The ATO has released a Decision Impact Statement (DIS) in response to the High Court's decision in Commissioner of Taxation v Bendel [2026] HCA 18, accepting that a corporate beneficiary's unpaid present entitlement (UPE), without more, is not a loan for the purposes of Division 7A.

In the DIS, the ATO acknowledges that where a corporate beneficiary has taken no relevant action in relation to its UPE, the Commissioner will no longer treat the UPE as a Division 7A loan, regardless of whether the amount is held on a separate trust. However, the ATO emphasises that the characterisation of a UPE remains highly fact-dependent, requiring consideration of the trust deed, trustee resolutions, accounting records and any subsequent dealings with the entitlement.

Importantly, the ATO has confirmed that the decision does not eliminate the potential application of other provisions, including Subdivision EA and s 100A. In particular, the Commissioner considers that Subdivision EA may apply where trust funds representing a corporate beneficiary's entitlement are used for the benefit of shareholders or their associates.

The ATO has also clarified that arrangements where UPEs have subsequently been satisfied, converted into loans or otherwise dealt with in a manner falling within s 109D(3) will continue to be assessed according to their legal character. Existing complying Division 7A loan arrangements will not be unwound as a consequence of Bendel.

The DIS is a significant concession by the Commissioner following the final rejection of the ATO's longstanding UPE position. However, the ATO has signalled that trust arrangements involving corporate beneficiaries will continue to attract scrutiny, particularly under Subdivision EA and s 100A.

Commissioner of Taxation v Bendel [2026] HCA 18 (Published 26 June 2026) | Legal database