Trusts and Division 7A: A Strategic Reset for Australian Private Groups After Bendel

As a forward-thinking business owner or investor, your focus is always on creating 'tenfold' growth, not managing cumbersome tax compliance. That's why keeping a pulse on significant shifts in Australian tax law is critical.

In June 2026, the Australian High Court handed down a landmark decision in Commissioner of Taxation v Bendel, decisively resolving a long-standing point of contention between private groups and the Australian Taxation Office (ATO). The ruling represents a significant taxpayer victory and a reset for how we must approach the use of trusts and corporate beneficiaries.

Here is a summary of the case and, more importantly, the ongoing legislative response you need to be aware of.

The Problem Bendel Solved: The ATO's "Financial Accommodation" Rule

For over 15 years, based on its view of 'financial accommodation', the ATO maintained that an Unpaid Present Entitlement (UPE) from a trust to a corporate beneficiary was effectively a 'loan' from the company to the trust.

A UPE occurs when a trust resolves to distribute its income to a 'bucket company' (to access the lower corporate tax rate) but keeps the actual cash within the trust for working capital or investment.

Under the ATO’s former view, to avoid a 'deemed dividend' and the associated heavy tax penalties under Division 7A, these UPEs had to be:

• Paid in full, or
• Converted into a formal Division 7A loan, requiring strict minimum annual principal and interest repayments over a 7-year term.

This created significant compliance costs and administrative burdens, forcing business owners to find cash flow to service internal 'loans' rather than reinvesting in growth.

The High Court's Verdict: "Doing Nothing" Is Not a Loan

The High Court, in a 5-2 majority, disagreed with the ATO's broad interpretation. The court firmly held that a corporate beneficiary's mere failure or inaction to call for payment of a UPE does not, of itself, constitute the making of a loan or the provision of 'financial accommodation' for the purposes of Division 7A section 109D.

The core of the decision is powerful: Division 7A requires an active transfer of value by the company to someone else. "Doing nothing" does not satisfy this requirement.

The Legislative Response: Ongoing Uncertainty and Potential Future Change

While the Bendel decision is a clear win, it’s not the end of the story. The resulting legislative response has created a period of transition, requiring careful navigation.

Here’s what you must know about the current environment:

1. No Immediate 'Bendel Fix Act' (Yet)
   The government has not immediately passed a single piece of legislation to 'overturn' the Bendel decision. However, this doesn't mean the matter is settled.
2. Government Intent and Potential Targeted Amendments
   The government, along with the ATO, has acknowledged the decision. They have expressed a strong policy intent to ensure the core objective of Division 7A (preventing trust profits from being taxed at the low company rate but enjoyed by individuals) is maintained. The government is expected to introduce amendments to the Income Tax Assessment Act that would specifically target UPEs, potentially through separate integrity rules rather than expanding the definition of 'loan' under section 109D.
3. Other Integrity Rules Still Apply
   It is crucial to understand that Bendel only removed one specific deemed dividend rule. Other tax rules still create significant risk if trust-to-company arrangements are not commercially justifiable.
   • Subdivision EA: This specific integrity rule (which addresses UPEs when a trust lends to a shareholder) survives and is likely to be applied more rigorously. If a trust owes a UPE to a company and subsequently lends money to a shareholder of that company, Subdivision EA can still create a deemed dividend.
   • Section 100A: In certain, pre-determined or 'reimbursement' arrangements, section 100A can invalidate a trust distribution and tax the trustee at the top marginal rate.
4. The 30% Trust Minimum Tax (From 2028)
   Finally, in a separate but related move, the government announced a new 30% minimum tax on all discretionary trusts starting from 1 July 2028. This upcoming change will effectively remove the tax arbitrage benefit of using corporate beneficiaries, regardless of the ultimate Bendel outcome or any resulting legislative 'fix'.

What This Means for Tenfold Wealth Clients: Strategic Action Required

The Bendel era offers a momentary opportunity for improved flexibility and cash flow management, but it must be met with caution and proactive review. Here is our Tenfold perspective for your private group:

• Do Not Rush to Permanent Change: While you might no longer need new Division 7A loan agreements for simple UPEs, historical arrangements that are already under agreement are binding. Do not terminate these without a thorough review.
• Strategic Deed Review: The success of Bendel turned, in part, on the specific, narrow wording of the trust deed and distribution resolutions. A general review of your trust deed is paramount.
• Improved Cash Flow Strategy: Bendel allows private groups more flexibility on how they reinvest trust profits for business growth or wealth creation. We can work with you to develop optimized cash flow management strategies, free from the burden of artificial loan repayments.
• Proactive 2028 Planning: With the upcoming 30% minimum trust tax, we need to begin designing your private group's structure and strategy to transition smoothly from the 'bucket company' model by 1 July 2028.