Jack Donkin
Jack Donkin
Senior Analyst
Catherine Davidson
Catherine Davidson

Get an in-depth understanding of the recent Bendel decision and its impact on the Australian Taxation Office’s approach to Unpaid Present Entitlements. 

This Insight provides a comprehensive analysis of the AAT’s decision, the Commissioner’s appeal, and the potential implications for UPEs.

Key Insights:court case decision analysis

  1. The ATO has released an Interim Decision Impact Statement in response to the Bendel case.
  2. The Bendel case challenged the ATO’s view that UPEs to corporate beneficiaries are loans for Division 7A purposes.
  3. The ATO will continue to apply TD 2022/11 and observe a stay on impacted objection requests, pending the outcome of the Commissioner’s appeal to the Federal Court.


Interim Decision Impact Statement (DIS) – Bendel and Commissioner of Taxation has confirmed that the Australian Taxation Office (ATO) will continue to apply the principles set out in TD 2022/11, whilst observing a stay on impacted objection requests, pending the outcome of the Commissioner of Taxation’s (Commissioner) appeal to the Federal Court.

The Commissioner’s appeal has ended speculation regarding the administrative approach that would be adopted following the Administrative Appeals Tribunal (AAT) decision in Bendel and Commissioner of Taxation (Taxation) [2023] AAT 3074 (Bendel) and the Commissioner’s subsequent lodgment of a notice of appeal to the Federal Court against that decision in late October.

Broadly, it was held in Bendel that unpaid present entitlements (UPE) [1].   were not ‘loans’ and could therefore not give rise to deemed dividends under Division 7A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).  

Background facts of case

The Bendel Group consisted of trust entities that conducted a suburban accounting and registered tax agent practice controlled by Mr Bendel, and/or participated in commercial property syndicates which Mr Bendel operated with his brother. The Steven Bendel 2005 Discretionary Trust (2005 Trust), Gleewin Pty Ltd (Gleewin) [2] and Gleewin Investments Pty Ltd (Gleewin Investments) were part of that insights

Relevantly, Gleewin Investments was a discretionary beneficiary of the 2005 Trust for the 2014 to 2017 income years, during which time approximately $1.38m of trust income was distributed in favour of Gleewin Investments. At the end of the relevant income years, the amounts remained as UPEs on the 2005 Trust’s balance sheet, as no steps toward payment had been made.

Following an audit, the Commissioner issued amended assessments for each income year on the basis that the UPEs amounted to ‘financial accommodation’ and consequently loans for the purposes of Division 7A [3] ,thereby giving rise to deemed dividends equal to the UPEs [4] The position adopted by the Commissioner in connection with the audit was largely consistent with prevailing administrative guidance.

Gleewin objected to the amended assessments issued by the Commissioner and argued that the UPEs did not constitute ‘financial accommodation’ and were therefore not loans for Division 7A purposes. 

Administrative Appeals Tribunal – Decision

The taxpayer contended that UPEs are specifically addressed under different provisions of the ITAA 1936[5] and accordingly could not be classified as loans as defined for Division 7A purposes [6]. The taxpayer further observed that the Commissioner’s approach could conceivably lead to double taxation.div 7a loans insights

The AAT agreed with the taxpayer’s contention that UPEs owed by a trust to a corporate beneficiary did not meet the relevant definition of a ‘loan’, and that UPEs are instead specifically and exclusively dealt with elsewhere within Division 7A.

Commissioner’s view on UPEs

Pre 2009 UPEs             
The Commissioner has adopted a compliance approach whereby he will not treat UPEs created prior to 16 December 2009 as ‘loans’ for Division 7A purposes. Compliance risks are low if the UPE has not been adjusted through partial repayments or similar offsets, and such UPEs have generally been able to remain on the balance sheet without any tax consequences. 

16 December 2009 to 30 June 2022             
On 2 June 2010, the Commissioner issued Taxation Ruling (TR) 2010/3, which set out his revised position pertaining to UPEs owing to private companies, with the conclusion being that UPEs may be ‘financial accommodation’ and therefore a loan for Division 7A purposes. The term ‘pre-2009 UPEs’ was coined to distinguish the tax outcomes of such liabilities that arose before 16 December 2009. UPEs arising on or after that date could be subject to Division 7A loan arrangements.

