Steven Bendel has proven the most powerful punch is often the one you don’t throw.

It has been over 16 months since the final round of the closely-watched standoff between Mr Bendel and the ATO kicked off, when the ATO first applied for special leave to the High Court to appeal the Full Federal Court’s unanimous decision in Commissioner of Taxation v Bendel [2025] FCAFC 15.

Earlier this week, the High Court announced its decision in Commissioner of Taxation v Bendel [2026] HCA 18, with the majority of judges stating the Commissioner's view on the expanded definition of "loan" in s 109D(3) of the Income Tax Assessment Act must be rejected, and the Commissioner’s appeal must be dismissed.

Although the High Court’s 5–2 decision was not unanimous, unlike the Full Federal Court’s decision, it is enough to bring an end to the 17-year standoff between taxpayers and the ATO’s long-held view on unpaid present entitlements (“UPEs”). The ATO first published their opinion on this matter on 16 December 2009 and later updated it in TD 2022/11.

Pre-High Court decision overview

As stated in my previous article (David vs Goliath 2025 – Steven Bendel vs. the Commissioner of Taxation), Steven Bendel and a company he controlled became presently entitled to income from a discretionary trust that he also controlled. The entitlements remained unpaid and manifested as financial accommodation in the ATO’s eyes, and the ATO issued amended assessments to reflect deemed dividends to Mr Bendel and the company in respect of the ‘loans’.

Mr Bendel, himself a tax agent, lodged objections contending UPEs were not loans with the assistance of Hall Chadwick Melbourne. After they were disallowed, he took the case to the Administrative Appeals Tribunal (“Tribunal”), where a thorough examination of the context surrounding s109D(3) was conducted. After having regard to several contextual factors (including policy intent, statutory construction principles, lack of tiebreaker provisions, design of Commissioner discretions, general lack of clarity surrounding UPEs, to describe only a few), it was decided s109D(3) didn’t “…reach so far as to embrace the rights in equity created when entitlements to trust income (or capital) are created but not satisfied and remain unpaid.”

The Tribunal ruled in Mr Bendel’s favour, finding that a UPE did not constitute a loan for Division 7A purposes. Hall Chadwick Melbourne supported Mr Bendel by instructing solicitors throughout the AAT proceedings.

The Full Federal Court dismissed the ATO’s appeal, but in doing so took a step back from the Tribunal’s reasoning to directly “engage with the text of s109D(3)”, as it found the Tribunal had not done so. In doing so, it found s109D(3) was not satisfied on the following bases:

“…the equitable relationship of trustee and beneficiary can be overlayed with the legal relationship of debtor and creditor.” (paragraph 90)

“s109D(3) requires more than the existence of a debtor-creditor relationship. It requires an obligation to repay and not merely an obligation to pay.” (paragraph 94)

High Court decision overview

In the Full Federal Court, Mr Bendel had conceded a debtor-creditor relationship, and by extension an obligation to pay, existed between his discretionary trust and his company.

In the High Court, however, this was no longer the common position. A dispute arose as to whether Mr Bendel was correct to have conceded as such, and this dispute was considered by the High Court in detail.

The five-judge majority noted an unconditional obligation to make payment arises at any of the following times:

• when the trustee resolves to distribute income to a beneficiary and there remains nothing for the trustee to do except to carry out payment of money; or
• when the trustee admits a debt to a beneficiary; or
• when a beneficiary who is entitled to do so invokes Saunders v Vautier to terminate the trust and demand immediate transfer of the trust assets to them.

In doing so, the High Court considered the question of whether the relevant trust resolutions left anything for the trustee to do prior to carrying out payment, as well as whether the trust accounts constituted an admission of indebtedness by the trust. There was no need to consider the third dot point above, as it is understood no beneficiary had present entitlement to the entire trust property.

The High Court also considered the Commissioner’s contention that s109D(3) expanded the definition of “loan” such that a beneficiary provides "financial accommodation" to a trustee (s 109D(3)(b)), or effects "in substance" a loan of money (s 109D(3)(d)), when the beneficiary does not insist on being paid an amount of a UPE.

Did the resolutions leave anything for the trustee to do prior to payment?

The High Court concluded the resolutions left a state of affairs preceding payment of the amounts to the beneficiary for the following reasons:

• The relevant trust resolutions provided that the amounts were “hereby set aside”
• The resolutions were made pursuant to the power in a particular clause, which empowered the trustee to “set aside” the income but not “pay” or “apply” the net income
• The trust deed defined the term “set aside” to include crediting of sums to a beneficiary in the books of account, rather than actually distributing such sums
• The resolutions triggered a clause in the trust deed that caused the relevant amounts to cease to form part of the trust fund. The relevant amounts then came to be held by the same trustee on a separate trust, which the trustee had power to “invest or apply or deal with” the funds subject to that trust “pending payment over thereof”
• The phrase “pending payment over thereof” signified the presence of a state of affairs preceding payment – that being the holding, investment and accretion of income on separate trust
• The phrase “pending payment” made it clear that something more must occur before payment must be effected, and before an unconditional duty to pay arises
• If the trustee did not choose to pay, then either the beneficiary must call for payment, or the trustee must otherwise admit indebtedness to the beneficiary, neither of which took place
• The word “distribute” was not used in describing the powers of the trustee in the trust deed. Rather, the words “pay, apply or set aside” were used, and the terms “distribute” and “distribution” should be construed as a “generic way of describing one of the three ways of dealing with” the relevant funds, and not as an intent to give rise to a bona fide distribution
• Accordingly, the setting aside of the income did not create, and was not intended to create an unconditional duty to pay that income

Accordingly, the resolutions did not give rise to an unconditional obligation to make payment.

