The High Court’s decision in Bendel has changed how Division 7A applies to unpaid entitlements owed to company beneficiaries. It has not changed section 100A – and that is exactly why trustees should be paying attention.
For years, the argument about family trust distributions to a corporate beneficiary was largely a Division 7A argument. On 10 June 2026 the High Court settled it in Commissioner of Taxation v Bendel [2026] HCA 18, holding that a private company beneficiary’s unpaid present entitlement to trust income is not a loan that can be deemed to be a dividend. The Commissioner responded quickly with a decision impact statement, and the ATO has confirmed it is reviewing its guidance products in light of the decision, including the determination that set out its previous view.
The relief is narrower than the headlines suggest. In the same decision impact statement, the ATO pointed to two provisions that continue to do real work. Where funds representing an entitlement are paid or lent to a shareholder of the corporate beneficiary or their associate, the unpaid present entitlement rules in Subdivision EA can still apply. And where the entitlement arose from a reimbursement agreement, section 100A can apply to tax the trustee at the top marginal rate. Section 100A is now the sharper instrument in the Commissioner’s hand, and the compliance guideline that governs how it is administered, PCG 2022/2, is itself under review as a result of the decision.
What section 100A actually catches
Section 100A is an anti-avoidance rule broadly, three things need to line up: a beneficiary is made presently entitled to trust income; someone other than that beneficiary receives a benefit in connection with the arrangement; and at least one party enters into the arrangement for a purpose of reducing tax. The definitions are deliberately wide. An agreement includes informal or implied understandings, it does not need to be binding, and it can be made up of a series of steps rather than a single transaction. The beneficiary does not even have to be a party to it, or know about it.
The consequence is blunt. The beneficiary’s entitlement is disregarded, and the trustee is assessed on that share of the trust’s net income at the top marginal rate. There is no threshold, no averaging, and no credit for the fact that a beneficiary may already have paid tax on the same amount.
Reading the risk
Drawing on the features the ATO uses to sort arrangements into its low-risk and high-risk zones, the pattern is reasonably consistent. Money that follows the entitlement tends to be low risk. Money that goes somewhere else, for reasons that are hard to explain without mentioning tax, tends not to be.
| Features that point to lower risk | Features that attract ATO attention |
| The beneficiary actually receives, spends or applies the funds for their own benefit, including where the money reduces a debt they owe | Funds representing the entitlement are paid or lent to someone else with no genuine intention of repayment |
| A company beneficiary’s entitlement is retained by the trust as working capital under a loan on commercial, Division 7A compliant terms | Circular arrangements in which the same funds are distributed and returned between the trust and a related company year after year |
| Distributions within the family group that reflect how the family genuinely shares its income and expenses | Distributions to a loss entity outside the family group so that its tax losses absorb the income |
| Beneficiaries are told about their entitlements and the accounting records match where the money went | A beneficiary gifts or on-pays their entitlement to a person taxed at a higher rate, or is never told about it at all |
| Each step of the arrangement has an obvious family or commercial explanation | Steps that are artificial, contrived or unduly complex, or that sit oddly with the beneficiary’s legal entitlement |
What to do before the next distribution round
Review while there is still time to act on it. Four things are worth doing now.
- Revisit arrangements with corporate beneficiaries. Leaving an entitlement unpaid no longer carries the Division 7A consequence the ATO previously asserted, but it places more weight on whether the arrangement can be explained on family or commercial grounds, and on where the funds actually sit and what they are being used for.
- Make the resolution match the deed and the money. Resolutions need to be made in time, consistent with the trust deed’s definition of income, and consistent with what then happens to the funds.
- Monitoring the timely lodgement of pay events to ensure payroll information is reported to the ATO when required.
- Keep the records that answer the obvious questions. Who was made entitled, were they told, did they receive or apply their entitlement, and if it stayed with the trust, on what terms and for what purpose.
- Watch for the ATO’s revised guidance. The Commissioner has flagged that further material may be issued, and existing guidance is being updated to reflect the High Court’s decision.
In summary
Bendel removed one risk from trust distributions to company beneficiaries and, in doing so, made another one more prominent. Section 100A has always been the provision that looks past the resolution to ask a simpler question: who really ended up with the money, and why. Trustees whose answer to that question is clear, documented and consistent with how the family or business genuinely operates have little to be concerned about. Those whose answer takes some explaining should have that conversation before the ATO’s revised guidance lands, not after.
Do you need help?
If you would like us to review your trust arrangements and distribution resolutions in light of the decision, please reach out to our team through the contact form, or by calling us at 02 8226 1655.
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