Whilst taxpayers may have been hoping for the death of the relationship between unpaid trust distributions and Division 7A, the ATO has now sought leave to appeal the recent decision in Bendel v FCT [2025] to the High Court.

The Full Bench of the Federal Court recently decided that Unpaid Present Entitlements (UPEs) owing from a Trust to a corporate beneficiary were not considered financial accommodation and therefore are not subject to the Division 7A legislation. This decision is contrary to the Commissioner’s existing position, which he has held since 2009.

The ATO’s request for an appeal to the High Court proves that there’s more to play out here. Depending on whether the High Court hears the appeal, and the outcome of the same, we expect that the ATO and Treasury will be lobbying for a legislative “fix”.

Private groups and their advisors should pay close attention to this space, as they will have key decisions to make in relation to their UPEs with limited clarity from the regulator.

What’s next for the ATO?

If the appeal is heard by the High Court, then taxpayers will have to hold their collective breath until that judgement is handed down. However, if the appeal is not heard, then the Full Federal Court’s decision stands.

The appeal process will take some time. It could be a number of months before we know if the High Court will hear the appeal, and if it does, the appeal may not be heard until this time next year.

Whilst legal uncertainty remains, we expect that the ATO and Treasury will be lobbying the government for a legislative fix to the matter by specifically making UPEs subject to the Division 7A legislation. We don’t believe that either major political party will be interested in taking this policy to the election, so any legislative fix is likely to take a very long time.

What does this mean for private groups?

Whilst we now have more clarity than previously reported in our last Alert, taxpayers still face an uncertain outlook as they attempt to deal with existing and future UPEs.

The decision raises conundrums for those taxpayers who have seemingly overpaid income tax due to their compliance with the ATO’s existing ruling. For those taxpayers who have complying Division 7A loan agreements in place due to historic UPEs, the decision by the Full Federal Court has arrived too late as these loans are live.

Contact Pilot

If you have any questions regarding your trust and taxation matters, contact Murray Howlett or your Pilot advisor on (07) 3023 1300.