ATO’s administrative treatment — Bendel case — UPEs not Div 7A loans

16 Nov, 2023

The ATO has released its interim Decision Impact Statement (the interim DIS) in relation to the Tribunal decision in Bendel v FCT [2023] AATA 3074 (Bendel). Bendel concerned whether a private company’s failure to call for payment of entitlements to income of a trust was the provision of ‘financial accommodation’ and, therefore, a loan for Div 7A purposes (s. 109D of the ITAA 1936). The interim DIS sets out the ATO’s administrative treatment pending the outcome of the Commissioner’s appeal against the Tribunal’s decision.

The Primary Issue in the Bendel decision

The Primary Issue considered by the Tribunal was whether the Company made a loan — within the meaning of s. 109D(3) — to the Trust during each of the 2014 to 2017 income years on account of the Company’s unpaid present entitlements (UPEs) to trust income of the previous year.

The Tribunal decided that the Company did not make a loan to the trustee of the Trust.

Therefore there was no deemed dividend paid by the Company to the Trust under s. 109D(1).

The Tribunal reasoned that a ‘loan’ did not reach so far as to embrace the rights in equity created when entitlements to trust income (or capital) were created but not satisfied and remained unpaid. The balance of an UPE of a corporate beneficiary, whether held on a separate trust or otherwise, was not a loan to the trustee of the Trust.

Commissioner’s appeal

On 26 October 2023, the Commissioner lodged a notice of appeal to the Federal Court against the Tribunal’s decision in respect of the Primary Issue.

The ATO’s view of the Tribunal’s decision

Until the appeal process is finalised, the Commissioner does not intend to review the current ATO views relating to private company entitlements to trust income. These views are set out in TD 2022/11 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of ‘financial accommodation’?

Note: in addition to the application of s. 109D, the basis on which private company beneficiaries deal with UPEs may have implications under other rules, such as s. 100A.

Administrative treatment

The interim DIS sets out the ATO’s administrative treatment pending the outcome of the appeal process.

The ATO will administer the law in accordance with the published views in TD 2022/11.

The Commissioner does not propose to finalise objection decisions in relation to past year assessments where the decision turns on whether or not a UPE was a s. 109D(3) loan.

However, if a decision is required to be made (e.g. because a taxpayer gives notice requiring the Commissioner to make an objection decision), any objection decisions made will be based on the ATO’s existing view of the law.

More information

Excerpt of s. 109D of the ITAA 1936

109D(1)   Loans treated as dividends in year of making.

A private company is taken to pay a dividend to an entity at the end of one of the private company’s years of income (the current year ) if:

(a) the private company makes a loan to the entity during the current year; and

(b) the loan is not fully repaid before the lodgment day for the current year; and

109D(3)   What is a loan?

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.

[emphasis added]

The Commissioner’s views in TD 2022/11

TD 2022/11 describes when a private company provides financial accommodation where it is made presently entitled to income of a trust and either:

  • that entitlement remains unpaid, or
  • the trustee satisfies the present entitlement by setting aside an amount from the main trust fund and holding it on a new separate trust (sub-trust) for the exclusive benefit of the private company beneficiary.


The phrase ‘financial accommodation’ in s. 109D(3)(b) has a wide meaning. It extends to cases where an entity with a trust entitlement has knowledge of an amount that it can demand and does not call for payment.

Circumstance one — where there is a UPE

A private company beneficiary with a UPE, by arrangement, understanding or acquiescence, consents to the trustee retaining that amount to continue using it for trust purposes if the company:

  • has knowledge of an amount that it can demand immediate payment of from the trustee, and
  • does not demand payment.

This constitutes the provision of financial accommodation to the trustee. As a result, the private company beneficiary makes a loan to the trustee under the extended definition of a ‘loan’ in s. 109D(3).

Circumstance two — where present entitlements are satisfied by sub-trust

The amount set aside by the trustee ceases to be an asset of the main trust and forms the corpus of the sub-trust (the sub-trust fund). The private company beneficiary has a new right to call for payment of the sub-trust fund and can call the sub-trust to an end. A choice by the private company not to exercise that right does not constitute financial accommodation in favour of the trustee in its capacity as trustee of the sub-trust, because the sub-trust fund is held for the private company beneficiary’s sole benefit.

However, the situation is different if the private company beneficiary by arrangement, understanding or acquiescence, consents to the sub-trustee allowing those funds to be used by or for the benefit of the private company beneficiary’s shareholder or their associate where:

  • all or part of the sub-trust fund is used by or for the benefit of that entity, and
  • the private company beneficiary has knowledge of this use.

