The ATO has sought special leave to appeal to the High Court following the Federal Court ruling in Commissioner of Taxation v Bendel [2025] FCAFC 15, which went against the current ATO ruling.
“For more than 15 years, the ATO has had a published view about the tax consequences of unpaid present entitlements (UPEs) owing to corporate beneficiaries,” Clarke said in a statement issued by the regulator.
“The Bendel case is the first time that the ATO’s longstanding view has been considered by the courts. In February, the Full Federal Court reached a decision that is contrary to the ATO’s published position.”
She said the decision from the High Court would be of “wide interest” and will impact many private company taxpayers.
Regarding UPEs, Clarke continued that the commissioner’s updated Interim Decision Impact Statement highlights the consequences that might arise if UPEs aren’t on Division 7A complying loan terms.
“This is regardless of the outcome of the commissioner’s special leave application and any possible appeal,” she said.
“Where a UPE isn’t converted into a complying Division 7A loan, taxpayers face the prospect that other integrity provisions may apply to their arrangement (depending on the particular facts), for example Subdivision EA and section 100A.
“Placing a UPE on Division 7A complying loan terms requires all the elements of section 109N to be satisfied, including that there’s a written loan agreement between the parties. That is, relevant UPEs must be converted to loans to comply with section 109N.”
The ATO, Clarke said, would not be granting a blanket extension of time for affected companies to lodge their tax returns pending the High Court’s decision about the ATO’s special leave application, or any subsequent appeal.
“We appreciate that some private company taxpayers will need to decide how to treat unpaid present entitlements (UPEs) when preparing their 2024 tax return.”
“To assist with the decision-making process, our published Interim Decision Impact Statement explains that taxpayers need to be mindful that pending the outcome of our special leave application to the High Court, we are maintaining our view in TD 2022/11. We also observe that the basis on which private company beneficiaries deal with UPEs may have consequences under other integrity provisions in the tax law, including section 100A and subdivision EA.”
Furthermore, she said the application of section 100A and subdivision EA does not depend on the outcome of the Bendel High Court process.
“So, in this regard, we consider that there’s a clear pathway for taxpayers who don’t wish to risk potential exposure to other integrity provisions, regardless of the outcome of the current High Court proceedings.”
