Bendel in the High Court: unpaid trust distributions to companies

On 10 June 2026 the High Court decided Commissioner of Taxation v Bendel [2026] HCA 18. The Court dismissed the Commissioner’s appeal from the Full Federal Court and confirmed that an unpaid present entitlement owed by a trust to a corporate beneficiary is not, simply because it is unpaid, a loan by the company for the purposes of Division 7A.

The case matters because of how many family groups are arranged. A discretionary trust distributes income to a company in the group, often called a bucket company, so that the income is taxed at the company rate. The trustee resolves to make the distribution but does not pay it, and the company’s entitlement sits in the trust’s accounts as an unpaid present entitlement. Since 2010 the ATO’s view had been that, in some circumstances, leaving that entitlement unpaid amounted to the company providing financial accommodation to the trust, and so a loan under Division 7A. That view was restated in Taxation Determination TD 2022/11.

The courts disagreed. The High Court, by majority, held that by not calling for payment the company did not provide financial accommodation to the trust and did not in substance lend it money, and that the resolutions, read with the deed’s requirement to hold the amounts on separate trust, did not create a debtor and creditor relationship. The ATO now accepts that no Division 7A loan arises where a company beneficiary simply leaves its entitlement unpaid, but the deed and resolutions still matter for Subdivision EA and section 100A.

The ATO published its decision impact statement on 26 June 2026. It said the High Court’s decision contradicts TD 2022/11, which it will withdraw, and that it will review other guidance, including its section 100A ruling TR 2022/4 and guideline PCG 2022/2. Unpaid entitlements held on separate sub-trusts under the old guidance are also not loans. The ATO warned that Subdivision EA or section 100A may still apply where funds are set aside on a separate trust and then used by a shareholder or associate. It also said that where an unpaid entitlement arose under arrangements put in place in line with TD 2022/11 or its earlier guidance, the entitlement will not be treated as a loan unless the parties have taken steps that resulted in a loan.

That last qualification is the important one in practice. Many groups dealt with unpaid entitlements by converting them into complying Division 7A loans, with a written loan agreement and minimum yearly repayments. Where that has happened, the parties made a loan, and Bendel does not undo it. Those agreements generally continue to bind the parties.

Bendel is also a narrow decision in scope. Division 7A still contains specific rules in Subdivision EA for unpaid entitlements where the trust pays or lends money to a shareholder of the company or an associate. Section 100A and the general anti-avoidance provisions in Part IVA are untouched. And the proposed minimum tax on discretionary trusts, which gives corporate beneficiaries no offset for tax paid by the trustee, will change the arithmetic of bucket company arrangements from 1 July 2028 if it passes in its current form.

For firms, the useful step now is a review of the paperwork rather than a change of strategy. Check that the trust deed’s income and distribution clauses are clear, that distribution resolutions are made on time and say precisely what is distributed to whom, and that the accounts record entitlements consistently with the resolutions. Whether any past year should be revisited is a question for the client’s tax adviser.

CoSec Partners prepares trust deeds, deed variations and corporate trustee companies, with deeds drafted and signed off by Key Legal, an independent external law firm. We do not give tax advice on Division 7A or on how Bendel applies to a particular group.