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Division 7A Explained (Part 2): Tax Risk, UPEs & What Advisers Must Know
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Key Insights
Bendel changed the conversation, but it did not remove every risk. The Bendel decision reshaped how advisers think about unpaid present entitlements and Division 7A. However, the episode makes clear that advisers should not treat the decision as the end of the analysis. UPEs still need to be reviewed carefully, particularly where trusts and private companies are involved.
Subdivision EA still matters. Even where a UPE issue appears less straightforward after Bendel, advisers are not necessarily “home and hosed”. Subdivision EA risks may still need to be considered. Business owners, accountants and tax advisers should avoid assuming that all historical or current UPE arrangements are now low risk.
Advisers need to watch what happens next. The treatment of UPEs remains an important issue for private company and trust clients. Business owners and advisers should understand what Bendel changes, what it does not change, and whether legislative reform may affect the position going forward. The practical next step is to review UPE arrangements carefully rather than relying on broad assumptions.
Unpaid present entitlements have long been one of the most misunderstood areas of Division 7A.
For business owners, accountants and tax advisers, the treatment of UPEs can affect private company tax risk, trust distributions and compliance exposure. The decision in Commissioner of Taxation v Bendel is central to the discussion, particularly for advisers dealing with UPEs, trusts and private company tax issues.
In Part 2 of this Explain That series on Division 7A, the discussion turns to tax risk, unpaid present entitlements and what the Bendel decision means for business owners and advisers.
The discussion covers:
- what UPEs really are and why they have been misunderstood;
- what the Bendel decision changes;
- what the Bendel decision does not change;
- why advisers should not assume clients are “home and hosed”;
- Subdivision EA risks and why they still need to be considered;
- what business owners, accountants and tax advisers should do next;
- whether legislative reform may be coming; and
- what advisers should watch for when advising clients with private companies, trusts and unpaid present entitlements.
Following Part 1, which focused on common Division 7A tax traps involving private companies, company loans, deemed dividends and use of company assets, this episode looks more closely at UPEs and the tax risks that remain after Bendel.
A practical discussion for business owners, accountants and tax advisers dealing with private companies, trusts, unpaid present entitlements, Division 7A compliance or ATO risk.
For advice on Division 7A, unpaid present entitlements, private company tax issues or trust-related tax risk, contact Velocity Legal’s Tax team.
This podcast in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this podcast.
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