Many Australian businesses operate through a family trust structure. If that's how your business is set up, a recent High Court decision could reduce some of the compliance burden that trusts and corporate beneficiaries have faced for many years.

The case, known as Commissioner of Taxation v Bendel, was decided by the High Court of Australia on 10 June 2026 and challenges a long-held view of the Australian Tax Office (ATO).

What was the issue?

Many family trusts distribute some of their income to a company within the family group. In many cases:

• the trust distributes income to the company.
• the company is entitled to receive that income.
• the cash remains in the trust to support business operations, fund growth, or provide working capital.

This unpaid amount is commonly called an Unpaid Present Entitlement (UPE).

For many years, the ATO generally treated these unpaid amounts as a loan from the company to the trust under the Division 7A rules.

What is Division 7A?

Division 7A is designed to stop private companies from providing tax-free benefits to shareholders and their associates. The rules can apply when a private company provides:

• a loan.
• a payment.
• a forgiven debt.

If Division 7A applies, the ATO may treat the benefit as an unfranked dividend, which can create an unexpected tax bill.

Because the ATO viewed many unpaid trust distributions as loans, business groups often needed to:

• put formal loan agreements in place.
• charge interest at benchmark rates.
• make minimum annual repayments.
• keep additional records and compliance documentation.

What did the High Court decide?

The High Court rejected the ATO's long-standing position.

The Court found that an unpaid trust distribution is not automatically a Division 7A loan simply because the money has not been paid to the corporate beneficiary.

This is a significant outcome for many family groups because it provides greater certainty around the treatment of unpaid trust distributions.

In simple terms:

• an unpaid distribution does not automatically become a Division 7A loan.
• the fact that funds remain in the trust does not necessarily trigger Division 7A.
• Trusts and advisers may have more flexibility than previously thought.

However, every arrangement must still be assessed based on its specific circumstances.

What if you already have a Division 7A loan agreement?

This is an important point.

Following the decision, the ATO released a Decision Impact Statement confirming it will generally administer the law in line with the High Court's findings.

However, the ATO has also made it clear that existing Division 7A loan agreements cannot simply be cancelled because of the Bendel decision.

If you already have a complying loan agreement in place:

• the agreement remains valid.
• minimum yearly repayments must continue.
• interest obligations still need to be met.
• the loan must be repaid or run its course under the existing agreement.

Failing to do so could still result in a deemed dividend under Division 7A.

Does this mean Division 7A no longer matters?

No. While the Bendel decision is significant, it does not remove all Division 7A risks.

The ATO has confirmed that other Division 7A provisions may still apply in certain situations.

For example:

• A Trust distributes income to a corporate beneficiary.
• The amount remains unpaid.
• The Trust later lends money to a shareholder of that company or a related party.

In some cases, Division 7A may still be triggered. The rules remain complex and highly dependent on the facts.

Don't forget about Section 100A

Another area that business owners should continue to monitor is Section 100A. These anti-avoidance rules can apply where:

• a Trust distribution is made to one beneficiary, but
• another person ultimately enjoys the benefit of the funds.

If Section 100A applies, significant tax consequences can result. The Bendel decision does not change these rules.

What should business owners do now?

The decision provides a good opportunity to review your existing trust arrangements. Business owners may wish to review:

• Trust distribution strategies.
• Corporate Beneficiary arrangements.
• existing Division 7A loan agreements.
• Trust accounting records.
• historical unpaid trust distributions.
• future tax planning strategies.

A review may identify opportunities to simplify administration while ensuring compliance with current tax rules.

Looking Ahead: Proposed Trust Tax Changes

While the Bendel decision is positive news, there could be further changes on the horizon.

The Federal Government has announced plans to introduce a 30% minimum tax rate for discretionary trusts from 01 July 2028. The Government has also indicated that distributions to corporate beneficiaries may be treated differently under the proposed reforms.

In addition, Treasury consultation papers have suggested that future legislation could potentially amend the law so that Division 7A applies more directly to unpaid trust distributions.

These proposals are not yet law, but they could significantly affect how family trust structures are used in the future.

Key Takeaways

The Bendel decision is welcome news for many family trusts. The ruling confirms that:

• unpaid trust distributions are not automatically Division 7A loans.
• many business groups may face less complexity than previously thought.
• existing Division 7A loan agreements still need to be honoured.
• other tax provisions, including Division 7A and Section 100A, can still apply.
• proposed trust tax reforms may change the business structure and tax planning landscape from 01 July 2028.

As always, Trust structures should be reviewed regularly to ensure they remain compliant and continue to support your family's business and wealth objectives.

If you would like to understand how the Bendel decision or the proposed Trust tax reforms may affect your family group, feel free to reach out to your accounting adviser at The Peak Partnership. You can contact us right here.