Doing Nothing Isn’t a Loan: What the High Court’s Bendel Decision Means for Your Family Trust

Published by Ellison Moschella & Co, Brisbane

For sixteen years, a quietly contentious question has hung over almost every family that runs a discretionary trust with a company beneficiary: if the trust declares income to that company but never actually pays the cash across, has the company secretly made a loan back to the trust — triggering a tax bill it was never meant to face?

On 10 June 2026, the High Court of Australia finally answered. In Commissioner of Taxation v Bendel [2026] HCA 18, a majority of the Court said: no — not, at least, where the company simply doesn’t ask to be paid. Sitting still is not lending.

It’s a significant win for trusts and the private groups that use them. But it is not the green light some headlines suggest, and there are a few traps worth understanding before you change anything.

First, the jargon — in plain English

When a discretionary trust earns income, the trustee usually “distributes” it on paper to beneficiaries, who then pay the tax. A common and entirely legitimate structure is to distribute income to a company beneficiary, because companies are taxed at a flat corporate rate rather than the top personal rate.

Often, though, the cash stays in the trust — invested, or used in the family business — while the company’s entitlement sits on the books unpaid. That unpaid entitlement has a name: an unpaid present entitlement, or UPE.

Since 2009, the Australian Taxation Office argued that leaving a UPE unpaid was effectively the company lending its money back to the trust. If that were right, Division 7A of the Income Tax Assessment Act 1936 (Cth) — the regime that stops private companies funnelling profits out tax-free as “loans” — would bite, potentially turning the arrangement into a deemed dividend with interest and repayment obligations. The ATO set this position out first in Taxation Ruling TR 2010/3, and later, more strictly, in Taxation Determination TD 2022/11.

The whole fight came down to one definition: the meaning of “loan” in section 109D(3) of the 1936 Act.

What the High Court actually decided

The Court split 5 to 2, and dismissed the Commissioner’s appeal. The key findings of the majority were these.

Inaction is not a loan. The expanded definition of “loan” in s 109D(3) includes “a provision of credit or any other form of financial accommodation” (paragraph (b)) and a transaction that “in substance effects a loan of money” (paragraph (d)). The majority held that providing financial accommodation requires the company to actually do something — some transfer of value, some bilateral act. A company that merely declines to call for payment has done nothing at all, and doing nothing cannot be a “transaction” or a “provision.” On that reasoning, a UPE left unpaid is not, without more, a Division 7A loan.

The deed mattered. On the particular facts, the trust deed required amounts “set aside” for a beneficiary to be held on a separate trust pending payment. The Court found the trustee’s resolutions set the money aside on that separate trust rather than creating a debt the company could immediately sue for. No debtor-creditor relationship arose. This part of the decision turned heavily on the wording of that specific deed and those specific resolutions — which is exactly why deed wording now deserves a fresh look (more on that below).

The result brings to an end almost two decades of uncertainty and confirms what many advisers had long argued.

Why this is a win — but not a free pass

Here is where careful reading matters. Bendel does not mean UPEs are tax-free, nor that Division 7A can be ignored.

The integrity rules still apply. The Court was clear that other parts of Division 7A remain very much in play. In particular, Subdivision EA (sections 109XA and 109XB) can still produce a deemed dividend where the cash sitting behind a UPE is, in substance, lent on to a shareholder or their associate. In Bendel itself, the Court agreed the funds had effectively been advanced to the individual controlling the group — and that the right answer was to tax him under Subdivision EA, not the trustee under s 109D. In other words, the decision often relocates the tax question rather than removing it.

Section 100A is untouched. The general anti-avoidance rule for “reimbursement agreements” in section 100A of the 1936 Act — a continuing ATO focus area for trust distributions — is entirely unaffected by Bendel.

Your deed may not look like Bendel’s. Because the favourable findings rested partly on a deed that created separate trusts, a differently worded deed (or a resolution that creates an immediate, unconditional debt) could lead to a different analysis. This is not a one-size-fits-all result.

What happens next

Two developments are worth watching, and it’s important to keep them in separate boxes.

Settled law: Bendel is now the law on the s 109D(3) question. We expect the ATO to issue a revised Decision Impact Statement explaining how it will administer UPEs going forward, and its existing rulings on the point are likely to be revised or withdrawn.

Not yet law: Separately, the Federal Government has flagged changes to the taxation of trusts and corporate beneficiaries as part of the 2026-27 Budget process. Those measures are proposals — they have not been enacted, and the detail can change before (or if) they reach Parliament. There is also a realistic prospect that the Government legislates a response to Bendel specifically, and any such change could be expressed to apply retrospectively. We will be watching this closely and will update clients as the position firms up. For now, it would be a mistake to restructure on the assumption that any of the announced measures are settled.

What you should do

1. Don’t rush to unwind anything. The decision is helpful, but the right response depends on your structure, your deed and the prior positions you’ve already taken.

2. Have your trust deed reviewed. The Bendel outcome was deed-specific. Whether your resolutions “set aside” or “distribute,” and whether your deed creates separate trusts, can change the analysis.

3. Check where the cash actually went. If UPE funds have been on-lent to a shareholder or associate, Subdivision EA — not s 109D — may be the live issue.

4. Revisit recent-year positions carefully. Where amounts were treated as Division 7A loans in reliance on the ATO’s now-rejected view, there may be scope to reconsider, but this should be assessed case by case and against the possibility of legislative change.

We’re here to help

If you run a discretionary trust with a company beneficiary, Bendel is good news worth understanding — and a timely prompt to make sure your deed, your resolutions and your loan accounts all still do what you think they do. The team at Ellison Moschella & Co can review your structure, explain how the decision applies to your circumstances, and help you stay ahead of the changes still to come.

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This article is general information only and was prepared in June 2026. It does not take into account your particular circumstances and is not legal or tax advice. Tax laws in this area are subject to potential legislative change. Please contact us for advice tailored to your situation before acting on anything discussed here.