After Commissioner of Taxation v Bendel [2026] HCA 18, decided 10 June 2026, an unpaid present entitlement a corporate beneficiary simply leaves outstanding is not a Division 7A loan. Money a shareholder actually draws out of a trading company still is. Subdivision EA and section 100A are untouched.

Somewhere between the golf course and the accountant’s waiting room, a sentence started doing the rounds among Melbourne business owners: “Division 7A is dead.” It is not. What died was one specific ATO position about one specific arrangement. Almost every owner who has repeated that sentence to us since June has drawn the wrong practical conclusion from it, and a few of them were about to make an expensive mistake.

This article sorts the two halves apart. Mina Baselyous is a Certified Practising Accountant (CPA), Chartered Tax Advisor (CTA) and Registered Tax Agent, and Pinnacle Accounting & Advisory has spent the months since the decision working through client structures line by line. What follows is what we are actually telling owners with a family trust and a bucket company, sourced to the High Court and the ATO rather than to the bloke at the barbecue.

What the High Court Actually Decided in Bendel

The High Court held that a private company beneficiary which does nothing about its unpaid entitlement to trust income does not make a loan under subsection 109D(3). Providing financial accommodation requires the company to do something that transfers, supplies or grants value. Mere inactivity is not enough. The Commissioner’s appeal was dismissed.

The facts were the ordinary family trust arrangement thousands of Australian businesses run. A discretionary trust resolved to set aside income for a corporate beneficiary. The company never called for the money. The Commissioner assessed the difference as a deemed dividend on the basis that leaving the entitlement outstanding was the “provision of financial accommodation” under paragraph 109D(3)(b).

The majority rejected that reading. According to the ATO’s own Decision Impact Statement published on 26 June 2026, the Court held that the provision of financial accommodation involves some bilateral activity, that there is no provision of financial accommodation when a private company does nothing, and that simply acquiescing to the retention of funds is not a transaction which in substance effects a loan. The Court also leaned on the structure of Division 7A itself: Parliament wrote Subdivision EA specifically to deal with unpaid present entitlements, which would have been unnecessary if the ordinary definition of loan already caught them.

The judgment was handed down on 10 June 2026 and the full reasons are published by the High Court of Australia. It was a majority decision, not a unanimous one: two judges would have found that financial accommodation had been provided.

Why “Division 7A Is Dead” Is the Wrong Conclusion

Bendel decided one question: whether a passive unpaid present entitlement is a loan under section 109D. It did not touch Subdivision EA, section 100A, the treatment of actual drawings, the distributable surplus calculation, or loans already converted to complying terms. Division 7A remains fully operative in every one of those areas.

The ATO said as much in the same breath as it accepted the loss. Its Decision Impact Statement notes that a private company beneficiary’s inaction may be insufficient to spare potential implications under other taxation laws, including Subdivision EA and section 100A, and the ATO repeated the point in its business bulletin of 1 July 2026.

In our experience the owners most at risk right now are not the ones who ignored the news. They are the ones who heard it, relaxed, and stopped asking their accountant about the company card, the personal expenses paid from the business account, and the money that went across to fund a deposit last November. None of that was ever a UPE issue. All of it is still a straight Division 7A loan issue.

Your Bucket Company UPE: What Changes and What Does Not

A UPE your bucket company has simply left sitting is not a Division 7A loan, and the ATO has confirmed it will not treat it as one. But a UPE you already converted to a complying section 109N loan remains a loan, and must keep being serviced. The distinction turns entirely on what was done, not on what the entitlement was called.

A UPE Left Outstanding Is Not a Loan

The Decision Impact Statement is direct on this. Where a private company beneficiary has not taken any relevant action in respect of its UPE, the Commissioner will not treat it as a loan for the purposes of section 109D, and that holds whether or not the amount is held on a separate trust. The ATO also confirms that entitlements set aside on sub-trusts under the old Practice Statement will not be loans either.

If you have been assessed on the basis that a bare UPE was a loan, the ATO has opened the door to amendments and objections, and says it will consider extension of time requests where the objection arises as a result of this decision. That is worth a conversation, not a wait-and-see.

A UPE Already Converted to a Complying Loan Is Still a Loan

This is the single most misunderstood point of the whole decision, and it is the one we spend the most time on in client meetings. Bendel does not unwind anything. If, at some point in the last decade, your adviser papered the UPE into a seven year complying loan agreement under section 109N, that is a loan as a matter of fact and it stays a loan.

