The High Court of Australia has upheld the Full Federal Court’s decision that unpaid present entitlements (UPEs) from a trust to a corporate beneficiary do not, without more, constitute a loan for the purpose of section 109D(3) of Division 7A of the Income Tax Assessment Act 1936 (Cth)(1936 Act).
The High Court’s decision
On 10 June 2026, the High Court of Australia handed down its highly anticipated judgment (Bendel Decision) in the case of Commissioner of Taxation v Bendel [2026] HCA 18 (Bendel Case). In positive news for taxpayers, the majority of the High Court (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) found in favour of the taxpayer, upholding the Full Federal Court’s decision and dismissing the Commissioner of Taxation’s (Commissioner) appeal.
The majority held that where Gleewin Pty Ltd (Gleewin), as trustee of the Steven Bendel 2005 Discretionary Trust (2005 Trust), resolved to set aside net income of the trust for its corporate beneficiary, Gleewin Investments Pty Ltd (Gleewin Investments), that UPE did not, without more, constitute a loan for the purpose of section 109D(3) of Division 7A of the 1936 Act. The dissenting justices (Jagot and Beech-Jones JJ) were open to adopting a broader view of section 109D(3) and were prepared to treat the retention and use of funds by the trust which were referable to those UPEs, in conjunction with the beneficiaries failure to insist on payment, as capable of constituting financial accommodation or a form of loan, for Division 7A purposes.
A question of fact disputed before the High Court involved the creation of the debtor/creditor relationship (a fact which was accepted by the parties at the Full Federal Court level). The majority found that the trust resolutions of the 2005 Trust did not relevantly effect a distribution of the UPE amounts and did not create a debtor/creditor relationship between Gleewin ATF 2005 Trust and Gleewin Investments. Rather, under the terms of the trust deed, the amounts were set aside and held on separate trusts for Gleewin Investments. Therefore, the mere inaction of Gleewin Investments in not demanding payment did not amount to the provision of “financial accommodation” or a transaction that otherwise “in substance” effected a loan of money under section 109D(3)(b).
