ATO makes changes following significant Bendel decision

Earlier this month, the High Court of Australia dismissed the Commissioner of Taxation’s appeal in Bendel, with the majority of the bench ruling against its take on unpaid present entitlements (UPEs).

At the time, the ATO said it welcomed the decision and would consider the implications “as soon as possible to provide practical guidance to impacted taxpayers”.

In a decision impact statement released on Friday (26 June), the ATO said the decision contradicted its position in Taxation Determination TD 2022/11 and confirmed it will withdraw the determination and review several other pieces of guidance on Division 7A, UPEs, and Section 100A.

“A private company beneficiary's inaction in respect of an unpaid entitlement to trust income may be insufficient to spare potential implications under other taxation laws, including Subdivision EA and section 100A,” the statement read.

“While their Honours were not determining the issue, their language suggests that Subdivision EA may apply where the funds to which a private company has been made presently entitled have been set aside on a separate trust and other relevant requirements are met.”

Tax experts noted that loans made by a trust with a UPE and a corporate beneficiary may still attract subdivision EA under Division 7A.

Institute of Public Accountants senior tax adviser Tony Greco said while the ATO still maintains other anti-avoidance provisions such as 100A, taxpayers are not automatically winners from the Bendel case.

Law firm Maddocks said Subdivision EA, if found to apply, will consider the amount of a loan or benefit a deemed dividend of the corporate beneficiary of a trust that is owned by an Unpaid Present Entitlement (UPE).

While the firm noted that this is the usual way the Commissioner of Taxation targets UPE arrangements, it could also be empowered by a reimbursement agreement through the targeted anti-avoidance provision Section 100A.

The commissioner may disregard the beneficiary’s UPE to the income where this applies and assess the trustee on the income at the top marginal rate under Section 100A.

In addition, the commissioner has the option to use Part IVA to gain the power to cancel the tax benefit under an arrangement or scheme and to issue amended assessments, the firm added.

“While the Commissioner is aware of the potential application of these powers in lieu of Division 7A as they were noted in the Commissioner’s Decision Impact Statement issued in the wake of the 2025 Federal Court decision, it is not clear at this stage how the Commissioner will apply them in the context of UPEs,” Maddocks said.

MORE TO COME.