The High Court’s decision in Commissioner of Taxation v Bendel is expected to be handed down in early 2026.

The case addresses a central question for private groups: whether unpaid present entitlements (UPEs) can be treated as loans under Division 7A.

In this episode of Explain That by Velocity Legal, Andrew Henshaw is joined by Archana Manapakkam to examine the current position, the Full Federal Court decision, and what the High Court’s ruling may mean in practice.

The Issue: Division 7A and UPEs

Division 7A is designed to prevent the extraction of company profits without tax. Where certain payments or loans are made by private companies to shareholders or associates, those amounts may be treated as deemed dividends.

The key issue in Bendel is whether a UPE, arising from a trust distribution to a corporate beneficiary, can be treated as a loan for these purposes.

The Full Federal Court Decision

The Full Federal Court found in favour of the taxpayer, concluding that UPEs are not loans within the meaning of Division 7A.

This decision challenged the ATO’s long-standing position and created uncertainty across many private group structures.

The ATO’s Current Position

Despite the Full Federal Court decision, the ATO has maintained its existing view under TD 2022/11.

The ATO has also indicated that it will not finalise audits or objections relating to this issue until the High Court has determined the appeal.

This creates a period of practical uncertainty, where the legal position is contested but administrative practice continues.

The High Court Appeal

The High Court granted special leave to appeal in June 2025.

The hearing has been delayed following further submissions, and a decision is now expected in 2026.

The outcome will provide authoritative guidance on whether UPEs fall within Division 7A and how these arrangements should be treated going forward.

Practical Considerations While the Decision Is Pending

While the decision is awaited, taxpayers and advisers should be aware that:

• The ATO continues to apply its existing position
• Audits and objections on this issue may be paused
• Historical arrangements may still be subject to review
• The High Court’s decision could have retrospective implications

For many private groups, this is not a new issue. It affects long-standing trust and company structures and may influence how distributions are managed in the future.

The Takeaway

The Bendel case has created a period of uncertainty for Division 7A and unpaid present entitlements.

With the High Court decision expected soon, taxpayers should understand their exposure and be prepared for potential changes in how these arrangements are treated.

🎧 Watch the full episode of Explain That by Velocity Legal for a detailed discussion of Division 7A and the Bendel case.

For advice on Division 7A, trust distributions or ATO engagement, contact Velocity Legal’s Tax team.