Australia: High Court dismisses ATO’s appeal of recent Full Federal Court Division 7A decision
ATO says it will accept the decision.
The High Court has dismissed the appeal by the Australian Taxation Office (ATO) of the Full Federal Court's decision in Commissioner of Taxation v. Bendel [February 2025] FCAFC 15, that an unpaid present entitlement (UPE) to income or capital of a trust estate was not a “loan” that may result in deemed dividends under Division 7A.
The court found that the arrangements in the case involved setting aside of the UPEs, but not a distribution of those amounts, which were thereafter held on separate trusts, and no debtor/creditor relationship arose between the trustee and taxpayer.
The court rejected the ATO’s argument that the expanded definition of “loan” in s 109D(3) encompasses the circumstances wherein a beneficiary does not insist on being paid an unpaid present entitlement by the trustee.
The ATO stated that it will accept the decision and will update its views as soon as possible to provide practical guidance to affected taxpayers.