The Full Federal Court (FFC) constituted by Logan J, Hespe J and Neskovcin J yesterday handed down their unanimous decision, in Commissioner of Taxation v Bendel [2025] FCAFC 15, on one of the most highly anticipated tax decisions over the last few years.
The critical question for determination by the FFC was whether an unpaid present entitlement (UPE) to income (or capital) of a trust estate is a 'loan' for the purpose of s 109D(3) of the Income Tax Assessment Act 1936 (ITAA 1936).
Key points: Bendel Division 7A appeal
The decision has upended the position taken by the Commissioner since 2010 where the Commissioner has applied Division 7A on the basis that a UPE owing to a corporate beneficiary could amount to a "loan", and thus potentially give rise to a deemed dividend.
The decision will be of relevance to privately held groups involving discretionary trusts across Australia. In particular, the decision will be of interest to those that have entered into Division 7A complying loans in order to avoid triggering the deemed dividend provisions, as well as private groups that have been assessed for tax, penalties or interest on the basis that a UPE was a loan.
The key question for those groups will be � where to from here?
It will be important to monitor for any updates regarding the Commissioner's view of the case, including whether the Commissioner applies for and is granted special leave to appeal the decision to the High Court.
Given historical announced but not enacted budget measures - legislative change remains a distinct possibility.
AAT decision in Commissioner of Taxation v Bendel
The matter was first heard in the Administrative Appeal Tribunal (AAT) by Deputy President F D O'Loughlin KC and Senior Member K James (see Bendel and CoT [2023] AATA 3074 AAT) where, in short, the AAT held that a UPE was not a loan for the purposes of s109D(3).
While decisions of the AAT (now the Administrative Review Tribunal, or ART) are not strictly precedential, the AAT decision garnered significant attention because the decision effectively upended the Commissioner's long held position on unpaid trust entitlements.
Unsurprisingly, the AAT decision was appealed by the Commissioner to the Full Federal Court.
Following the AAT decision the Commissioner took the position, as outlined in his , that until the appeal process was finalised, the Commissioner did not intend to revise the ATO views relating to private company entitlements to trust income, as set out in Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'?
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