The High Court held in Bendel that an unpaid trust distribution owed to a company beneficiary is not automatically a loan under Division 7A. Two integrity provisions survive the decision, and both still tax these arrangements.
Subdivision EA applies where a trust owes an unpaid present entitlement (UPE) to a private company and the trustee makes a payment, loan, or debt forgiveness to a shareholder or associate of that company. Section 100A applies where a present entitlement arises from a reimbursement agreement, and the Commissioner can then assess the trustee at the top marginal rate.
The ATO’s decision impact statement of 26 June 2026 withdrew TD 2022/11 and placed related guidance under review. The announced 30 per cent minimum tax from 1 July 2028 sets the planning window, and the provision that catches an arrangement depends on what the trustee does with the retained entitlement.
What Did Bendel Decide, and What Did It Leave Standing?
The High Court held that an unpaid trust distribution owed to a company beneficiary is not automatically a loan under Division 7A, and two integrity provisions survive the decision.
Commissioner of Taxation v Bendel [2026] HCA 18, decided on 10 June 2026 by a 5-2 majority, dismissed the Commissioner’s appeal and confirmed the outcome reached by the Full Federal Court and the Tribunal on partly different reasoning.
The precise holding is that an unpaid present entitlement, a UPE, is not of itself a loan under section 109D(3). The majority reasoned that a corporate beneficiary’s inaction is not financial accommodation: a loan requires a transfer of value and an obligation of repayment, and a company refraining from calling for payment of its entitlement transfers nothing.
The majority also drew on legislative history, because Parliament wrote Subdivision EA for these situations, which is part of why section 109D was read down.
That point frames everything below. Their Honours did not determine how Subdivision EA or section 100A operate, and both provisions remain live. The reasoning that won the case is the same reasoning that keeps Subdivision EA alive: Bendel removed the automatic loan characterisation of a UPE, and the integrity provisions built around unpaid entitlements stand untouched.
When Does Subdivision EA Apply to Unpaid Entitlements After Bendel?
Subdivision EA applies where a trust owes an unpaid present entitlement to a private company and the trustee makes a payment, loan, or debt forgiveness to a shareholder or associate of that company. The provision sits inside Division 7A and operates independently of the loan definition Bendel read down.
The trigger mechanism
The trigger elements are set out below:
- A UPE to a corporate beneficiary subsists at the relevant time.
- The trustee makes a payment or loan to, or forgives a debt owed by, a shareholder or associate of that private company, under sections 109XA and 109XB.
- The amount becomes a deemed unfranked dividend in the shareholder or associate’s assessable income.
- The deemed dividend is capped at the private company’s distributable surplus.
- The rules reach through chains of trusts.
The post-Bendel reality
The decision impact statement sharpened the position rather than softening it. The ATO noted that the High Court’s language suggests Subdivision EA may apply even where entitlement funds have been set aside on a separate trust, and the other requirements are met. The exact deed mechanics that won Bendel do not place an arrangement outside Subdivision EA.
A worked example makes the exposure concrete. A trust owes a $100,000 unpaid entitlement to its bucket company, then lends $60,000 to a shareholder of that company with no written agreement before lodgement day. Subdivision EA treats the $60,000 as an unfranked deemed dividend in the shareholder’s assessable income, subject to distributable surplus. Documenting the loan on complying Division 7A terms before lodgement day avoids the deemed dividend, with the loan then repaid with interest over its term.
When Does Section 100A Apply to Trust Distributions After Bendel?
Section 100A applies where a beneficiary’s present entitlement arises from a reimbursement agreement under which someone other than the beneficiary receives the benefit, and the Commissioner can then assess the trustee at the top marginal rate. The provision entered the ITAA 1936 in 1979.
The trigger mechanism
The elements are set out below:
- A beneficiary becomes presently entitled to trust income out of an agreement.
- The agreement involves a benefit passing to someone other than that beneficiary, including the trustee itself.
- A purpose of the agreement is the reduction of someone’s tax liability.
- Ordinary family or commercial dealings sit outside the provision.
The consequence asymmetry matters. Where section 100A applies, the Commissioner disregards the beneficiary’s entitlement and assesses the trustee at a flat 47 per cent. Subdivision EA instead taxes the shareholder or associate on a deemed dividend at marginal rates, with a repayment pathway available.
