High Court UPE trust decision welcomed

Mike Taylor

Managing Editor and Publisher

11 June 2026

The High Court’s decision in the Commissioner of Taxation v Bendel case on the tax treatment of trust entitlements has been welcomed by the Tax Institute as providing important clarification.

The court ruled by a 5-2 majority that a beneficiary’s unpaid present entitlement (UPE) to trust income does not, of itself, constitute a loan or other form of financial accommodation for the purposes of Division 7A of the Tax Action.

The Tax Institute noted that the decision overturns the Tax Commissioner’s long-standing view that UPEs owed by trusts to private company beneficiaries can be treated as loans triggering deemed dividend outcomes.

It said the Court held that, absent an express or implied obligation to repay, a UPE merely reflects an entitlement to income and does not involve the advancement of funds.

Commenting on the decision, The Tax Institute head of Tax and Legal, Julia Abdalla said it brought long-awaited judicial certainty to an area of trust taxation that has been the subject of significant controversy and compliance activity for more than a decade.

She noted the decision is expected to have broad implications for private groups that use trust and company structures, particularly regarding how retained trust profits are managed and taxed.

The Tax Institute noted the following impact on taxpayers

• Reduced Division 7A exposure: Private company beneficiaries of trusts will no longer automatically face deemed dividends where UPEs remain unpaid.
• Greater flexibility for trusts: Trustees can retain funds within the trust without triggering Division 7A outcomes, subject to commercial and fiduciary considerations.
• Potential review of past assessments: Taxpayers may consider objection rights or amendment opportunities where assessments were issued solely on the basis of the Commissioner’s former UPE position.
• ATO guidance likely to change: Existing Taxation Rulings and administrative practices dealing with UPEs are expected to be revised or withdrawn.

“Taxpayers should nevertheless continue to exercise care, as Division 7A will still apply where funds are actually advanced, loaned, or otherwise made available to shareholders or associates,” Abdalla said.

“We’d expect that following this decision, statutory revision of these rules could be included alongside recent trust tax changes announced in the Federal Budget. This is likely not the final word on this part of the tax legislation.”

The decision does not affect the operation of other integrity provisions, including those that may apply where arrangements involve the use of trusts to inappropriately access concessionally taxed company profits.