iscoverThis article unpacks the key arguments advanced by the parties in the Bendel appeal before the High Court.
Edging closer to a decision in Bendel
02 October 2025
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17 minute read
In writing this article, the author acknowledges Neil Brydges, Principal at Sladen Legal, for his assistance in summarising the parties’ submissions to the High Court.
This month, the High Court will hear the Commissioner of Taxation’s (Commissioner) appeal against the Full Federal Court’s decision in Commissioner of Taxation v Bendel [2025] FCAFC 15 (Bendel). The tax profession has waited nearly 16 years for a judicial review of the Commissioner’s unwavering position that a corporate beneficiary’s unpaid present entitlement (UPE) to a share of trust income is a ‘loan’ for Division 7A purposes. The Australian Taxation Office’s (ATO) position broadly applies to UPEs arising on or after 16 December 2009.
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Recap of the journey to date
ATO guidance
The Commissioner’s position on UPEs was originally published in Taxation Ruling TR 2010/3 and Practice Statement PS LA 2010/4 (2010 products) (both withdrawn with effect from 1 July 2022).
While the ATO’s revised position for UPEs arising on or after 1 July 2022 is now contained in Taxation Determination TD 2022/11, the 2010 products continue to apply to UPEs arising before 1 July 2022.
While Bendel is on appeal, the ATO’s position remains unchanged (see the Interim Decision Impact Statement on the Bendel decision).
Litigation in Bendel
The agreed facts
The Bendel case involves a private company, Gleewin Investments Pty Ltd (Gleewin Investments), which was a discretionary beneficiary of the Steven Bendel 2005 Discretionary Trust (2005 Trust). Mr Steven Bendel (Mr Bendel) was the sole director, secretary and shareholder of Gleewin Investments and Gleewin Pty Ltd (Gleewin), the trustee of the 2005 Trust.
In each of the 2013–14 to 2016–17 income years (relevant years), Gleewin resolved to set aside income of the 2005 Trust for the benefit of Mr Bendel and/or Gleewin Investments in stated proportions. Gleewin did not actually set aside the amounts on a separate trust.
Gleewin satisfied Gleewin Investments’ entitlement to the unpaid trust amounts only to the extent necessary to meet Gleewin Investments’ tax liabilities and other expenses from time to time. Gleewin Investments did not call for payment of the remaining amounts to which it was entitled.
Amended assessments
The Commissioner issued Mr Bendel and Gleewin Investments (the Taxpayers) with notices of amended assessments on 4 September 2019. The basis of the amended assessments was that Gleewin Investments had made ‘loans’ within the meaning of subsection 109D(3) in Division 7A of Part III of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) to Gleewin that gave rise to deemed dividends under subsection 109D(1), thereby increasing the 2005 Trust’s net income. This resulted in additional assessable income for the Taxpayers under section 97 of the ITAA 1936, based on their proportionate entitlements to a share of the trust income for the relevant years.
Following adverse objection decisions against the amended assessments, the Taxpayers sought a review of the Commissioner’s objection decisions by the former Administrative Appeals Tribunal (Tribunal).
Decision of the Tribunal
In Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074, before Deputy President Frank D O’Loughlin KC and Senior Member Keith James, the Tribunal identified the critical question for determination as whether a UPE is a loan for the purpose of subsection 109D(3).
Finding in favour of the Taxpayers, the Tribunal decided that a UPE is not a loan, and Gleewin Investments was not taken to have made ‘loans’ to Gleewin. Accordingly, the Taxpayers should not have been assessed on the additional assessable income attributed to the alleged deemed dividends.
The Commissioner appealed the Tribunal’s decision to the Full Federal Court (Full Court).
Decision of the Full Federal Court
The Full Court’s decision in Bendel was released on 19 February 2025, following the hearing on 2–3 August 2024. In a unanimous decision, Logan, Hespe and Neskovcin JJ found that the Tribunal ‘did not engage with the text of subsection 109D(3)’ (at [2]).
However, the Full Court proceeded to find in favour of the Taxpayers by concluding (unlike the Tribunal) that while a debtor-creditor relationship had arisen between Gleewin Investments and Gleewin, subsection 109D(3) requires more than the existence of a debtor-creditor relationship. It requires an obligation to repay and not merely an obligation to pay (at [93]).
That Gleewin Investments had consented or acquiesced to Gleewin not paying the amounts to which it was entitled by deciding to refrain from calling for payment of its UPEs did not:
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involve the payment of a sum by or at the direction of Gleewin Investments that was required to be repaid;
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give rise to a ‘loan’ within the meaning of subsection 109D(3).
The Commissioner applied for special leave to appeal the Full Court’s decision to the High Court on 18 March 2025. Special leave was granted on 12 June 2025.
