Bendel High Court grants appeal - Commissioner maintains position

On 12 June 2025, the High Court of Australia has granted the ATO special leave to appeal the decision in the Commissioner of Taxation v Bendel [2025] FCAFC 15.

This means the Full Federal Court (FFC) decision in February 2025, which held that unpaid present entitlements (UPEs) were not "loans" for Division 7A purposes, may be reversed if the High Court finds in favour of the ATO. For details of the previous BDO Technical Update on the FFC Bendel case, read here: Taxpayer implications on UPEs from Bendel Case - BDO.

Following the FFC decision the ATO issued an Interim Decision Impact Statement (IDIS) on this case. Broadly, this IDIS stated that, until the High Court appeal process is exhausted, the ATO will not revise its current views relating to private company entitlements to trust income, as stated in Taxation Determination TD 2022/11. That is, for now the ATO maintains its view that a UPE can become a ‘loan’ for Division 7A.

While the FFC’s decision was a win for taxpayers, now that the HCA has granted the ATO leave to appeal, the matter is far from resolved. Even if the High Court upholds the FFC decision, the implications of this case are complex and, if not dealt with carefully, could result in equally or more onerous tax outcomes than those caused by the ATO’s UPE position.

On 13 June 2025 the Deputy Commissioner (from Private Wealth Client Experience), DC Louise Clarke, released an update to the ATO's comments on the ATO Website regarding the FFC decision: ATO Discussion on the Bendel Decision.

Here is a summary of some of Louise Clark’s comments:

• It's up to individual taxpayers to decide their approach post the FFC’s decision and pending the outcome of the High Court appeal. However, any decision needs to be made with knowledge of the relevant risks and their individual circumstances. Affected taxpayers are “strongly encouraged” to seek advice appropriate to their particular circumstances.
• If a taxpayer has been following the ATO guidance and continue to do so, then they will have certainty regardless of the outcome of the High Court proceedings. That is, they will not be facing the prospects of a deemed dividend or potential application of other integrity provisions.
• If a taxpayer decides to follow the FFC decision and not treat UPEs to a private company as a deemed division 7A loan, taxpayers face the prospect that other integrity provisions may apply to their arrangement (depending on the particular facts), for example Subdivision EA and section 100A.
• It is unlikely the ATO will grant a deferral for the lodgment of tax returns of affected private companies until the special leave application outcome is known.
• it is unlikely the ATO will exercise the discretion in section 109RB to disregard any deemed dividends if the ATO ultimately succeeds in the High Court. Section 109RB allows the ATO to consider exercising discretion to disregard the operation of Division 7A or to allow a deemed dividend to be franked where a deemed dividend arose if there's been an honest mistake or inadvertent omission.

Recommended actions for affected taxpayers

Until the High Court has handed down its decision in the Bendel case, clients that have UPEs from a trust to a private company are recommended to carefully consider the implications of following either the FFC decision or the ATO’s view in its IDIS. To obtain advice on the options please contact your local BDO corporate and international tax specialist.