This constitutes the provision by the private company beneficiary of financial accommodation to the entity using or benefiting from the use of the sub-trust fund under s. 109D(3)(b). As a result, the private company beneficiary makes a loan to the entity using the sub-trust fund under the extended definition of a ‘loan’ in s. 109D(3).

The Bendel case

The Bendel Group of entities

Mr Bendel controlled the Bendel Group of entities, which included the following:

Screenshot 2023 11 16 132538

The Commissioner issued amended assessments on the basis that the UPEs to prior year trust income were loans within the meaning of s. 109D(3), made by the Company to the Trust. The loans were taken to be dividends under s. 109D(1).

The Primary Issue — the Tribunal’s reasons

The Tribunal did not accept the contention (of both parties) that a separate trust arose in any conventional sense that had the effect of discharging or replacing the obligation to pay entitlements to income. The Company’s entitlements to be paid its share of the Trust’s income continued to exist.

The Tribunal found that the balance of the outstanding UPEs, whether held on a separate trust or otherwise, were not loans to the Trustee within the meaning of s. 109D(3).

The Tribunal based this conclusion on the following:

  • the policy intent of Div 7A to tax shareholders/associates who access company profits without bearing the tax that would arise had the company paid a dividend in the usual way
  • statutory construction principles — potentially competing provisions be interpreted in a manner which ‘gives effect to harmonious goals’
  • there being no tiebreaker provision which mandates which of two competing assessing provisions would apply — if the UPE is treated as a loan to the trustee per s. 109D(3) there is a possibility two people would be taxed on the same UPE, one through Div 6 of the ITAA 1936 and the other through Div 7A
  • the Commissioner’s discretion under s. 109RB is only available to taxpayers if there was an honest mistake or inadvertent omission — no discretion is available to relieve inappropriate double taxing
  • Subdivision EA (being specific) is the lead provision to bring UPEs into the scope of Div 7A. It requires two features: an entitlement to trust income vested in a corporate beneficiary and a contemporaneous loan to a shareholder
  • the lack of clarity as to the nature of an UPE and the separate trust concept
  • the operation of Subdiv EA which taxes the shareholder as if the company had lent money directly to that shareholder, bringing the loan from the trust to the shareholder/associate within the scope of Div 7A
  • there being no provision in either of the Assessment Acts that expressly allows assessment of two people arising out of the same circumstance with one of those people potentially not enjoying any benefit of the corporate profits that are the underlying cause of the assessment.

Other issues considered by the Tribunal

Apart from the Primary Issue, the Tribunal considered three other issues — summary below.

Whether s. 6-25 of the ITAA 1997 prevents a deemed dividend from being included in the Trust’s assessable income or, alternatively, the taxpyaer’s assessable incomes on the basis that the same amount has already been included in assessable income.

Consistent with its conclusion for the Primary Issue, the Tribunal found it unnecessary to decide this issue. Nonetheless, it observed that any deemed dividend would not be the ‘same amount’ as the amount previously included in the Company’s assessable income in respect of the UPE.

Whether the Tribunal will exercise the s. 109RB discretion (subject to the answers to the preceding issues).

The Tribunal found that loans (within the ordinary meaning of that term) of $41,252 and $9,431 had been made by the Company to the Trust. It considered no basis had been advanced for the exercise of the s. 109RB discretion in respect of those amounts.

Under s. 109RB the Commissioner may exercise a discretion to disregard the deemed payment of a dividend or that a deemed dividend may be franked.

Whether penalties have been imposed correctly and, if so, whether the Tribunal will remit them.

Based on the Tribunal’s decision regarding the application of section 109D to the UPEs, this issue was only relevant to the $41,252 and $9,431 ordinary loans. The Tribunal observed that ‘Mr Bendel is a registered tax agent to whom the outcome of retaining amounts belonging to a company should have been obvious’. It considered penalties respect of those amounts should be recalculated at the same rate and not remitted.

When does s. 100A apply?

Section 100A of the ITAA 1936 applies where:

  • there is a presently entitled beneficiary and the beneficiary’s present entitlement to income of the trust estate has the relevant connection with a reimbursement agreement
  • the reimbursement agreement provides for a benefit to a person other than the beneficiary
  • a purpose of one or more of the parties to the agreement is that a person would be liable to pay less income tax in an income year,


  • the exclusion for agreements entered into in the course of ordinary family or commercial dealings does not apply.

note iconNote

Section 100A effectively has an unlimited period of review — i.e. the Commissioner has an unlimited period in which to issue an assessment under the provision.

Further info and training

For further guidance on Section 100A, download our recorded session.

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