The High Court has finally handed down its long-awaited decision in the Bendel case.  This case sought to resolve, once and for all, whether a UPE to a corporate beneficiary was financial accommodation for the purposes of Division 7A, therefore enlivening the deemed dividend provisions.

In 2025, the Full Federal Court decided in favour of the taxpayer (ie that a UPE was not considered to be financial accommodation), however, the ATO appealed to the High Court.  The ATO went further by issuing a Decision Impact Statement (“DIS”) which reiterated its existing position that a UPE constituted financial accommodation where the funds are used by a shareholder or associate.

The Full Bench of the High Court has handed down its decision confirming the Full Federal Court’s earlier decision.  The High Court ruled that:

“A consequence of the Commissioner’s construction of Division 7A is that a share of net income to which a corporate beneficiary has been made presently entitled and on which the corporate beneficiary has been taxed in one year is again included net income of that same trust in the following year”.

The practical impact of this would be that the overall tax would be higher than if the corporate beneficiary was never entitled to income at all.

In essence, the High Court has stated that a corporate beneficiary not calling for the payment of a UPE is not financial accommodation and is not in substance, effect a loan of money.

Whilst under the current law, the High Court’s decision has potentially wide-ranging consequences for hundreds of thousands of taxpayers, the impact of the decision is expected to be short lived.

Whether there is an amendment of the existing law or, more likely, the recent Federal Budget announcement scheduled imposition of a new minimum 30% rate of tax on all discretionary trust distributions from 1 July 2028, the benefit is likely to be temporary.  The Budget announcement law includes denial for a tax credit for corporate beneficiaries.

We are now awaiting guidance from the ATO as to what the go forward position will be as well as how they will view the past.  The ATO may also seek to apply other anti-avoidance provisions (such as Section 100A or other provisions contained within the wider remit of Division 7A) to mitigate the impact of the decision.

If you have any questions as to how this case impacts your position, please don’t hesitate to reach out to your ESV Engagement Partner.