Division 7A, Family Trusts and Corporate Beneficiaries

The Full Federal Court’s decision in Commissioner of Taxation v Bendel has made a big impact on trust and tax planning in Australia.

For years the ATO has treated unpaid present entitlements (UPEs) as “loans” under Division 7A. UPEs are money a trust owes to a corporate beneficiary but hasn’t yet paid. This approach often triggered complex compliance requirements and additional tax costs.

The Bendel ruling has overturned that interpretation, offering clarity. It also offers some short-term relief for trustees, advisers, and corporate beneficiaries, including many family businesses and SMSFs in Victoria. However, that decision is not final. The High Court granted the Commissioner special leave to appeal. It will hear the case in the week of 14 October 2025.

What is Division 7A?

Division 7A is designed to prevent private companies from distributing profits to shareholders (or their associates) in ways that avoid tax.

Instead of paying a dividend, for example, a company might provide a loan, and Division 7A ensures that kind of arrangement is taxed properly.

For more than a decade, the ATO applied this reasoning to trusts. If a trust distributed income to a corporate beneficiary but didn’t pay the money across, the ATO said the unpaid amount was effectively a loan. That meant the trust had to comply with strict Division 7A rules, such as setting up formal loan agreements.

The Bendel Decision & Appeal

In Commissioner of Taxation v Bendel [2025] FCAFC 15, the Full Federal Court considered whether an unpaid present entitlement (UPE) should be treated as a Division 7A loan.

The ATO outlines its position in Taxation Determination TD 2022/11. It considers UPEs can amount to “financial accommodation” and therefore fall within Division 7A.

In February 2025, the Court held that a UPE is not a loan and does not fall within Division 7A merely because it remains unpaid.

However, the Commissioner has obtained special leave to appeal to the High Court. Until the Court hands down its judgment, the ATO will maintain its published position, so the ATO may still scrutinise UPE arrangements depending on the facts.

Why does the decision matter?

The decision changes how many trusts (particularly in Victoria) may approach distributions to corporate beneficiaries:

There is now more flexibility for trustees: Trusts can leave UPEs unpaid without automatically triggering Division 7A rules.
There is a potential tax deferral: Trustees may allocate income to a corporate beneficiary at the company tax rate, without moving cash or setting up a loan agreement.
It challenges ATO authority: The Court has rejected the ATO’s long-standing view, though an appeal or legislative change could follow.

What should trustees and advisers do next?

For now, UPEs can be left unpaid without immediate Division 7A consequences, easing compliance.
Avoid unwinding existing arrangements too quickly as the ATO may appeal, or Parliament could change the law.
Document all distributions and UPEs carefully to demonstrate proper management.
Watch for updates over the next year as the government has previously amended tax laws after court decisions.
For Victorian family businesses and SMSFs: With many operating through trusts, this decision may improve cashflow flexibility — but only if monitored and managed carefully.

The Bendel decision creates opportunities for simpler trust management and potential tax savings, but it also brings uncertainty. Trustees should balance short-term flexibility with caution about possible future changes, especially with an appeal in progress.

We recommend interested readers keep a keen eye on our insights page and social media pages (@aintreegroup) for further updates about this case.

If your trust distributes to a corporate beneficiary, now is the time to review your arrangements. Contact Aintree Group Legal for tailored advice on what Bendel may mean for your trust and how to plan for the future.

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant and lawyer.