Since late 2009, the ATO has taken the controversial view that an unpaid present entitlement, or UPE, owed by a trust to a company should be treated as if it were a loan for Division 7A purposes. This goes to the heart of the bucket company strategy. A bucket company is a company that a trust distributes income to in order to cap the tax rate on that income at the company rate, but where the cash is often not actually paid across. The unpaid amount sits as a UPE. The ATO wanted to treat that unpaid amount like a loan back to the family group, with all the deemed dividend consequences that Division 7A can bring.
The Bendel case challenged that view. First the Administrative Appeals Tribunal, and then the Full Federal Court in Commissioner of Taxation v Bendel [2025] FCAFC 15, disagreed with the ATO. They confirmed the traditional position that a UPE is not a loan for Division 7A. A UPE is an obligation to pay, not an obligation to repay, and that distinction matters.
The ATO applied to the High Court for special leave to appeal, which was granted on 12 June 2025. We watched closely, because this is about as exciting as it gets in the world of tax.
On 10 June 2026, the High Court dismissed the Commissioner's appeal. That makes the Full Federal Court's decision the final word. A UPE owed by a trust to a bucket company is not a loan for Division 7A purposes.
Our last note to you on this topic was headed "Where the ATO stands and how it affects you." The reality now is that the ATO is no longer standing. The Commissioner has lost.
This is a genuine win for family groups that use a trust and a bucket company together. A few practical points to keep in mind:
A word of caution. Division 7A is not the only rule in play. The section 100A reimbursement agreement rules still need to be considered, and UPEs that are not on commercial terms can be caught there. So this is a reason to plan with advice, not a reason to set and forget.
The decision is a real win, but it lands at the same time as a proposal that could reshape trust taxation. The 2026 federal budget proposed changes to the taxation of trusts, with a new minimum tax on discretionary trust income at the trustee level, intended to apply from 1 July 2028. The aim is to place a floor under the tax paid on trust income, regardless of who it is distributed to.
This matters for bucket companies. The strategy works by distributing trust income to a company so the income is taxed at the company rate rather than at higher individual rates. Under the proposed measure, bucket companies are not expected to receive a credit for the trustee-level tax. If that holds, much of the rate advantage that drives bucket company and UPE planning would fall away from 1 July 2028.
A few important caveats:
If your group includes a trust and a bucket company, the weeks between now and 30 June matter. Treat Bendel as a window of opportunity rather than a permanent fixture. Speak with us about whether using a bucket company this year is right for your situation, how to position your UPEs, and how to build flexibility into your structure so you can adapt if the 2028 measure becomes law. We'll bring you further updates as the ATO releases its guidance.