Given I am currently pretending to be familiar with the works of Homer, an allegory from Greek mythology feels appropriate to apply to Commissioner of Taxation v Bendel [2026] HCA 18 (Bendel). This High Court decision (5-2) illustrates that the correct characterisation and effect of the underlying Trust Deed (and consistent resolutions) will determine the liability to tax – not the adamant position of the Australian Taxation Office (ATO).
Another trust case with significant implications is currently being heard in the Federal Court (John Seymour Property Investments Pty Limited in its capacity as trustee of the John Seymour Property Trust v Commissioner of Taxation SAD210/2025) in a different statutory context concerning family trust distribution tax. This case will be closely watched given the writs lodged in the Supreme Court on 26 June 2026 by prominent WA builders.
In Bendel, the High Court dismissed the Commissioner’s appeal and held that the Unpaid Present Entitlements (UPEs) of a corporate beneficiary did not constitute loans to the trustee of a discretionary trust. The ATO’s view was that a corporate beneficiary’s UPE can amount to “financial accommodation” or a loan under s.109D of the Income Tax Assessment Act 1936 (Cth). This provision deems certain amounts falling within the definition of “loan” in s.109D(3) to be dividends. Broadly, a loan includes “a provision of credit or any other form of financial accommodation” and “a transaction which in substance effects a loan of money”.
The decision turned on the mechanics of the Trust Deed and the equitable nature of the UPE. Under the Bendel Trust Deed, income resolved to be “set aside” for the corporate beneficiary ceased to form part of the general trust fund and was held on a separate fixed trust for the beneficiary. The beneficiary did not, at any relevant time, call for payment to be made.
The High Court explained that setting aside the income did not itself create an unconditional obligation to pay. Rather, the words “pending payment” meant that “something more must occur before payment must be effected, and before there arises an unconditional duty to pay”: paragraph 40. Until further action is undertaken, the nature of the relationship is one of trustee and beneficiary rather than debtor and creditor. The High Court analysed other decisions where indebtedness was acknowledged by the trustee or recorded in trustee resolutions.
The majority also rejected the Commissioner’s broader interpretation of what constitutes a “loan” finding that financial accommodation requires an “anterior transfer of value” or “pecuniary assistance involving bilateral activity”. Where a corporate beneficiary is passive, there is no advance, provision, payment or transaction. The High Court states at paragraph 74: “Simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan.”
Therefore, an equitable entitlement does not automatically become a debt simply because it is unpaid. In order for a taxation liability to arise, the Trust Deed and resolutions must be interpreted as creating an entitlement for the beneficiary to that distribution, and a corresponding obligation on the trustee to pay – informed by the conduct of the beneficiary. Further, accounting terminology does not determine the dispute. For example, recording a corporate beneficiary’s UPEs in a “Beneficiaries Current Account” is not persuasive. This is a question of fact to be analysed in each instance.
Key learning
As Mr Bendel demonstrated, the courage of your convictions (with a cogent Trust Deed and supporting resolutions) means that the Sword of Damocles will not fall.