Appeal before the High Court
The parties in the appeal are:
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the Appellant — being the Commissioner (i.e. the ATO); and
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the Respondent — being the Taxpayers.
The hearing before the High Court has been set down for 14 October 2025. The main issues and arguments advanced by the parties, drawn from the Appellant’s and Respondent’s submissions, are summarised below. The Commissioner’s right of reply to the Taxpayers’ submissions is not discussed here.
ATO’s submissions
The ATO has put forward two issues for consideration by the High Court:
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Did Gleewin Investments make ‘loans’ (as defined in subsection 109D(3)) to Gleewin in the relevant years when it agreed or acquiesced to Gleewin retaining and using amounts to which Gleewin Investments was presently entitled (loan issue)?
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If Gleewin Investments was taken by subsection 109D(1) to pay dividends to Gleewin in Gleewin’s capacity as trustee of the 2005 Trust, did section 6-25 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) prevent those amounts from being included in the assessable income of the 2005 Trust (section 6-25 issue)?
The section 6-25 issue did not arise in the Full Court, but the ATO has agreed to address the Taxpayers’ contention that the Commissioner’s approach to the loan issue leads to the possibility of double taxation on the same underlying income.
Taxpayers’ submissions
The Taxpayers accepted the two broad issues identified by the ATO, but expressed the loan issue differently to reflect the facts as found by the Tribunal. Specifically, the Taxpayers framed the loan issue as:
Did Gleewin Investments make a ‘loan’, as defined by s 109D(3) to [the 2005 Trust] that was not fully repaid before the relevant ‘lodgment date’ for each relevant income year in which the [the trustee of the 2005 Trust] made Gleewin Investments presently entitled to income of the 2005 Trust but in respect of which no step was taken or event occurred beyond vesting the entitlement to satisfy that entitlement?
Relevant legislative provisions
Relevantly, subsection 109D(3) of the ITAA 1936 states:
In this Division, loan includes:
(a) an advance of money; and
(b) a provision of credit or any other form of financial accommodation; and
(c) a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and
(d) a transaction (whatever its terms or form) which in substance effects a loan of money.
Subsection 6-25(1) of the ITAA 1997 states:
Sometimes more than one rule includes an amount in your assessable income:
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the same amount may be *ordinary income and may also be included in your assessable income by one or more provisions about assessable income; or
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the same amount may be included in your assessable income by more than one provision about assessable income.
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However, the amount is included only once in your assessable income for an income year, and is then not included in your assessable income for any other income year.
Parties’ submissions
The next part of this article is technical. This reflects the significance of the Bendel case before Australia’s highest court and the author’s wanting to capture the subtleties of the parties’ submissions rather than extensively paraphrasing for conciseness or simplicity and losing those subtleties.
Loan issue
ATO’s submissions
The ATO argues that the Full Court confined the meaning of ‘loan’ in subsection 109D(3) to a transaction that creates an obligation to repay, or which in substance effects an obligation to repay, an amount. That is, the Full Court read down the inclusive limbs of subsection 109D(3).
The definition of ‘loan’ in subsection 109D(3) is inclusive. Inclusive definitions are used in the law to extend the ordinary meaning of a word or phrase and by expressly providing for the inclusion of borderline cases. Extrinsic materials that defined ‘loan’ in similar terms in other provisions in the tax law indicate that the definition was intended to have an extended meaning and covers arrangements that are not strictly loans at law.
The ATO also considers that the Full Court erred by reading down paragraph 109D(3)(b) by reference to the terms of paragraphs 109D(3)(a) to (c). In other words, just because one or more of the limbs have a particular attribute (i.e. repayment) does not mean that every limb in subsection 109D(3) requires that attribute to be present.
Paragraph 109D(1)(a) specifies that a private company ‘makes a loan’. The ATO is of the view that subsection 109D(4) then provides that ‘a loan is made to an entity at the time the amount of the loan is paid to the entity by way of loan or anything described in subsection (3) is done in relation to the entity’ (Appellant’s emphasis). A ‘harmonious’ construction of subsection 109D(1) requires the word ‘repaid’ in paragraph 109D(1)(b) to be construed to accommodate the situation where no amount was paid to the entity by way of a loan.
The purpose of Division 7A is to expand the operation of section 44 (about dividends) of the ITAA 1936. The use of the word ‘loan’ in Division 7A serves to identify the various means by which a shareholder (or their associate) may temporarily access a private company’s profits. The Full Court’s construction, by giving reference to form over substance, tends to defeat the purpose of the anti-avoidance regime.
Taxpayers’ submissions
The Taxpayers assert that the Commissioner ‘inverts’ the proper process of construction of subsection 109D(3) by seeking to give the word ‘loan’ its broadest possible meaning. This is despite the clear contextual indications that section 109D was not intended to apply to a private company that does not demand payment of an amount to which it is entitled. In support of this position, former section 109UB — which was replaced by Subdivision EA with effect from 12 December 2002 — was introduced because ‘it has been argued’ that section 109D does not apply to UPEs.
