The recent Federal Court decision, Commissioner of Taxation v Bendel [2025] FCAFC 15, delivered on February 19, 2025, has significantly reshaped the landscape for Australian businesses and individuals utilizing trust structures. Understanding these changes is crucial for ensuring tax compliance and effective planning. At Tax7, our Sydney-based accounting and tax specialists explain clearly how this decision may affect your tax strategies and business structuring options.

Understanding the Bendel Decision

In the landmark Bendel case, the Full Federal Court clarified the tax treatment of Unpaid Present Entitlements (UPEs). Historically, the Australian Taxation Office (ATO) treated UPEs owed by trusts to corporate beneficiaries as “financial accommodation,” effectively classifying them as loans under Division 7A of the Income Tax Assessment Act 1936. This interpretation often resulted in deemed dividend consequences unless specific loan terms were established.

However, the Court ruled that UPEs should not be automatically classified as loans. Key points from the ruling include:

• A UPE represents an obligation to distribute trust income to a beneficiary, not an obligation to repay borrowed funds.
• Treating UPEs as loans could lead to unintended double taxation, contradicting the intended purpose of Division 7A.
• This ruling overturns the ATO’s practice dating back to 2009, significantly changing compliance obligations for trusts and corporate beneficiaries.

Practical Implications for Businesses and Individuals

The decision directly impacts private groups, small businesses, and individuals operating through trust structures. Specifically, it means:

• Reduced Risk Under Division 7A: Corporate beneficiaries are now less likely to have UPEs automatically trigger deemed dividends.
• Continued Compliance Obligations: Trustees still need to carefully consider other legislative provisions, such as Subdivision EA, especially when a trust provides loans or financial benefits to shareholders or their associates.
• Potential Legislative Response: The ATO may appeal or seek legislative amendments. It is crucial to stay informed through professional guidance.

Structuring Opportunities: Family Trusts and Bucket Companies

This decision highlights the potential advantages of proper structuring. Two common structures are particularly relevant:

Bucket Companies:

A bucket company is a corporate entity established specifically to receive distributions from a discretionary trust. It can offer:

• Tax efficiency by holding income at corporate tax rates.
• Flexibility in managing tax obligations and cash flow.
• Long-term strategic advantages when properly managed and compliant with current regulations.

Family Trusts:

Family trusts provide flexibility in distributing income to family members, asset protection, and estate planning benefits. Key considerations include:

• Tailored income distribution to family members in different tax brackets.
• Asset protection from creditors when structured appropriately.
• Effective estate planning tools for transferring wealth across generations.

How Tax7 Can Assist You

At Tax7, we specialize in assisting small businesses and individuals in structuring compliant, tax-effective arrangements tailored to their unique circumstances. Our experienced public accountants and registered tax agents provide:

• Expert guidance on setting up and managing bucket companies and family trusts.
• Personalized strategies to adapt effectively to evolving tax laws.
• Proactive support to maintain compliance and optimize your tax outcomes.

Stay Informed and Compliant

Given the evolving landscape following the Bendel decision, it’s crucial to review your existing structures and strategies. Contact Tax7 today to schedule a consultation and ensure your business and personal tax affairs remain compliant and optimized.

Disclaimer: This article provides general information only and does not constitute personalized tax advice. Please contact Tax7 for specific guidance tailored to your individual circumstances.