The High Court has by majority dismissed the Commissioner's appeal against the Full Federal Court decision in FC of T v Bendel v Anor 2025 ATC ¶20-946; [2025] FCAFC 15. By majority, the High Court found that certain unpaid present entitlements (UPE) did not fall within the expanded definition of "loan" in s 109D(3) of ITAA 1936.
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Facts
The taxpayers were discretionary beneficiaries of the Steven Bendel 2005 Discretionary Trust (the SB Trust). Gleewin Pty Ltd (Gleewin) was the trustee of the SB Trust. The first taxpayer, Mr Bendel, was the sole director and secretary of, and beneficial owner of the shares in, both Gleewin and the second taxpayer, Gleewin Investments Pty Ltd (Gleewin Investments). The entities were part of the Bendel group, which conducted a busy suburban accounting and registered tax agent practice controlled by Mr Bendel.
The first taxpayer became entitled to a share of the income of the SB Trust for the 2014 to 2017 years. The second taxpayer became entitled to a share of the income of the SB Trust for the 2013 to 2017 years — entitlements that were shown as outstanding. The Commissioner considered that:
- the outstanding amounts represented loans to Gleewin within the meaning of s 109D(3) that were taken to be dividends within the meaning of s 109D(1) of ITAA 1936
- those dividends were paid out of the second taxpayer’s profits pursuant to s 109Z of ITAA 1936 and were to be included in Gleewin’s net income (as defined by s 95 of ITAA 1936) pursuant to Div 7A of ITAA 1936, and
- the beneficiaries entitled to Gleewin’s income (ie the taxpayers) were liable to be assessed under s 97 of ITAA 1936 for a proportion of each dividend determined by reference to their proportionate shares of Gleewin’s income.
Assessments were issued to the first taxpayer (for the 2015 and 2017 years) and the second taxpayer (for the 2014 to 2017 years) accordingly. Penalties were also imposed. When the taxpayers’ subsequent objections were substantially disallowed they sought review.
The primary dispute between the parties was whether an amount that was, or had its origins in, a UPE to income of a trust estate conferred upon a corporate beneficiary that remained not fully satisfied or discharged by the relevant lodgment day, was a loan to the trust estate within s 109D(3).
First instance decision
The AAT (at 2023 ATC ¶10-687; [2023] AATA 3074) set aside the objection decisions. It found that a loan within the meaning of s 109D(3) did not reach so far as to embrace the rights in equity created when entitlements to trust income (or capital) were created but not satisfied and remained unpaid. The balance of an outstanding or unpaid entitlement of a corporate beneficiary of a trust, whether held on a separate trust or otherwise, was not a loan to the trustee of that trust.
From that decision the Commissioner appealed to the Full Federal Court, submitting that the AAT made 3 fundamental errors in its construction of Div 7A, being that it failed to address the correct statutory question, to give effect to the ordinary and plain meaning of s 109D(3), and to give effect to the legislative purpose of Div 7A.
Full Federal Court decision
In a joint judgment, the full court (Logan, Hespe and Neskovcin JJ) dismissed the Commissioner’s appeal. It said that the Commissioner’s construction of s 109D could not be accepted. The full court said that s 109D(3) encapsulated a concept of repayment; it required an obligation to repay not just an obligation to pay. Accordingly, the Commissioner's construction that a UPE constituted a Div 7A loan could not be accepted.
High Court decision
The High Court by majority (5:2) again dismissed the Commissioner's appeal. The majority held that, by not calling for payment of the UPE set aside for it, Gleewin Investments did not provide "financial accommodation" under s 109D(3)(b), nor did it "in substance" effect a "loan of money" under s 109D(3)(d), to Gleewin. The majority also held that the resolutions to set aside the amounts for Gleewin Investments did not relevantly effect the distribution of the UPE, and that no debtor/creditor relationship arose between Gleewin and Gleewin Investments. Rather, by resolutions, the UPE was held on separate trust for Gleewin Investments.
Source: FC of T v Bendel & Anor 2026 ATC ¶21-021, [2026] HCA 18, 10 June 2026.