The full Federal Court has handed down its decision in the Commissioner of Taxation vs Bendel [2025] case which looks at whether an unpaid present entitlement (UPE) owed by a trust to a corporate beneficiary constituted a loan under section 109D(3) for the purposes of Division 7A.
The court’s ruling directly contradicts the ATO’s long held view that a UPE between a trust and a company can constitute a loan for Division 7A purposes which potentially opens the door for greater distribution flexibility for our trust entity clients. This could have significant ramifications on whether companies are required to declare the UPE amounts as dividends and be taxed at the likely higher personal tax rates rather than being capped at the company rate.
However, from a tax planning perspective, there is still risk associated with following the court’s ruling rather than applying the ATO’s view at this stage as the Tax Office does have the option to appeal this decision to the High Court or lobby for changes to legislation.
While there is still uncertainty around these issues, we will continue to monitor the situation to ensure any eventual changes in interpretation can be utilised. Feel free to reach out to our office if you would like to discuss how this may impact your family group.
