Bendel’s Case and its Implications

In a long awaited decision, the Full Federal Court has unanimously ruled in favour of the taxpayer in FCT v Bendel [2025] FCAFC 15  (Bendel’s case). The case deals with the Commissioner’s appeal against the AAT decision which held that an unpaid present entitlement (UPE) was not a loan for the purposes of section 109D of the Income Tax Assessment Act 1936.  

The Full Federal Court held that while there was a debtor-creditor relationship between the trust and the company, the creation of the UPE and the retention of that UPE within the trust is not a loan within the meaning of section 109D(3). This is because a loan “… requires a transaction which creates an obligation to repay an amount or which in substance effects an obligation to repay. The creation of an obligation to pay an amount is not sufficient.” 

The case is a great win for the taxpayer. However, it is important to remember that, depending on the fact pattern, Subdivision EA may apply to UPEs (noting that Subdivision EA could not apply in Bendel’s case as the UPE was retained within the trust).  

It is unclear at this stage whether the ATO will apply for special leave to appeal to the High Court (although we expect it to be likely), and if it does, whether the High Court will grant special leave. 

We are also waiting to hear from the ATO on how it will administer this issue in the meantime so hopefully the ATO issues an interim or final Decision Impact Statement or some other form of announcement soon.  

A legislative fix could give the ATO the interpretation it is seeking. But with an election looming, the big question is whether the major political parties (or the cross bench if they have the balance of power) would support legislative amendment of section 109D to specifically include UPEs as loans. 

If you have any questions regarding the decision or Division 7A in general, please reach out to your MGIDC advisor.