Australia: Unpaid present entitlement to income or capital of trust estate not a loan (Full Federal Court decision)

Decision may guide interpretation of similar arrangements in other contexts

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February 21, 2025

The Full Federal Court (FFC) on February 19, 2025, held that an unpaid present entitlement (UPE) to income or capital of a trust estate was not a “loan” for purposes of section 109D(3) of the Income Tax Assessment Act 1936.

In its decision, the court rejected the Commissioner’s position since 2010 that UPEs owed to corporate beneficiaries are loans that may result in deemed dividends under Division 7A.

The Commissioner may apply for special leave to appeal to the High Court, given previous mixed outcomes in similar cases and the fact that the decision may guide the interpretation of similar arrangements in other contexts. 

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