A significant shift in how trust distributions are viewed

On 10 June 2026, the High Court handed down its decision in Commissioner of Taxation v Bendel. This is a major development for family trusts and private business groups that use corporate beneficiaries as part of their structure.

For many years, business owners have used trusts to distribute income to a company (often called a “bucket company”) so that profits are taxed at the company tax rate, while the cash stays in the operating company to support the business or fund investments.

The Bendel decision directly affects how these arrangements are treated.

The issue – unpaid trust distributions

In a typical structure:

  • A trust distributes income to a company
  • The company pays tax on that income
  • The cash is not paid out immediately

This unpaid amount is called an unpaid present entitlement (UPE).

For many years, the ATO treated many UPEs as loans for Division 7A purposes. This meant:

  • Complex compliance requirements
  • The need to document loan agreements
  • Risk of deemed dividends if not managed correctly

What the High Court decided

The High Court rejected the ATO’s position on the facts of this case.

In simple terms, the Court said:

  • A UPE is not automatically a loan just because it remains unpaid
  • Doing nothing (that is, not calling for payment) is not the same as lending money
  • Whether a loan exists depends on the actual legal and commercial relationship

The Court looked closely at the trust deed, trustee resolutions and accounting treatment. In Bendel, it found the amounts were held separately for the company and that no borrower–lender relationship existed.

Why this matters

This decision challenges a long-standing ATO approach that has influenced trust planning for more than a decade.

In practical terms:

  • UPEs may no longer trigger Division 7A automatically
  • Some existing arrangements may have been more conservative than necessary
  • There may be planning opportunities going forward

However, this does not mean all UPE arrangements are now safe.

Important cautions

While the decision is positive, there are still important risks:

  • The ATO is reviewing the decision and will update its guidance
  • Other tax rules may apply depending on the facts, including:
    • Subdivision EA
    • Section 100A (reimbursement agreements)
    • Part IVA (anti-avoidance rules)
  • Loans, payments or benefits provided to individuals can still trigger Division 7A
  • Each structure depends heavily on its trust deed and how it is operated

In short, the decision removes one risk, but does not remove all risk.

Federal Budget changes – a bigger picture issue

At the same time, the 2026–27 Federal Budget proposes major changes to how discretionary trusts are taxed from 1 July 2028.

Key proposed changes include:

  • A minimum 30% tax on trust income
  • Limited or no benefit from distributing income to lower-tax beneficiaries
  • Corporate beneficiaries not receiving credits for tax already paid at the trust level

If enacted, these changes may significantly reduce the effectiveness of traditional “bucket company” strategies and could lead to double taxation in some cases.

What should you do now

Given the uncertainty, a cautious and practical approach is recommended:

  • Do not unwind existing structures without advice
  • Continue to follow established processes for year-end distributions
  • Review your trust deed, resolutions and documentation
  • Do not assume Bendel applies to your situation
  • Wait for further ATO guidance before making major changes

Most importantly, review your position in the context of both the Bendel decision and the proposed Budget changes.

Final thoughts

The Bendel decision is a significant and welcome clarification for many business owners. It removes a key technical risk that has applied to trusts and corporate beneficiaries for many years.

However, it comes at a time when broader tax reforms may change how trusts are used in the future.

The combination of these developments means this is an ideal time to review your structure and ensure it remains appropriate.

Need help?

If you would like to understand how the Bendel decision impacts your situation, please contact your Holman Hodge adviser.