We have previously written about the decisions of the Administrative Appeals Tribunal (AAT) in Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074  and the Full Federal Court (FFC) in Commissioner of Taxation v Bendel [2025] FCAFC 15.

The facts of the case and outcomes of those decisions are summarised in our previous articles, noting in summary:

• Gleewin Pty Ltd (Gleewin), as trustee of the Steven Bendel 2005 Discretionary Trust (2005 Trust), resolved in each of the income years ended 30 June 2014 to 30 June 2017 to 'set aside' percentages of the trust's net income for Gleewin Investments Pty Ltd (Gleewin Investments), a corporate beneficiary controlled by Mr Bendel;
• Gleewin Investments never called for payment of those amounts, which remained as unpaid present entitlements (UPEs);
• the Commissioner issued amended assessments treating the UPEs as loans made by Gleewin Investments to Gleewin for the purposes of section 109D of the Income Tax Assessment Act 1936 (Cth) (ITAA36), on the basis that Gleewin Investments had provided 'financial accommodation' to Gleewin by not demanding payment; and
• the AAT and the FFC both rejected the Commissioner's position.

Following the FFC decision, the Commissioner appealed to the High Court which granted special leave in June 2025.

On 10 June 2026, the High Court issued its landmark decision siding with the taxpayer and concluding that the UPEs owed by the trustee to the corporate beneficiary were not loans for the purposes of Division 7A. While not all judges agreed with this position (with Jagot and Beech-Jones JJ dissenting in separate judgments), it was a convincing win for the taxpayer.

We have set out below the key elements of the decision and what it means for taxpayers.

The High Court majority (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ)

The five-justice majority dismissed the Commissioner's appeal, resolving the case on three interconnected grounds.

1. The resolutions effected a 'setting aside', not a distribution

The majority carefully examined the terms of the trust deed for the 2005 Trust (2005 Trust Deed), and in particular:

• clause 3(1)(a), which empowered the trustee to 'pay apply or set aside' net income; and
• clause 3(5), which provided that any amount 'set aside for any beneficiary ... shall cease to form part of the Trust Fund and upon such setting aside ... shall thenceforth be held by the [t]rustee on a separate trust for such person absolutely…'.

The majority held that the trustee resolutions, which used the phrase 'hereby set aside', exercised only the power to set aside, not the power to pay or apply. The heading 'Distribution of Income' and the phrase 'shall be distributed' in the resolutions were treated as recording the obvious future consequence of the setting aside, not as creating an unconditional and immediate duty to pay.

The majority held that at the time there is an unconditional obligation for a trustee to make a payment to a beneficiary, then the beneficiary may sue for the money in an action for money had and received, and at that time the relationship between trustee and beneficiary is then one of debtor and creditor or a relationship exists in addition to any ongoing equitable relationship. An unconditional obligation to make a payment arises when:

• the trustee resolves to distribute income to a beneficiary and there remains nothing for the trustee to do other than make the payment;
• because a beneficiary entitled to do so invokes the rule in Saunders v Vautier (1841) CR & Ph 240 [41 ER 482]; or
• the trustee admits a debt to a beneficiary.

No debtor/creditor relationship arose between Gleewin and Gleewin Investments.

The Tribunal made no finding of fact that the following matters recorded in the accounts represented an admission of the debt and the evidence led before the Tribunal did not make an inference that the accounts expressed such an admission as inevitable (and expert evidence was not led on all aspects):

• the recording in Gleewin's balance sheet of an amount in liabilities called "Beneficiaries Current Account" which recorded the amounts set aside for Gleewin Investments; or
• the recording in the balance sheet of Gleewin Investments of an amount in current assets owing from Gleewin.

Interestingly, this aspect of the majority's reasoning departed significantly from the position the taxpayer had conceded before the FFC (where both parties had accepted that a debtor/creditor relationship existed) and which the FFC had adopted as common ground.

2. The amounts were held on separate trusts

The majority found that, by operation of clause 3(5) of the 2005 Trust Deed, the amounts set aside ceased to form part of the general trust fund and were held on separate trusts for Gleewin Investments. The subject matter of those separate trusts was sufficiently certain, being ascertainable by reference to the concept of 'net income' as defined in section 95 of the ITAA36.

