Five to two in the High Court: an unpaid present entitlement is not a Division 7A loan. Twelve months ago this was the most anticipated tax decision in years. It lands as a postscript. The win is real. The fun is gone.
What did the High Court decide?
An unpaid present entitlement owed by a trust to a corporate beneficiary is not a loan for the purposes of Division 7A. Commissioner of Taxation v Bendel [2026] HCA 18.
Since 16 December 2009 the Commissioner had maintained that a corporate beneficiary which does not call for payment of its trust entitlement thereby provides “financial accommodation”, and so makes a loan within section 109D(3)(b) of the Income Tax Assessment Act 1936. That view was expressed first in TR 2010/3 and later in TD 2022/11.
The Tribunal rejected it in 2023. The Full Federal Court rejected it in 2025. The High Court has now ended it.
The reasoning is short and unfussy. The company did nothing, and nothing is not a loan: “Its mere inactivity cannot satisfy the language of ‘advance’, ‘provision’, ‘payment’ or ‘transaction’” [72]. “Simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan” [74].
The majority also endorsed the Tribunal’s conclusion that “the Commissioner has taxed the wrong taxpayer” [75]. Subdivision EA, headed “Unpaid present entitlements”, pointed at the shareholder all along.
Jagot and Beech-Jones JJ dissented. For Jagot J the financial accommodation “cannot be seriously doubted” [187].
Why is nobody celebrating?
On 12 May 2026 the Government announced a 30 per cent minimum tax on discretionary trusts, to apply from 1 July 2028.
On the announced design, the trustee pays. Non-corporate beneficiaries receive a non-refundable credit. Corporate beneficiaries receive no credit at all. The accompanying factsheet is blunt: the design “will ensure the minimum tax cannot be avoided by cycling income through a ‘bucket’ company”.
If that is enacted in the announced form, the strategy Bendel has just protected — distribute to a corporate beneficiary, leave the cash in the trust — stops working on 1 July 2028. The trustee pays 30 per cent and the company is assessed on the same income with no credit.
Does the win still matter?
Yes, for three reasons.
First, every income year up to and including 2027–28 is governed by today’s law. Today’s law is Bendel, not TD 2022/11. That is several years of positions to review, not a historical curiosity.
Second, sixteen years of administration has to be unwound. Complying loan agreements entered into on the strength of the Commissioner’s view. Sub-trust arrangements established under PS LA 2010/4 and its successors. Objections held pending the appeal. Amended assessments issued on the old basis. Each of those needs its own decision, and the decision is not the same in every case — a complying loan agreement that is now unnecessary is not automatically harmless.
Third, the minimum tax is an announcement, not an Act. Consultation may reshape it. Design detail on credits, on trusts that are not discretionary, and on transitional treatment is not settled.
What Bendel does not do
It is worth being precise about the limits of the decision.
- It is not a section 100A answer. Whether a distribution involves a reimbursement agreement is a separate question decided on separate provisions. A Division 7A win is not an integrity win.
- It does not repeal Subdivision EA. The majority’s reasoning points squarely at it.
- It does not make unpaid entitlements costless. They remain a debt owed by the trust to the company, with all the commercial and insolvency consequences that follow, and they remain visible to the ATO.
What to do between now and 1 July 2028
- Identify every unpaid present entitlement in the group and the year it arose.
- Review positions taken on the strength of TD 2022/11 — including whether any complying loan agreement should now be left alone, varied or unwound. Watch for the decision impact statement before acting.
- Check whether any objection or amended assessment is still live and whether the amendment period allows the position to be corrected.
- Model the group against the announced minimum tax before assuming the current structure survives 30 June 2028.
- Do not restructure on the announcement alone. It is not law yet, and the consultation is not finished.
The practical point
There is a window here, and it has a date on it. The most valuable work over the next two years is not celebrating the decision. It is deciding what each private group does with the years the decision has just reopened, before the rules change underneath it.
References
- Commissioner of Taxation v Bendel [2026] HCA 18
- Income Tax Assessment Act 1936 (Cth), Division 7A, s 109D(3)(b), Subdivision EA
- TR 2010/3; TD 2022/11
- Australian Government, minimum tax on discretionary trusts — announcement and factsheet, 12 May 2026
This article is general information only. It is current as at 10 June 2026 and the law may have changed since. It is not legal or tax advice, does not take account of your circumstances, and must not be relied upon as a substitute for advice on your own matter.