The High Court resolved the Division 7A loan question
In Commissioner of Taxation v Bendel [2026] HCA 18, the High Court considered whether unpaid present entitlements arising in favour of a private-company beneficiary were loans for the purposes of section 109D of the Income Tax Assessment Act 1936. The decision rejected the proposition that the relevant UPEs were automatically Division 7A loans merely because the trust retained the amounts.
That result is important, but it does not mean trust distributions to company beneficiaries can be left undocumented or used freely.
Section 100A and Subdivision EA still matter
Section 100A can apply where a beneficiary is made presently entitled to trust income under a reimbursement agreement and another person receives the benefit. Subdivision EA can also apply where a trust with an unpaid entitlement owing to a private company provides payments, loans, debt forgiveness or other benefits to a shareholder or associate of that company.
The Bendel outcome on section 109D does not remove those separate integrity rules. Each arrangement needs to be reviewed on its own documents, cash movements and purpose.
What trustees should review
- The trust deed and the wording and timing of annual distribution resolutions.
- Whether the company beneficiary was validly made presently entitled.
- Where the cash was retained and how it was subsequently used.
- Whether shareholders or associates received a payment, loan or other benefit.
- Whether any reimbursement agreement or pre-arranged use of funds exists.
- The company and trust ledgers, bank records and any loan or sub-trust documents.
Do not unwind existing arrangements casually
Existing complying Division 7A loans, repayments and sub-trust arrangements should not be changed solely because of a headline about Bendel. The legal and tax consequences depend on when the entitlement arose, the arrangements already implemented and later movements of cash.
Before changing treatment, reconcile the trust and company records and obtain advice on Division 7A, section 100A and Subdivision EA together.
Practical next steps
Prepare a year-by-year schedule of company-beneficiary entitlements, payments, loans, repayments and benefits provided to related parties. Match the schedule to signed resolutions, tax returns, financial statements and bank records. Any mismatch should be resolved before the next distribution decision or lodgment deadline.
Read the company money and property deposit guide if trust or company funds are being considered for a property transaction.
Authoritative sources
This is general educational information. The treatment depends on the trust deed, resolutions, transactions and applicable law.