The ATO puts it plainly in the Decision Impact Statement: UPEs that have been made subject to complying loan terms are, as a matter of fact, loans, and will continue to be treated consistently as loans. It goes further, and this is the part that surprises people. Where the entitlement has already been satisfied or converted into a loan, it has ceased to be a UPE, and the decision does not reinstate it as a mere UPE. The ATO specifically says the entitlement will not be treated as remaining unpaid merely because the conversion was done on a mistaken understanding of the law.

Read that twice, because the practical consequence is blunt. You converted because the ATO told you to. The ATO was wrong. You still have to service the loan.

That means the minimum yearly repayment still has to be made, and the interest still has to be paid, not merely journalled. The Division 7A benchmark interest rate for the income year ended 30 June 2026 was 8.37% per annum, published by the ATO and based on the Reserve Bank indicator lending rate of 6 June 2025. Confirm the rate for the current income year before you calculate anything, because it is reset annually. Miss the repayment and the shortfall is a deemed unfranked dividend taxed at your marginal rate, with no franking credit to soften it. Our guide to how Division 7A loan repayments work and what happens if you miss them walks through the arithmetic.

One narrower point worth knowing if you run a sub-trust: the ATO has said that varying the terms of an investment agreement between a sub-trust and the main trust, for example changing the interest rate or the term, will not of itself turn the arrangement into a loan, though it depends on the nature and effect of the variation. Do not treat that as a licence to start rewriting documents without advice.

What to Do With a UPE Sitting on Your Balance Sheet Now

Start by working out which kind you have, because the label in the accounts is not reliable. We open every one of these reviews with the same four documents: the trust deed, the trustee resolutions, the accounting records, and any loan or investment agreement that was ever signed over the entitlement. The ATO’s Decision Impact Statement lists exactly those four as the things that determine the character of the amount.

What we find, more often than owners expect, is that the paperwork and the ledger tell different stories. A trust that has been quietly paying interest on a “converted” loan for six years, where no agreement can actually be produced, is in a very different position from one where the deed is in the drawer and the agreement is signed. Both look identical on a balance sheet.

If you have been paying interest on a converted loan, do not stop paying it on the strength of a headline. Stopping mid-year on a genuinely complying loan creates a minimum yearly repayment shortfall, and that shortfall is a deemed dividend in your hands. Get the arrangement characterised first, then decide.

Subdivision EA Still Bites

Subdivision EA is untouched by Bendel. Where a private company has an unpaid present entitlement and the trust pays, lends to, or forgives a debt of a shareholder of that company or an associate of a shareholder, a deemed dividend can still arise. The High Court in fact observed that these facts broadly corresponded with the circumstances Subdivision EA is addressed to.

This is the provision that catches the arrangement most Melbourne family groups actually run. The trust distributes to the bucket company, the cash never moves, and then the trust pays for something personal, school fees, a car, a renovation, on behalf of a shareholder or their spouse. The UPE is not a loan. The payment out of the trust can still be a deemed dividend. The ATO confirms in the Decision Impact Statement that where a private company beneficiary has a UPE and the trust, including any relevant separate trust, pays, makes a loan to, or forgives a debt of a shareholder or associate of a shareholder, it may have cause to consider Subdivision EA.

Put simply: Bendel protects the entitlement sitting still. It does nothing for money that moves.

Section 100A Still Bites, and It Has No Time Limit

Section 100A applies where a trust entitlement arises out of a reimbursement agreement, broadly an arrangement entered into outside the course of ordinary family or commercial dealing under which someone other than the beneficiary gets the benefit and someone’s tax liability is reduced. Where it applies, the trustee is taxed at the top marginal rate, and there is no amendment time limit.

The ATO flagged this in the Decision Impact Statement as one of the provisions a passive corporate beneficiary does not escape. It is a materially worse outcome than Division 7A. A Division 7A deemed dividend is assessed to the shareholder at their marginal rate. A section 100A assessment puts the trustee on the top marginal rate with no franking and, critically, no limit on how far back the Commissioner can reach.

“The clients who worry me after Bendel are the ones who now think a distribution to a bucket company is consequence free,” says Mina Baselyous, CPA, CTA and Registered Tax Agent. “Section 100A does not care that the entitlement is not a loan. It cares about who ends up with the benefit, and whether the arrangement looks like ordinary family dealing. That question did not change on 10 June.”

Money Drawn Out of the Trading Company Was Never Safe

Cash a shareholder or an associate actually takes out of a private company is a loan under section 109D and always has been. Bendel changes nothing here. There is no inactivity to argue about: the company has transferred value. Without a complying loan agreement signed in time, the amount is a deemed unfranked dividend in the recipient’s hands.