Practice Statement Law Administration (PS LA) 2010/4 soon followed on 14 October 2010, offering practical guidance on how the ATO would administer the view set out in TR 2010/3.

Outstanding UPE’s would convert to loans in the year following the entitlement being made, with the following options available under the above guidance:

  1. Loan is placed on a complying Division 7A loan agreement for a 7-year term where minimum repayments plus interest calculated using the Division 7A benchmark rates are made toward the outstanding balance each year.court case tax insights
  2. Loan is placed on a complying Division 7A loan agreement for a 25-year term that is interest only at the Division 7A benchmark interest rates, provided security that can cover 110% of the amount the loan is offered.
  3. UPE is placed on “sub trust” with the funds held clearly and identifiably separate to the trust’s funds, to be utilised for the sole benefit of the private company. The arrangement could be interest only for 7 years at the Division 7A benchmark interest rates, or 10 years at the Reserve Bank of Australia’s indicator lending rate for small business variable overdrafts. 

From 1 July 2022             
Nearing the end date of the initial sub trust arrangements, Practice Compliance Guideline (PCG) 2017/3 confirmed that expiring arrangements could be converted to either 7 or 25 year loan agreements, before Taxation Determination (TD) 2022/11 replaced the now withdrawn TR 2010/3 and PS LA 2010/4 with a revised view that broadened the operation of the provisions whilst effectively removing the use of sub trust arrangements (from 1 July 2022).

It had been accepted as commonplace for tax practitioners to apply the treatment of UPEs as outlined in these various communications from the ATO, with UPE’s converting into loans in the year following the distribution, actuating into Division 7A loans if still unpaid by return lodgement dates. This resulted in additional compliance time and loan interest payments.

The outcome of the Bendel case and the subsequent decision by the AAT starkly contradicts the approach suggested in this initial guidance.

Implications of Bendel

The decision in Bendel is a landmark one that brings into question the ATO’s stance on the treatment of UPEs as loans, potentially reinstating the treatment of UPEs pre-2009. Considerable compliance costs and interest charges have been incurred in managing UPEs, with the AAT’s decision casting considerable doubt over the necessity of these expenses.

As noted at the outset of this Insight, in addition to reaffirming the Commissioner’s view with respect to the Division 7A treatment of UPEs as detailed in TD 2022/11, the ATO also confirmed that it will not finalise any impacted objection decisions until the appeal process has completed.bendal v commissioner explained

It is important to note that the AAT is not a court and that whilst its Bendel is binding on the Commissioner with respect to the specific amended assessments (unless successfully appealed), is not binding in law.

Notwithstanding that taxpayers may have a reasonably arguable position by relying on the Bendel case for the time being, clients are advised that deviating from the ATO’s published views carries risk. We recommend that, until all appeals rights are finalised, and a corresponding view is issued by the ATO:

  1. UPEs for years ended 30 June 2022 and earlier continue to be administered in accordance with any Division 7A arrangements applied at the time; and
  2. In accordance with the Commissioner’s current practice, UPEs arising for the year ended 30 June 2023 may only fall within the Division 7A provisions for the year ended 30 June 2024. As such, taxpayers have until the lodgement of the relevant income tax return to decide how to comply with those provisions, likely no earlier than 31 October 2024. It is hoped that the appeal will be resolved prior to this time.

RSM will be closely monitoring any developments in this case and will keep you informed. This will be particularly relevant to any taxpayers issued with assessments for deemed dividends under Division 7A to which this development may apply.


Should you wish to discuss the impacts of the Bendel case further, please contact your local RSM adviser.

[1] A UPE arises when the trustee makes a distribution of income to a beneficiary but keeps the cash in the trust, leaving the distribution “’unpaid’. 

[2] Gleewin was the trustee of the 2005 Trust. 

[3] ITAA 1936, subsection 109D(3). 

[4] ITAA 1936, subsections 109D(1) and 109D(1AA). 

[5] ITAA 1936, subdivision EA of Division 7A. 

[6] ITAA 1936, subsection 109D(3).