Did the trust accounts constitute an admission of indebtedness?

The relevant trust’s accounts contained a liability on its balance sheet called “Beneficiaries Current Account”. Under this label appeared the name of the beneficiary. In each year of income, the amounts set aside by the trustee in favour of the beneficiary were posted to this liability.

The Commissioner argued the posting of the amounts set aside to this account constituted an admission of indebtedness.

The High Court observed the following:

• The account was not specifically listed as a current liability or non-current liability
• No expert evidence was led as to what the account represented
• The legal form of the reduction of trust assets represented by the account was not revealed or clear
• No evidence was led as to whether the accounts complied with applicable accounting standards
• No evidence was led as to what applicable accounting standards might have been
• The phrase “Beneficiaries Current Account” could as easily be interpreted as either a provision for the setting aside of income, or the distribution of said income, and the latter cannot be definitively concluded if both are as likely as each other (or in the majority judgement’s words – “Given the equivocal nature of this evidence, the Commissioner cannot get from the accounts of the 2005 Trust the admission he seeks.”)

Given the above, the trust’s accounts did not constitute an admission of indebtedness by the trust to the beneficiary.

How this impacts the Commissioner’s contention

The above essentially means that the resolutions did not create a debt until the beneficiary called upon the amounts or the trustee admitted its indebtedness – neither of which happened. Accordingly, the beneficiary’s lack of action to call upon the amounts set aside did not fall within the “traditional understanding of a loan; indeed, it did not even meet the substance of such a concept, as no promise of repayment was ever given.”

The Commissioner contended the beneficiary’s lack of collection activity in respect of amounts set aside by the trust constituted the “provision of financial accommodation” as defined in Section 109D(3) of the Income Tax Assessment Act 1936.

In contrast to this, the majority judgement states there is no provision of financial accommodation when a private company “does nothing”. Rather, for financial accommodation to be provided, there must be some “initial or anterior transfer of value”, or a “supply or grant of some sort of pecuniary assistance, involving some bilateral activity”, and the trustee’s “mere inactivity” in this case cannot satisfy the language of “advance”, “provision”, “payment” or “transaction”. To say that doing nothing, or acquiescing to the retention of funds, is a transaction which in substance effects a loan, would be ignorant of the word “transaction”.

So in essence, because the beneficiary did nothing, they cannot be taken to have provided financial accommodation, or have entered into a transaction.

What does all this mean for Bendel?

So, in plain English, there was no obligation to pay, and even if there was, the lack of action taken by the beneficiary does not give rise to financial accommodation in respect of the obligation to pay. Accordingly, for these reasons, the UPEs are not “loans” for the purposes of Division 7A.

What does all this mean for everyone else?

Right now? Subject to any legislative response, Bendel confirms that a corporate beneficiary’s mere failure to call for payment of a UPE, at least on facts materially similar to Bendel, does not of itself constitute a loan under s 109D(3). There is still Subdivision EA to consider, which will capture loans from a trust to shareholders and associates of shareholders of a company where the trust has an outstanding UPE owed to that company. One could argue, given the High Court decision in respect of the lack of indebtedness arising in respect of UPEs, that the mere setting aside of money for a beneficiary doesn’t give rise to sufficient indebtedness for Subdivision EA to ever apply in cases where the beneficiary doesn’t call on the money, but this is a matter for tax lawyers to consider.

Looking back? Past UPEs that have already been converted to s109N compliant loans are unlikely to be affected, as those loans are required to be in writing, and in most cases will go over and above ‘doing nothing’ in respect of admitting indebtedness.

Going forward? The utility of the decision for taxpayers is likely to be limited to the period up until the minimum 30% tax on trust distributions announced in the Federal Budget kicks in, which is expected to commence from 1 July 2028. While this measure is merely proposed at the date of writing and is not yet law, this measure will effectively kill the idea of trusts distributing to companies when it does become law. Accordingly, there will be significantly less entities making trust distributions that can benefit from the High Court decision.

Translation: It means many private operators will be linking up with their accountants and trust lawyers to see if the relevant clauses in their trust deeds look like Mr Bendel’s. If they don’t, they’ll certainly be asking questions about whether the clauses can be changed.

As always, if you have any questions about how the Bendel decision could affect your affairs, please do not hesitate to reach out to your trusted Hall Chadwick advisor.