The majority drew support from the High Court's decision in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq) (2000) 202 CLR 588, which confirmed that a trust does not fail for certainty of subject matter merely because the trust property is identified by reference to a calculable proportion or concept, rather than a specifically identified asset.

This finding resolved one of the preliminary questions identified during the initial hearing in favour of the taxpayer, and on a basis that had not been accepted by the Tribunal below (which had found no separate trust could be identified).

3. The Commissioner's construction of section 109D(3) was rejected

Even if a debtor/creditor relationship had arisen, the majority held that the expanded definition of 'loan' in subsection 109D(3) could not be stretched to encompass the circumstances of this case.

Two key aspects of the majority's construction are notable.

a) No 'provision of financial accommodation' from mere inaction

The majority held that paragraph 109D(3)(b) requires some bilateral activity by the private company, being some supply or grant of pecuniary assistance. Where Gleewin Investments did nothing other than remain passive, it could not be said to have 'provided' financial accommodation.

The majority observed that the legislation requires the private company to actively do something to move value from it to another person, which is analogous with the payment of a dividend. Mere inactivity (such as not insisting on payment) cannot satisfy the concepts of 'advance', 'provision', 'payment' or 'transaction' in subsection 109D(3).

b) No 'transaction which in substance effects a loan' from mere acquiescence

Similarly, the majority rejected the Commissioner's reliance on paragraph 109D(3)(d). Mere acquiescence in the retention of funds is not a 'transaction', since that word by its ordinary meaning requires some interchange or interaction between entities.

The majority also identified strong contextual indicators reinforcing this conclusion:

• the references to 'repaid' and 'obligation to repay' throughout section 109D presuppose some form of obligation to repay value supplied;
• subsection 109F(6) (which deems a dividend when a private company will 'not insist' on payment of a debt) would be rendered superfluous if mere forbearance already constituted a loan under subsection 109D(3); and
• the legislative history of Subdivision EA and its predecessor, section 109UB, demonstrated that Parliament had consistently chosen to tax the shareholder (rather than the trustee or corporate beneficiary) when an amount representing a UPE is in substance lent or paid by the trustee to a shareholder (or associate of the shareholder).

While the majority agreed with the FFC's conclusion, it departed from the FFC's reasoning to one extent. The majority declined to limit the definition of 'loan' in subsection 109D(3) to transfers of 'an identifiable principal sum'. The majority held that section 109D is not limited to transfers of money. It extends to any transfer of value, including property or services, provided there is an obligation of repayment of the value supplied. This is a wider formulation than that adopted by the FFC.

The High Court dissent (Jagot and Beech-Jones JJ)

The two dissenting justices would have allowed the Commissioner's appeal.

Their reasoning differed from the majority on both the effect of the resolutions and the proper construction of subsection 109D(3).

On the debtor/creditor issue, Jagot J (with whom Beech-Jones J agreed) held that, on the basis of the concessions made before the FFC and the factual findings of the AAT, a debtor/creditor relationship did arise between Gleewin and Gleewin Investments. The resolutions alone created the indebtedness. Once Gleewin passed its resolutions and recorded amounts owing to Gleewin Investments in its books of account, Gleewin confirmed its indebtedness (including quantification) to Gleewin Investments. When Mr Bendel, the controlling mind of all entities, decided that Gleewin Investments' entitlement would not be paid to it, but would be left in the hands of the trust to enable Gleewin to loan the funds to Mr Bendel, this amounted to the provision of financial accommodation and thus triggered paragraph 109D(1)(a).

On the separate trust issue, Jagot J declined to find that separate trusts were constituted, construing clause 3(5) of the 2005 Trust Deed as operating to alter the beneficial entitlements within the existing trust fund rather than constituting an entirely new trust. This reading was consistent with the AAT's finding below.

On the construction of subsection 109D(3), both dissenting justices took the view that the provision of financial accommodation in paragraph 109D(3)(b) does not require a payment of money subject to an obligation of repayment. That is, there is no requirement for the transfer of money or value between the parties for a provision of financial accommodation to have occurred. Rather, the extended definition encompasses any circumstance in which a private company, by doing a thing (including by deciding not to require payment of what is owed to it), satisfies a financial want of an entity.

