay a debt. Since a UPE is simply a debt owed by the trustee, it doesn't fit the definition.

June 2025 — The ATO was granted special leave to appeal to the High Court, meaning the fight wasn't over yet. The ATO continued to administer its position as if UPEs were loans throughout the appeal period.

October 2025 — The High Court heard the appeal. Both sides agreed that s.109D(3) extends the meaning of "loan" beyond its ordinary meaning, but they disagreed on how far that extension reaches.

10 June 2026 — The High Court dismissed the ATO's appeal in a 5:2 majority. A UPE does not, in itself, constitute a loan or any other form of financial assistance under Division 7A.

What the High Court Found

At its core, the High Court agreed with the courts below: for something to be a "loan" under Division 7A, there needs to be a transaction involving an advance or payment of money that is capable of repayment. A UPE, by contrast, is simply the trust holding money that it already owes to the corporate beneficiary — the company's right to receive income that has been allocated but not yet paid.

There was no initial outgoing from the company, no agreement to defer repayment, and no true debtor-creditor relationship of the kind Division 7A was designed to capture. To treat it as a loan, the court found, would stretch the legislation well beyond its intended scope.

What This Means for Trustees and Business Owners

This decision has potentially significant consequences for anyone who uses a discretionary trust with a corporate beneficiary — which describes a huge proportion of private business structures in Australia.

1. Existing UPEs may no longer need complying loan treatment. If your trust has been leaving entitlements unpaid to a company, you may not need to maintain those formal loan agreements going forward. This could simplify compliance and reduce interest costs.

2. Historical assessments may be challengeable. Tax experts note that the decision could allow some taxpayers to challenge prior ATO assessments that were based on the old approach. However, time limits and other procedural rules will apply, so prompt advice is essential.

3. Cash flow and working capital flexibility. One practical benefit of this decision is that trusts may be able to retain UPEs as working capital or for reinvestment without triggering Division 7A — potentially making trust structures more attractive for private business groups.

4. Section 100A remains in play. The ATO flagged in earlier stages of this litigation that even if UPEs aren't Division 7A loans, they may still be subject to scrutiny under section 100A — a separate anti-avoidance rule targeting reimbursement agreements where a beneficiary's entitlement flows to someone else for less than market value. Don't assume Bendel is a free pass: the ATO will likely increase its focus on s.100A in light of this outcome.

The ATO's Response

In a statement published on 10 June 2026, the ATO said it "welcomes the decision" — somewhat diplomatically, given it lost — and acknowledged it is "currently considering the implications of this adverse decision." Practical guidance for impacted taxpayers is expected to follow through an updated Decision Impact Statement.

What remains to be seen is whether the Federal Government steps in to change the law. The ATO has previously indicated it would support legislative reform to reinstate its policy position if the courts ruled against it. Business and tax advisers will be watching Canberra closely.

What Should You Do Now?

If you operate a trust structure with a corporate beneficiary, now is the time to review your arrangements with your accountant or tax adviser. Key questions to ask include:

• Do you have existing UPEs that were being managed as Division 7A loans?

• Are there prior years' assessments that may be worth revisiting?

• Could any of your arrangements attract ATO scrutiny under section 100A?

• Should your group's structure be reconsidered in light of the new landscape?

The Bendel decision is a major win for taxpayers and a long-overdue correction to what many practitioners considered an overreach by the ATO. But the dust is still settling, and the rules around trust distributions remain complex. As always, personalised professional advice is essential.