The post-Bendel reality
Under Practical Compliance Guideline PCG 2022/2, which remains on foot while the ATO reviews its guidance, retention of a corporate beneficiary’s entitlement sits in the low-risk green zone only where the amount is placed on complying Division 7A loan terms for working capital.
Retention without conversion sits outside the green zone. ATO officials have also stated that section 100A will not be applied where distributions are paid in cash to the entitled beneficiary, a position yet to be tested before a court.
Section 100A also carries live litigation history: the Full Federal Court’s Guardian decisions tested the reimbursement agreement elements and the ordinary dealing exclusion, and the Commissioner continues to run the provision in court.
Read the compliance settings together and the circularity is plain. The safe harbour asks trustees to volunteer the exact complying loan arrangement Bendel confirmed the law no longer forces. The Bendel win is optional under current guidance, and a trustee who takes it exits the green zone.
Which Arrangements Trigger Which Provision?
The provision that applies depends on what the trustee does with the retained entitlement, not on the entitlement existing. The common arrangements are compared below:
Arrangement | Subdivision EA | Section 100A | Outcome |
Retain and reinvest in the trust business, no benefit to shareholders | No trigger | Outside the green zone if not on complying terms | Trustee assessment risk at 47 per cent |
Retain the entitlement, then loans or drawings to shareholders or associates | Triggered | Residual question | Deemed unfranked dividend to the individual, repayable on complying loan terms |
Convert the UPE to a complying Division 7A loan | No trigger | Green zone under PCG 2022/2 | Interest and minimum yearly repayments, top-up tax over the loan term |
Pay the distribution in cash to the corporate beneficiary | No trigger | ATO indicates no application, untested | Cash leaves the trust, franking and dividend planning follow |
Gift-back or circular arrangements returning funds to the trust | Fact-dependent | Primary exposure | Classic reimbursement agreement territory |
The table exposes a paradox that the alerts have skated past. Passive reinvestment of trust profits, the most commercially ordinary choice, carries the harsher provision at 47 per cent, while an actual loan to a shareholder triggers the milder provision with a documented repayment pathway. Doing nothing with the money can be taxed worse than doing something with it.
That paradox drives the FY27 planning conversation for every group running a corporate beneficiary. Our analysis of bucket company distributions after the 2026 Budget covers whether those distributions keep working at all.
What Did the ATO's Decision Impact Statement Change?
The ATO’s decision impact statement of 26 June 2026 withdrew Taxation Determination TD 2022/11 and placed related Division 7A, UPE, and section 100A guidance under review. The guidance movements are set out below:
- TD 2022/11, the determination treating retained UPEs as section 109D loans, is withdrawn.
- TR 2010/3 and PS LA 2010/4, the earlier UPE guidance, were already withdrawn.
- PCG 2022/2, the section 100A risk zones, remains on foot and is not withdrawn while the review of related guidance runs.
- The statement flags Subdivision EA for separate-trust arrangements, citing the High Court’s own language.
Two stability points survive the churn. Historical UPEs documented under complying loan agreements remain bound by their terms, because signed documents bind the parties regardless of Bendel. The Government has announced no amendment to section 100A or Subdivision EA, and expectations of a legislative response stay speculative until an exposure draft exists.
How Do You Assess an Existing Trust Arrangement Now?
An arrangement review starts with the trust deed, then the distribution resolutions, then the ultimate cash flows. Bendel turned on deed wording that set entitlements aside on a separate trust, and a deed that pays or applies income can still create a debt. A third surviving risk sits here: a resolution that fails to effectively make a beneficiary presently entitled leaves the trustee assessed at the top marginal rate instead. The review sequence is set out below:
- Read the deed: does it set aside, or does it pay or apply income?
- Read each distribution resolution against the deed power it exercises.
- Trace the separate trust accounting for every retained entitlement.
- Follow the cash: who received value while the entitlement stayed unpaid.
- List every complying loan agreement, its balance, and its maturity date.
- Model the FY27 resolutions against the arrangement table before the resolution date.
