Bendel ruling brings new burdens for accountants, expert warns

“Relevantly, the majority observed that ’the facts here broadly correspond with the circumstances to which Subdivision EA is addressed’. While their Honours were not determining the issue, their language suggests that Subdivision EA may apply where the funds to which a private company has been made presently entitled have been set aside on a separate trust and other relevant requirements are met,” it said.

If trust funds representing UPEs are then used to pay or loan money directly to a trust shareholder or associate, the ATO will use Subdivision EA to trigger a deemed dividend.

Follow the money

Tax Banter head of tax education Lee-Ann Hayes told Accountants Daily that accountants should “follow the money” to determine if their clients could be impacted by the Subdivision EA or section 100A provisions, as they are interested in who gains the economic benefit from those entitlements.

“If the money is still sitting in the trust, that will mean you don’t have to worry about subdivision EA,” Hayes said.

“If there isn’t that second transaction where there is that loan to the shareholder or associate, that’s okay.”

However, if trust funds are used to pay or loan money directly to a trust shareholder or associate, Hayes cautioned that clients may be caught by either Subdivision EA or section 100A.

“Think about the best outcome for your client,” Hayes said.

“It might be to continue to convert those UPEs to loans because we then know which transaction we’re dealing with. We put the loan agreement in place. We’ve got the capacity to repay, and if the trust is using it for working capital or something like that, there’s an ability to claim the deductions for interest.

“So, I think we’d be a lot more careful about documenting why we haven’t paid out that distribution to the company. Are we using it for working capital just to try and circumvent a section 100A argument?”

Hayes said she believes that in the case of Commissioner of Taxation v Bendel [2026] HCA 18, while the taxpayer won the battle, the ATO won the war because Subdivision EA is more complicated than the regular section 109D in Division 7A.

“It’s certainly added to the complexity,” Hayes said.

“Then, of course, overlaying that is the integrity rules with section 100A, which again, is a little bit tricky because it’s not as prescriptive as Division 7A. We’re relying a lot on interpretation, and it’s hard for us as practitioners to understand or work out when the tax office might actually apply 100A.

“I know we’ve got guidance, but that guidance is like putting some flags on the beach and telling where you can swim safely. Does it apply without attracting attention? It’s not about not having 100A apply. It’s just you’re less likely to have the tax office look at you.”

Stay alert and track changes

In this complex environment, Hayes urged accountants to keep track of any ATO announcements, guidance, or alerts.

“I think that they will come out with some further advice about what we do going forward. I think that’ll be particularly relevant for those UPEs that we haven’t put a loan agreement in place for,” Hayes said.

Moreover, as the government consults on “how” to implement the previous government’s measure from the 2018–19 budget that would bring UPEs within existing Division 7A integrity provisions rather than “if” it should implement it, Hayes cautioned accountants to stay on alert.

“Treasury is already thinking about changing the legislation,” Hayes said.

“If I had to guess, that could be done much sooner than the broader trust consultation. It probably will be done at the same time, but it doesn’t have to be. So, I’d be watching that and then making sure I knew when that actually started.”