The Taxpayers contend:
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Although subsection 109D(3) extends the definition of ‘loan’ beyond its ordinary meaning, its terms must be construed harmoniously with section 109D and Division 7A as a whole.
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References to an amount that has, or has not been, ‘repaid’ are important as it is not the making of a loan that causes a dividend to have been taken to be paid by the private company; rather, it is triggered by the failure to repay the loan in full before the lodgment day.
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A loan, as defined in subsection 109D(3), must begin with a payment. Payments made without an obligation to repay those amounts are dealt with by section 109C. Arrangements that have a repayment obligation are dealt with by section 109D as a loan.
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A transaction is not a loan as defined in subsection 109D(3) merely because the shareholder (or their associate) is obliged to make a payment to the company sometime in the future. The company must first make a payment as defined, without which the shareholder (or their associate) does not obtain the benefit of the company’s profits.
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Section 109D was not intended to apply to transactions that might be ‘credit’ or ‘financial accommodation’ in other statutory contexts, but which do not involve any payments, as defined, by the company. The extension in subsection 109D(3) is limited by statutory context to transactions that involve an obligation to repay an amount.
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The Full Court’s construction operates harmoniously both with section 109D and the rest of Division 7A, including provisions such as section 109T (about interposed entities), section 109F (about forgiven debts), and Subdivision EA (as well as its predecessor, former section 109UB).
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The 2005 Trust made actual loans to Mr Bendel. Those loans were possible only because Gleewin Investments did not call for amounts to be paid to it. ‘At the heart of this case is the Commissioner’s failure to rely on Subdivision EA in respect of loans made by [the 2005 Trust] to Mr Bendel’.
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To the extent the Commissioner perceives that a trust retaining the use of income to which a private company has been made presently entitled without paying tax under section 99A of the ITAA 1936 is a mischief, that was not a mischief perceived by Parliament. That is, of course, subject to particular legislative caveats where Parliament deemed it appropriate, for example, sections 100AA and 100A of the ITAA 1936. Division 7A was not intended to, and does not, operate as one of those caveats.
Section 6-25 issue
ATO’s submissions
The ATO argues that subsection 6-25(1) of the ITAA 1997 prevents double inclusion in a taxpayer’s assessable income for an income year only of the ‘same amount’. This requires that the amounts are identical in nature. According to the Commissioner, a Division 7A deemed dividend and prior year trust income share only a historical connection and are not the ‘same amount’.
The ATO maintains that:
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the amounts of income derived by the 2005 Trust in Year 1 are not the same as the amount included in the 2005 Trust’s assessable income in Year 2 under section 109D, because different events give rise to them;
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the amount included in assessable income in Year 2 arose because a subsection 109D(3) loan was made; and
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the two sets of amounts thus possess a different identity, which is reflected in their different quantum.
Taxpayers’ submissions
The Taxpayers’ position on the section 6-25 issue follows from the Full Court’s observation (at [88]) that:
A consequence of the Commissioner’s construction of Div 7A is that a share of net income to which a corporate beneficiary has been made presently entitled and on which the corporate beneficiary has been taxed in one year is again included [sic: in the] net income of that same trust in the following year.
The Taxpayers contend that:
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the Commissioner has included the amount of the 2005 Trust’s income from Year 1 that was set aside for Gleewin Investments but not paid to it in the 2005 Trust’s assessable income twice: once in Year 1 and again in Year 2 due to the deemed dividend;
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those two amounts are the ‘same amount’ for the purposes of section 6-25; and
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section 6-25 should operate to prevent this double taxation to the extent that the amount was included in the 2005 Trust’s assessable income for Year 1.
Orders sought
ATO’s submissions
The ATO seeks orders from the High Court to:
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allow the appeal;
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set aside the decisions of the Tribunal and the Full Court; and
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remit the matter to the Administrative Review Tribunal for determination according to law.
Taxpayers’ submissions
The Taxpayers submit that:
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the Commissioner’s appeal should be dismissed; and
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alternatively, if section 109D applies to treat the UPEs for the relevant years as loans for Division 7A purposes, section 6-25 should prevent the re-inclusion of these amounts in the assessable income of the 2005 Trust.
Closing comments
For those closely watching the case, the High Court hearing will be fascinating and ignite many fervent discussions over the coming months before the High Court hands down its decision. The highly anticipated release of the Court’s decision is likely to be in the first half of 2026.
Whichever way the decision falls, taxpayers and the ATO will need time to process the decision and work through the implications for existing and future UPEs. Further, the possibility of legislative reform in response to the High Court’s decision should not be discounted.
Robyn Jacobson is the Senior Advocate at The Tax Institute.
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