On Wednesday afternoon, the ATO said it is currently considering the implications of the adverse decision and will update its views set out in its Interim Decision Impact Statement as soon as possible to provide practical guidance to impacted taxpayers.
The landmark tax avoidance case found that an unpaid entitlement from a trust to a company is not a loan for tax purposes and centred on whether an unpaid present entitlement (UPE) – where a trust assigns profits to a corporate beneficiary on paper, but the money is retained in the trust – should be treated as a loan under the Tax Act’s Division 7A anti-avoidance provisions.
Matthew Burgess, director of View Legal, said that, since 2009, the ATO has maintained its view that an unpaid present entitlement outstanding between a trust and a corporate beneficiary is in fact a loan for the purposes of Division 7A.
“The High Court has confirmed in Commissioner of Taxation v Bendel [2026] HCA 18 that the Tax Office’s position that a UPE is in fact a loan is wrong. A conclusion also reached by each judicial authority in earlier phases of the case; and indeed arguably universally by specialist advisers for at least the last 16 years,” Burgess said.
“While the decision undoubtedly provides a moment of clarity, its true impact is likely to be at best academic.”
He continued the ATO will likely issue a Decision Impact Statement restricting the acceptance of the decision solely to the relevant taxpayer involved and (by implication) warning other taxpayers (and their advisers) that any approach relying on the decision risks lengthy litigation against a regulatory authority with apparently unlimited funding;
“The result of the campaign waged by the Tax Office in this area since 2009 has anecdotally seen many taxpayers comply with the Tax Office view, meaning the ability to rely on the principles endorsed by the High Court will be unavailable,” he said.
“Based on the apparently highly receptive channels through Treasury to the government currently enjoyed by the Tax Office – based on the 2026 Budget attack on trusts and corporate beneficiaries – a legislative change, likely retrospective to 2009, should be expected.”
He continued: “Assuming the Budget 2026 changes are implemented, trusts will pay the mandatory 32 per cent tax – being the announced 30 per cent plus the Medicare tax – on all income, with a further double tax impost on any trust distributions to companies, creating a tax rate approaching 70 per cent and effectively making the whole case irrelevant.”
Julia Abdalla, head of tax and legal for the Tax Institute, said the decision brought “long-awaited judicial certainty” to an area of trust taxation that has been the subject of significant controversy and compliance activity for more than a decade.
She noted the decision is expected to have broad implications for private groups that use trust and company structures, particularly regarding how retained trust profits are managed and taxed.
The Tax Institute noted that the impact on taxpayers will include reduced Division 7A exposure and private company beneficiaries of trusts will no longer automatically face deemed dividends where UPEs remain unpaid.
There will also be greater flexibility for trusts whereby trustees can retain funds within the trust without triggering Division 7A outcomes, subject to commercial and fiduciary considerations.
She added there will also be the potential review of past assessments and taxpayers may consider objection rights or amendment opportunities where assessments were issued solely on the basis of the Commissioner’s former UPE position.
Abdalla said the ATO guidance is likely to change and existing Taxation Rulings and administrative practices dealing with UPEs are expected to be revised or withdrawn.
“Taxpayers should nevertheless continue to exercise care, as Division 7A will still apply where funds are actually advanced, loaned, or otherwise made available to shareholders or associates,” Abdalla said.
“We’d expect that following this decision, statutory revision of these rules could be included alongside recent trust tax changes announced in the Federal Budget. This is likely not the final word on this part of the tax legislation.”
She continued: “However, this should be a salutary and cautionary lesson for the ATO. The ATO overturned well- established and accepted practice in the belief that unpaid trust distributions to companies were loans.
“This has created over a decade of uncertainty and increased compliance costs, all of which have been proven to be unwarranted. In future we can hope that the ATO will not reverse fundamental and well-established tax practices, without first seeking guidance from the courts.”
The Institute of Financial Professionals Australia (IFPA) said the High Court decision has overturned many years of accepted ATO administrative practice, and the ATO may now receive a “truckload” of requests for amended assessments.
The IFPA said the decision will be meaningless if the Budget proposals to tax trust income at 30 per cent minimum tax rate is passed.
“It will make resolutions to distribute trust income to a company that is taxed at 30 per cent nugatory as it is proposed that corporate beneficiaries will not be eligible to receive credits for tax paid by the trustee,” the association said.
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