We map every entitlement, its documentation, and its cash trail before recommending any move. Groups weighing a structural answer over an arrangement-level fix should start with our guide to converting a discretionary trust to a fixed trust and the cost modelling in the fixed trust restructuring decision.
Where Do Part IVA and Subdivision EB Sit?
Part IVA remains the residual general anti-avoidance provision, and Subdivision EB extends the Subdivision EA rules through chains of trusts. Part IVA applies where a scheme carries a dominant purpose of obtaining a tax benefit, and the Commissioner reserved it without signalling how it would run against UPEs.
Subdivision EB deserves more attention than it receives. Where entitlements and benefits flow through interposed trusts, it traces the arrangement back to the private company with the unpaid entitlement. A benefit routed through a second trust does not step around the deemed dividend rules, so layered groups should test every inter-entity flow.
How Does the 2028 Trust Minimum Tax Change the Sequence?
The announced 30 per cent minimum tax on discretionary trusts from 1 July 2028 removes the corporate beneficiary tax cap regardless of the Bendel outcome. The measure was announced in the Federal Budget on 12 May 2026 and awaits legislation, with corporate beneficiaries receiving no credit for the trustee tax.
Bendel compliance posture and restructure timing belong in one plan. Corporate beneficiary distributions hold value for FY26, FY27, and FY28 only under the announcement, and the rollover relief window opens on 1 July 2027. The exit tax position connects to the reforms in our analysis of selling a business under the 2026 CGT changes.
Frequently Asked Questions
Is a UPE still a Division 7A loan after Bendel?
An unpaid present entitlement is not automatically a loan under section 109D(3). The High Court confirmed this on 10 June 2026, and the ATO withdrew TD 2022/11 in response.
Does Section 100A still apply after Bendel?
Section 100A survives Bendel entirely and applies to reimbursement agreements on its own terms. The ATO’s decision impact statement warns that a beneficiary’s inaction over an unpaid entitlement may be insufficient to avoid implications under section 100A.
What is the difference between Subdivision EA and Section 100A?
Subdivision EA taxes the shareholder or associate on a deemed unfranked dividend, capped at distributable surplus. Section 100A lets the Commissioner disregard the entitlement and assess the trustee at a flat 47 per cent.
Did the ATO withdraw its UPE guidance?
The ATO withdrew TD 2022/11 on 26 June 2026 and placed related Division 7A, UPE, and section 100A guidance under review. PCG 2022/2 remains on foot while that review runs.
Does Bendel change anything for individual beneficiaries?
Bendel concerned corporate beneficiaries and the Division 7A loan definition. Section 100A applies to any beneficiary type, so an individual’s unpaid entitlement carries the same reimbursement agreement analysis as before.
Should trustees convert UPEs to complying loans now?
No blanket rule fits every group. Conversion buys the green zone at the cost of interest and minimum repayments, and modelling against the group’s cash position decides.
Key Takeaways: Trust Distribution Risks After Bendel
Subdivision EA and section 100A survive Bendel, and the arrangement decides which one applies. The core points are summarised below:
- Subdivision EA triggers on payments, loans, or debt forgiveness to shareholders or associates while a corporate UPE subsists, producing a deemed unfranked dividend capped at distributable surplus.
- Section 100A triggers on reimbursement agreements and exposes the trustee to assessment at a flat 47 per cent.
- The 26 June 2026 decision impact statement withdrew TD 2022/11, kept PCG 2022/2 under review, and flagged Subdivision EA for separate-trust arrangements.
- The announced 1 July 2028 minimum tax sets the restructure clock, and Bendel compliance posture belongs inside that sequence.
Family groups running trusts and corporate beneficiaries have two years to get the arrangement and the structure right. Book your free 30-minute strategy session with one of our directors. We review the deed, test every entitlement against the trigger table, and sequence the FY27 resolutions with the restructure window. Blackwattle Tax advises Australian family groups on trust structures and Australian business tax with director-level attention.
Schedule a FREE 30-minute consultation today to discover how we can support your strategic decisions and streamline your business operations.
Stay informed and empowered by subscribing to our monthly newsletter, where you’ll receive valuable insights on business advice, investment tips, and strategic tax planning.
Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.