**UPDATE 27 April 2025

Further to the information outlined in the below article, the ATO has sought special leave to appeal the High Court’s decision on the basis that it will negatively affect many Australian taxpayers. The ATO has also published an Interim Decision Impact Statement that explains their position.  They have made it clear that they don’t intend to revise their views on private company entitlements until the appeal process is exhausted. 

So, what does this mean?  For now, the safest approach is to continue to apply the rules in line with the ATO’s position.  If you need assistance in reviewing your unpaid entitlement compliance or considering how to best plan your 2025 distributions, please contact us on 03 5321 6399.

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Bendel decision on UPES and trusts

The recent Full Federal Court decision in the Bendel case has significant implications for trust structures that distribute income to corporate beneficiaries.

The Bendel case revolves around whether unpaid present entitlements (UPEs) between a corporate beneficiary and a trust should be considered ‘loans’ for Division 7A purposes, which is the view the ATO has taken.

The ATO’s interpretation that UPEs between a corporate beneficiary and a trust are a form of financial accommodation and, therefore, a loan for Division 7A purposes initially surfaced in 2009. It was published in TR 2010/3 and revised in TD 2022/11

The release of these publications required trustees to apply Division 7A provisions to UPEs owing to corporate beneficiaries to comply with ATO guidelines and prevent the risk of the deemed dividend penalty provisions of Division 7A.

The Bendel case was first taken to the Administrative Appeals Tribunal (AAT), where it was initially ruled that these UPEs did not constitute loans, challenging the ATO’s established view. The ATO appealed this decision, but the Full Court upheld the AAT’s ruling, finding unanimously that a UPE owing by a trust to a corporate beneficiary does not constitute a loan nor a deemed dividend under Division 7A.

The Full Court’s decision may have significant implications for trusts and UPEs, particularly regarding how UPEs are treated in the future and whether changes are required to how they have been treated in the past.

To address these implications, we must first wait to see whether the Commissioner will seek special leave to appeal the decision to the High Court.

What should you do now?

At this stage, it’s important to stay informed but not necessarily take immediate action.
It’s early days, and the Commissioner is yet to release any formal guidance in response to the Full Court’s ruling and whether any changes to compliance requirements will be granted.
We’re closely monitoring developments and will keep our clients informed as further guidance becomes available.

If you have concerns about your trust structure and its tax implications, we encourage you to reach out to us for a tailored review and strategic advice.

While waiting for the Commissioner’s response, the best approach is to be prepared and ensure that your trust arrangements align with the latest legal and tax requirements. Please contact our team if you would like to discuss how this may impact your specific situation.

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This article was written by Tax and Business Services Director Kylie McEwan.  

Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.