Australia’s tax landscape has experienced one of its most significant trust taxation developments in recent years following the High Court decision involving accountant Steven Bendel and the Australian Taxation Office (ATO).

The landmark ruling confirmed that unpaid present entitlements (UPEs) from a family trust to a corporate beneficiary are not automatically treated as loans under Division 7A.

For decades, many Australian small business owners and investors operated under strict assumptions around trust distributions, bucket companies, and Division 7A compliance.

This decision has created a temporary opportunity for business owners to review their structures, improve tax planning strategies, and reconsider how they use retained profits within family groups.

However, with proposed legislative changes expected to take effect from 1 July 2028, this opportunity may not last indefinitely.

Understanding what the Bendel decision means — and what actions may be required — is important for business owners, investors, and families using trust structures.

What Happened?

The Bendel case focused on a common tax structure used by many Australian family businesses:

A discretionary family trust earns business or investment income and distributes profits to a corporate beneficiary, commonly known as a “bucket company”.

The structure generally works like this:

Family Trust → Distributes Profit → Bucket Company
Bucket Company → Retains Taxed Profits
Trust → Uses Funds for Business or Investment Purposes

Historically, the process worked as follows:

A family trust generates profits through business activities, investments, or property holdings.

The trust distributes income to a corporate beneficiary to access the lower company tax rate.

The corporate beneficiary becomes entitled to receive the income, but the physical cash may remain within the trust.

This creates what is known as an Unpaid Present Entitlement (UPE).

For many years, the ATO’s position was that these unpaid entitlements could effectively be treated as loans under Division 7A.

This meant businesses often needed to:

• Enter into Division 7A loan agreements
• Make minimum annual repayments
• Pay interest
• Manage strict compliance requirements

The High Court decision challenged this approach.

The court ruled that a UPE between a trust and a corporate beneficiary does not automatically create a Division 7A loan.

This provided taxpayers with greater flexibility when managing trust distributions and business wealth structures.

Why Does This Matter?

For many Australian business owners, the decision affects how profits can be managed after tax.

Previously, businesses using family trusts faced challenges when trying to:

• Build investment wealth
• Purchase assets
• Expand operations
• Retain working capital

A common issue occurred when a trust wanted to acquire property.

A company structure could hold cash, but companies generally do not receive the 50% capital gains tax (CGT) discount available to individuals and eligible trusts.

A family trust could provide better CGT outcomes, but accessing corporate-taxed funds was often complicated.

The Bendel decision provides greater flexibility by allowing certain trust structures to retain and use these funds without automatically triggering Division 7A loan treatment.

This may allow eligible businesses and investors to:

• Preserve working capital
• Acquire assets
• Fund business growth
• Review investment strategies

However, careful planning and compliance remain essential.

Why Small Business Owners Should Pay Attention

Although the Bendel decision is a tax technical matter, the practical impact may be significant.

Many Australian business owners use:

• Family trusts
• Corporate beneficiaries
• Private companies
• Investment structures

These structures are often used for:

• Tax management
• Asset protection
• Business succession
• Long-term wealth creation

The decision may influence how owners approach:

• Retained profits
• Business expansion
• Property acquisitions
• Future wealth planning

However, business owners should not assume the ruling removes all tax risks.

The ATO still has powers to review arrangements that lack genuine commercial purpose.

Who Should Pay Attention?

Several groups may benefit from reviewing their current structures.

Family Business Owners

Owners operating through discretionary trusts and corporate beneficiaries should understand how the ruling affects retained profits and future planning.

Property Investors

Investors using trust structures may wish to review how they acquire and hold future assets.

Company Directors

Directors managing bucket companies should ensure distributions, records, and documentation remain compliant.

High-Net-Worth Individuals

Individuals using private groups and complex structures should review whether their current arrangements remain appropriate.

Business Owners With Existing Division 7A Arrangements

Those making repayments on historical arrangements may wish to seek professional advice regarding their current position.

What Are the Tax and Business Implications?

Division 7A Considerations

The Bendel ruling changes how certain trust-to-company arrangements may be treated.

However, Division 7A remains an important area of tax compliance.

Business owners should still carefully review:

• Shareholder loans
• Company payments
• Private use of business funds
• Historical arrangements

Section 100A Risks

The ATO can still examine trust distributions under Section 100A.

