Unpaid Present Entitlements: The Trust Trap and the Case That Reopened It
Reviewed by Patrick Sargent CA, Registered Tax Agent 25758613·Published 1 August 2026 · Last reviewed 2 August 2026·6 min read
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How a UPE happens, usually by accounting rather than intent
30 June arrives and the trustee resolves to distribute $150,000 to the corporate beneficiary, capping tax at the company rate. The company returns the income and pays its tax. But the trust keeps the cash, funding stock, the offset account, life.
On paper it is a distribution. In substance it is the company's money financing the trust interest free. That gap is the UPE, and it accumulates. Many family groups discover, at review, a decade of them stacked into the high six figures.
The two competing views
ATO position versus the Bendel decision on company UPEs
ATO position (the operating reality)
Bendel (the challenge)
Core claim
A company letting its UPE sit unpaid provides financial accommodation, which is a Division 7A loan
A UPE is an entitlement, not a loan, and the Division 7A loan definition does not reach it
Consequence
A complying loan agreement with minimum repayments is required, or a deemed unfranked dividend arises
No automatic Division 7A consequence for the UPE itself
Status
Long-standing rulings, maintained pending appeal, with interim guidance flagging alternatives such as section 100A and debt forgiveness angles
Full Federal Court found for the taxpayer, with a High Court appeal on foot
ATO position versus the Bendel decision on company UPEs
What to actually do while it is unresolved
The compliance surface underneath
Whatever Bendel settles, the housekeeping failures around UPEs remain independently dangerous: trustee resolutions not made or not documented by 30 June, which invalidates the distribution and defaults the income to trustee assessment at 47%; distributions to beneficiaries who never see any benefit, which is section 100A's core target; and family groups whose trust and company returns are years unlodged, where nobody actually knows what the UPE ledger says.
The triage order is the usual one. Lodgments current first, then the ledger reconstructed, then the Division 7A and UPE repair strategy. The discretionary fixes all favour the party who raised the issue first.
Frequently asked questions
What is an unpaid present entitlement?
Trust income a beneficiary is entitled to but has not been paid, most consequentially when the beneficiary is a private company.
Is a UPE a Division 7A loan?
The ATO says yes, with complying loan obligations. The Full Federal Court in Bendel said no. The High Court will settle it. Until then the ATO's view is the safe planning basis.
What is the Bendel case?
Litigation testing whether a company's unpaid trust entitlement is a loan for Division 7A purposes. The taxpayer won at the Full Federal Court and the ATO has appealed.
Should I unwind my Division 7A loan agreements over old UPEs?
Not on the current state of play. Maintain them and take advice before any Bendel-reliant restructure, because the ATO retains section 100A and other angles regardless.
What happens if trustee resolutions were not done by 30 June?
The distribution can fail entirely, taxing the income to the trustee at 47%. That is a separate and fully live risk whatever happens to the UPE question.
This page carries a visible last-reviewed date because the law here is genuinely in motion.
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.
Years behind? It ends this week.
Family groups with unlodged trust and company returns cannot even see their UPE position. TaxNudge brings the lodgments current so the repair strategy is built on real numbers. Book a free, confidential assessment.