Jagot J reasoned that the undefined word 'repaid' in paragraph 109D(1)(b) should be given an adjusted, extended meaning, being to encompass the 'undoing' of the thing done to constitute the loan, rather than confining the broad definition of 'loan' in paragraph 109D(3)(b) to circumstances requiring orthodox repayment.

Key differences from FFC and AAT

The majority's finding that separate trusts were created is a marked departure from the AAT's finding and was a new basis for decision not available to the FFC. This finding was central to the majority's conclusion that no debtor/creditor relationship arose.

Further, as indicated above, the FFC confined 'financial accommodation' to arrangements involving a transfer of an identifiable principal sum subject to repayment. The majority did not accept this limitation in principle but found that the requirement for some bilateral activity was not satisfied on the facts.

Finally, Jagot J's detailed statutory construction of paragraph 109D(3)(b) raises complex questions that neither the AAT nor the FFC undertook to the same degree, and which will require careful consideration if the Commissioner pursues legislative reform.

What the High Court decision means

The High Court's decision is final. There is no further avenue of appeal.

The Commissioner's longstanding position in TD 2022/11, that all UPEs of corporate beneficiaries constitute financial accommodation for Division 7A purposes, is now definitively inconsistent with Australian law as declared by the highest court. Many taxpayers will have complied with the Commissioner's prior guidance and committed UPEs to Division 7A loans. In these circumstances, taxpayers will not be able to benefit from the High Court decision, as the decision does not reinstate a loan as a mere UPE.

However, as suggested in the heading of this article, we expect further developments arising from the decision. The most likely immediate response from the Commissioner will be the withdrawal of TD 2022/11 (as flagged in the DIS issued by the Commissioner on 26 June 2026). However, given the significance of the revenue at stake, legislative amendment to restore the effect of the Commissioner's former position must be regarded as a real prospect. Any such amendment may be prospective, retrospective, or both, and taxpayers should not assume that the current law will remain in place indefinitely.

In the meantime, taxpayers and their advisers should consider the following:

• consider objecting to prior year assessments – taxpayers who have been assessed on the basis that UPEs constitute Division 7A loans should urgently consider whether objections to prior assessments remain open. Time limits apply;
• review trust distribution practices going forward – the majority's analysis of the trust deed terms, the effect of resolutions to 'set aside' versus 'pay' or 'apply' income, and the conditions under which separate trusts arise, provides important guidance for trustees and their advisers in structuring future distributions. Further consideration should also be given to the accounting treatment and any other information which may point towards a transaction and not the mere acquiescence of retention of funds;
• monitor the ATO's and Government's response – the Commissioner has announced that TD 2022/11 will be withdrawn in its Decision Impact Statement issued on 26 June 2026 (Commissioner of Taxation v Bendel [2026] HCA 18 (Published 26 June 2026);
• consider the application of section 100A – where the UPE arises out of, or in connection with, an arrangement intended to reduce someone's tax liability, where someone else benefits, and that is entered into outside the course of ordinary family or commercial dealing, section 100A may apply, making the trustee liable to tax at the top marginal rate;
• consider that the Government may introduce legislation as a response to the decision;
• the 2026-27 Federal Budget announcements – in particular, the proposal for a minimum 30% tax rate on all non-fixed trust income, and no relief for corporate beneficiaries, will likely stop distributions to corporate beneficiaries from such trusts occurring; and
• note that the Commissioner did not rely on Subdivision EA within Division 7A. Subdivision EA includes an amount in the assessable income of a shareholder of a private company, or in the assessable income of an associate of a shareholder of a private company, where that private company has a UPE to the income of a trust, and the trustee makes a payment or loan to, or forgives a debt of, the shareholder or associate of the shareholder of that private company. Careful consideration of the application of Subdivision EA is thus required, even where section 109D does not apply. If both Subdivision EA and section 109D apply, it is unlikely that the provision that prevents the same amount of assessable income being included more than once in assessable income for an income year will apply.

If your business has UPEs that have been treated as Division 7A loans, or you are uncertain how the High Court's decision affects your existing arrangements, our tax team can help you assess your position and identify available remedies.