Section 100A generally focuses on arrangements where:

• Income is distributed to one entity
• Another person receives the economic benefit
• The arrangement lacks commercial justification

A trust distribution strategy must have genuine commercial reasoning behind it.

Commercial Substance Is Essential

The Bendel decision does not create unlimited freedom.

Business owners still need:

• Proper documentation
• Clear trust resolutions
• Accurate accounting records
• Commercial explanations for transactions

Poorly structured arrangements may still attract ATO attention.

The 1 July 2028 Tax Changes

One of the most important considerations is the proposed future legislative changes.

From 1 July 2028, changes are expected to significantly alter the treatment of certain trust-to-company distributions.

Under the proposed framework:

• Trust distributions to bucket companies may face additional taxation
• The current strategy may become significantly less attractive
• Business owners may need alternative structures

This means businesses using these arrangements should review their position well before the changes commence.

Waiting until the deadline may limit available planning options.

What Should Business Owners Do Now?

Review Your Business Structure

Identify:

• Existing trusts
• Corporate beneficiaries
• Current UPE balances
• Existing Division 7A arrangements

Understanding your current position is the first step.

Assess Available Capital

Review profits that have already been taxed and determine whether they align with your long-term goals.

This may include:

• Business expansion
• Asset purchases
• Investment planning

Review Documentation

Ensure:

• Trust resolutions are completed correctly
• Records are maintained
• Transactions have clear commercial reasoning

Develop a Long-Term Strategy

The tax environment continues to change.

Business owners should consider how their structures will operate after future reforms take effect.

Common Mistakes to Avoid

Assuming the Bendel Decision Removes All Tax Obligations

The ruling provides flexibility, but other tax rules still apply.

Ignoring Section 100A Risks

Division 7A may not apply, but other anti-avoidance provisions remain relevant.

Using Business Funds for Personal Expenses

Mixing personal and business funds can create serious tax issues.

Making Structural Changes Without Advice

Trust and company structures can have long-term consequences.

Waiting Until 2028

Tax planning opportunities are often limited when changes are already approaching.

Frequently Asked Questions

1. What did the Bendel High Court decision change?

The decision confirmed that an unpaid present entitlement from a trust to a corporate beneficiary is not automatically a Division 7A loan.

2. What is an Unpaid Present Entitlement (UPE)?

A UPE occurs when a trust distributes income to a beneficiary but the cash has not physically been transferred.

3. Does the ruling mean Division 7A no longer applies?

No. Division 7A still applies to many company-related transactions and requires careful management.

4. Can trusts use these funds to purchase assets?

Potentially, depending on the circumstances and structure. Professional advice should be obtained before making decisions.

5. Can property investors benefit from this decision?

Some investors using trust structures may benefit from increased flexibility, but individual circumstances vary.

6. Does the Bendel decision remove ATO scrutiny?

No. The ATO can still review arrangements under provisions such as Section 100A and Part IVA.

7. When are proposed changes expected to begin?

The proposed changes are expected to commence from 1 July 2028.

8. Should businesses restructure before 2028?

Businesses should review their circumstances early and seek advice before making structural changes.

9. Are trust structures still useful?

Yes. Trusts remain an important structure for many businesses and families, depending on objectives.

10. What should business owners do now?

Review structures, understand current obligations, and create a long-term tax and business strategy.

Final Thoughts

The Bendel High Court decision represents a major development for Australian family businesses, investors, and professionals using trust structures.

The ruling provides increased flexibility around unpaid present entitlements and corporate beneficiaries, creating potential opportunities for business growth, investment planning, and wealth management.

However, the tax environment continues to evolve.

With proposed changes expected from 1 July 2028, business owners should avoid treating this as a permanent solution and instead focus on proactive planning.

Understanding your current structure, reviewing your options, and preparing early can help protect your business and financial future.

Need Help Understanding the Bendel Tax Ruling?

If you are unsure how the Bendel decision affects your business structure, tax position, or future planning, speak with Latitude Accountants.

Our team can help you review your trust structures, understand compliance requirements, and make informed decisions as tax rules continue to change.

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Disclaimer

This article provides general information only and does not constitute tax, legal, financial, or investment advice. Tax outcomes depend on individual circumstances, structures, and future legislative changes. Professional advice should be obtained before making business or investment decisions.