We wrote about the Full Federal Court decision in FCT v Bendel [2025] FCAFC 15 (Bendel) that was handed down on 19 February 2025, here. Since that date, apart from chatter amongst the tax community, two things have happened:

on 18 March 2025, the Australian Taxation Office (ATO) applied for special leave to appeal to the High Court; and
on 19 March 2025, the ATO updated its Interim Decision Impact statement on the case (New DIS) from the Interim Decision Impact Statement (Old DIS) after the first instance decision in the Administrative Appeals Tribunal.

No real change here?

In both the New DIS and the Old DIS, the ATO takes the position that:

pending the outcome of the appeal process, the ATO will administer the law according to its published views in Taxation Determination TD 2022/11 relating to private company entitlements and trust income;
it does not plan to finalise objection decisions in relation to objections to past-year assessments (for which no settlement was reached); and
if a decision is required to be made (for example, because the taxpayer's period of review will lapse or a taxpayer gives notice requiring the Commissioner to make an objection decision), any objection decision the ATO makes will be based on the existing ATO view of the law.

The New DIS adds to that list, the ATO does not plan to finalise decisions on issuing amended assessments and decisions on private ruling applications that go directly to the issue of whether unpaid present entitlements – UPEs - are loans under the extended definition in section 109D of the Income Tax Assessment Act 1936.

But wait … a warning shot

The Old DIS included the ‘throwaway’ line, “[i]n addition to the application of section 109D, the basis on which private company beneficiaries deal with unpaid entitlements to trust income may have implications under other taxation laws, such as section 100A”.

In the New DIS, the ATO goes much further saying:

In addition to the application of section 109D, the basis on which private company beneficiaries deal with unpaid entitlements to trust income may have implications under other taxation laws, such as section 100A.

Regarding section 100A, a commonly referred to exception to this provision applying is the arrangement being entered into as part of ordinary commercial dealing. In Practical Compliance Guideline PCG 2022/2 Section 100A reimbursement agreements – ATO compliance approach (broadly stated), we explain that:

Where a corporate beneficiary is made entitled to income from a related trust, and the trustee retains those funds by way of a loan on 'commercial terms' for working capital, we will not typically seek to apply compliance resources to consider the application of section 100A.

For these purposes, we accept that loans on Division 7A complying terms are sufficiently commercial. (See subparagraph 25(e) of PCG 2022/2.)

If instead, a trustee retains funds that a corporate beneficiary has been made entitled to without converting that entitlement to a loan at least as commercial as the terms set out in Division 7A, the arrangement would fall outside the green zone described in PCG 2022/2. In situations such as this, we may engage with you to better understand your arrangement, including the risk of section 100A applying.

Section 100A is a complicated provision that depends on the facts of a particular matter. However, even if section 100A does not apply to a matter, the ATO has put taxpayers on notice of its views around compliance action. Depending on the facts, Subdivisions EA or EB of Division 7A could also apply.

While the special leave application eliminates one of the known unknowns after the Full Federal Court decision. As we said in our earlier article, will special leave be an unsuccessful epilogue to the Full Federal Court, is there to be a sequel in the High Court, or could there be legislative change?

We are reminded of the comments by Allsop J in FCT v Indooroopilly Children Services(Qld) Pty Ltd [2007] FCAFC 16 when criticising the ATO’s administration of the law, “it was open to conclude that the appellant was administering the relevant revenue statute in a way known to be contrary to how this Court had declared the meaning of that statute. Thus, taxpayers appeared to be in the position of seeing a superior court of record in the exercise of federal jurisdiction declaring the meaning and proper content of a law of the Parliament, but the executive branch of the government, in the form of the Australian Taxation Office, administering the statute in a manner contrary to the meaning and content as declared by the Court; that is, seeing the executive branch of government ignoring the views of the judicial branch of government in the administration of a law of the Parliament by the former. This should not have occurred. If the appellant has the view that the courts have misunderstood the meaning of a statute, steps can be taken to vindicate the perceived correct interpretation on appeal or by prompt institution of other proceedings; or the executive can seek to move the legislative branch of government to change”.

The ATO has found itself in a difficult space. On the one hand, in lodging the special leave application, it must have a genuine basis to believe that the Full Federal Court is wrong and that s 109D applies to UPEs. On the other hand, in the absence of that special leave application being heard, the ATO must not administer the statute in a way known to be contrary to how the judiciary has declared the meaning of that statute. It remains to be seen whether the ATO will in fact have any matters which require decisions to be made. If it does, and it determines those matters in accordance with its existing view of the law (as suggested in the New DIS), it risks acting unconstitutionally.

Whatever happens, the aftermath of the Bendel decision is likely to occupy the minds of the ATO, taxpayers, and their advisors for some time.

For more information please contact:

Neil Brydges
Principal | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au

Kaitilin Lowdon
Principal Lawyer
M +61 402 859 214 | T+61 3 9611 0120
E: klowdon@sladen.com.au

Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327 | T +61 3 9611 0105
E: dsmedley@sladen.com.au