This is the half of the headline that gets forgotten. The Bendel argument was only ever available because the company did nothing. Once money leaves the company bank account and lands with a shareholder, their spouse, their family trust or another related entity, you are squarely inside Division 7A as it has always operated, and the ATO’s guidance on loans by private companies applies unchanged.

The mechanics have not moved either. The loan agreement must be in writing and executed by the earlier of the company’s lodgement due date and its actual lodgement date. The term is capped at seven years unsecured, or 25 years where secured by a registered mortgage over real property. Interest must be charged at or above the benchmark rate. The minimum yearly repayment must be actually paid by 30 June, not accrued. Our rundown of the most common Division 7A loan traps covers where owners come unstuck.

In practice, the drawings problem is a bookkeeping problem before it is a tax problem. We regularly review a set of accounts where the shareholder loan account has crept up by tens of thousands across a year in small personal transactions nobody categorised. Nothing about Bendel helps with that.

Why the Distributable Surplus Calculation Still Matters

A Division 7A deemed dividend is capped at the company’s distributable surplus for the income year. Because Bendel removes bare UPEs from the section 109D net but leaves drawings, Subdivision EA and debt forgiveness inside it, the distributable surplus calculation is now doing more of the work in a typical family group, not less.

The calculation is the ceiling on your exposure. If the deemed dividends arising in a year exceed the distributable surplus, the excess is not assessed. That makes it the number worth knowing before you plan the year, not after you get the assessment. It also means the composition of the company’s balance sheet, its net assets, non-commercial loans, paid up share value and repayments of non-commercial loans, has direct consequences for how much of a mistake actually costs you. We set out the mechanics and worked examples in our guide to Division 7A distributable surplus for Melbourne business owners.

One caution we give every client: distributable surplus is a year by year figure, and a company that has none this year may have a large one next year. It is a cap, not a shield.

Where the ATO Guidance Stands Right Now

Taxation Ruling TR 2010/3 and Practice Statement PS LA 2010/4 were both withdrawn with effect from 1 July 2022, well before Bendel, and were replaced by Taxation Determination TD 2022/11. The ATO has said it will withdraw TD 2022/11 as a consequence of the decision, and is reviewing a further set of rulings and guidelines.

It is worth being precise about the sequence, because the two events get run together. The withdrawal notice for TR 2010/3 is dated 30 June 2022 and withdrew the ruling with effect from 1 July 2022. That had nothing to do with Bendel. It was part of the ATO’s own refresh of its UPE position, and TD 2022/11 was issued to cover entitlements arising on or after 1 July 2022. Entities could continue to rely on TR 2010/3 and PS LA 2010/4 for entitlements conferred on or before 30 June 2022.

As at late September 2026, TD 2022/11 is still published on the ATO Legal Database and carries a notice that it is being reviewed as a result of a recent court decision. The Decision Impact Statement states that the ATO will withdraw it. We have not located an actual withdrawal notice, so treat the determination as on foot but superseded in practice by the ATO view expressed in the Decision Impact Statement, and check its status before relying on it. The ATO has also said it will review TR 2022/4, TR 2015/4, TD 2015/20, TD 2011/15, PCG 2022/2 and PCG 2017/13.

Where the ATO does withdraw a public ruling, it continues to apply to schemes that had begun to be carried out before the withdrawal, where that is favourable to the taxpayer.

What Melbourne Business Owners Should Do Now

Characterise every entitlement and loan in the group before you change anything. Keep servicing genuinely complying loans. Review whether any trust payments to shareholders or associates expose you to Subdivision EA. Test your distributions against section 100A. Then, and only then, look at whether an amendment or objection is worth lodging for prior years.

• Map the group. Every trust, every company, every entitlement, every loan account, with the deed, resolutions and agreements sitting beside the ledger.
• Split UPEs from loans. Bare UPEs are outside section 109D. Converted loans are not. The accounts alone will not tell you which is which.
• Do not stop servicing a complying loan. A mid-stream stop creates a shortfall and a deemed dividend.
• Trace the money. Anything that moved from the trust to a shareholder or associate while a UPE was outstanding needs a Subdivision EA review.
• Pressure test the distributions. Section 100A has no time limit, which makes it the longest tail risk in the structure.
• Clean up drawings. Shareholder loan accounts in the trading company need agreements, interest and repayments, exactly as before.
• Then consider amendments. If prior year assessments treated a bare UPE as a loan, the ATO has invited objections and will consider extensions of time.

This is the kind of work that belongs in a structured annual review rather than a panic in June. It sits alongside proper tax planning and a considered look at whether the structure itself is still the right one for where the business is now. A decision this significant is a good reason to open the bonnet on the whole group, not just the one balance.

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