Bendel vTax Commissioner

Bendel v Commissioner of Taxation

Chelsea Lyford ||
Did the Administrative Appeals Tribunal make the “correct and preferable decision” and where to from here?

In a recent case, the Administrative Appeals Tribunal (Tribunal) decided that a corporate beneficiary’s unpaid present entitlement to income (or capital) of a trust was not a “loan” by the corporate beneficiary to the trustee under s 109D(3) of Division 7A of the Income Tax Assessment Act (ITAA). Therefore, it was not taxable as a deemed dividend (income).

The background to Bendel v Commissioner of Taxation (28 September 2023)

Bendel consisted of trust entities which conducted an accounting and registered tax agent practice controlled by Mr Bendel and/or participated in commercial property syndicates. Mr Bendel operated the latter activities with his brother.

The Steven Bendel 2005 Discretionary Trust 2005 Trust (Trust), Gleewin Pty Ltd (Gleewin) and Gleewin Investments Pty Ltd (Gleewin Investments) were part of Bendel. Gleewin was and is the trustee of the Trust. Gleewin Investments was a discretionary beneficiary of the Trust in the 2014 to 2017 income years. During these years Gleewin:

  • passed income distribution resolutions effecting the distribution of its distributable income (as per the terms of the Trust deed). This was achieved by creating entitlements to that income in its discretionary beneficiaries, Mr Bendel and Gleewin Investments; and
  • reported Mr Bendel’s entitlements to his share of the Trust income as “discharged or paid.” Gleewin Investments’ entitlements were reported in the Gleewin Investments’ Current Account. It showed a running balance of entitlements “not satisfied.”

Beyond passing its income distribution resolutions, and recording them as outlined above, Gleewin did not:

  • report any asset held separately;
  • purport to alienate or create any interest in an identified asset to meet or correspond with Gleewin Investments’ unpaid present entitlements; and
  • report or account for any separate trust.

Gleewin Investments reported its unpaid present entitlements for each of the relevant income years in a corresponding way.

Enter, the Commissioner of Taxation

On 23 October 2017, the Commissioner of Taxation (Commissioner) commenced an audit of Mr Bendel’s tax affairs. Through the audit, the Commissioner discovered that Gleewin Investments had unpaid present entitlements to Gleewin’s distributable income during the specified timeframe.

On 4 September 2019, the Commissioner issued amended assessments reflecting his audit findings to Mr Bendel and Gleewin Investments, namely that:

  • Gleewin Investments’ unpaid present entitlements to prior year trust income constituted “loans,” within the meaning of s 109D(3) of the ITAA, made by Gleewin Investments in the current year to Gleewin;
  • those “loans” were dividends taken to be “paid,” within the meaning of s 109D(1) of the ITAA;
  • the “dividends” taken to “paid” out of profits were “assessable income” by operation of s 44(1) of the ITAA and included in Gleewin’s net income under s 95 of the ITAA; and
  • the discretionary beneficiaries entitled to Gleewin’s income were liable to be assessed under s 97 of the ITAA for a proportion of each dividend, determined by reference to their proportionate shares of Gleewin’s income (Amended Assessments).

Objections to the Amended Assessments were lodged on 1 November 2019. On 23 March 2021, the objections were disallowed for the 2014 to 2016 assessments. The objections were allowed, in part, for the 2017 assessment. Mr Bendel and Gleewin Investments applied to the Tribunal for a review of this decision.

The central question to be decided by the Tribunal

The Tribunal had to determine whether Gleewin Investments made a “loan,” within the meaning of s 109D(3) of the ITAA, to Gleewin during each of the relevant years on account of Gleewin Investments’ unpaid present entitlements to the Trust income of the previous year. The Tribunal decided that the answer to this question was “no.”

In reaching its decision the Tribunal considered, among other things, whether:

  1. a separate trust was created or arose upon vesting entitlements to income or distribution of Gleewin’s income each year, as contended by both parties; and
  2. a “loan,” as broadly defined in s 109D(3) of the ITAA, reaches so far as to embrace the rights in equity created when entitlements to trust income (or capital) are created but not satisfied and remain unpaid.
The issue of a separate trust

The Tribunal found that Gleewin did not:

  • make any appropriation of any asset, nor any investment decision regarding the Trust funds referrable to any income entitlements;
  • identify any asset or property held on account of entitlements to income; and
  • hold any identifiable property for Gleewin Investments at the end of each of the relevant years.

The Tribunal stated that where it isn’t possible to identify any asset or property held on any separate trust as conventionally understood (notwithstanding the acceptance of the parties that a separate trust was created), what was created upon Gleewin passing resolutions to distribute its income to Gleewin Investments was a right or entitlement for the beneficiary, coupled with the corresponding obligation of the trustee of a nature contemplated by what Gageler J said in .

Accordingly, the Tribunal didn’t accept that a separate trust arose in any conventional sense that discharged or replaced the obligation to pay entitlements to income. Entitlements to be paid shares of Gleewin’s income continued to exist. It rejected each party’s contentions that a separate trust arose, in effect discharging or paying the entitlements to income.

Statutory context

(i)  the policy (purpose) of Division 7A of the ITAA (Deemed Dividends) is to tax those who enjoy the benefit of corporate profits without bearing taxation that would arise had the company paid dividends in the usual way; and

(b)  statutory construction principles that call for:

(i)  regard to statutory context in which s 109D(3) of the ITAA appears and legislative history; and

(ii) potentially competing provisions to be construed in a manner which “gives effect to harmonious goals.”

The Tribunal concluded that a “loan,” within the meaning of s 109D(3) of the ITAA, does not reach so far as to embrace the rights in equity created when entitlements to trust income (or capital) are created but they are not satisfied and remain unpaid.

The Tribunal’s conclusion

In conclusion, the Tribunal stated:

”The balance of an outstanding or unpaid entitlement of a corporate beneficiary of a trust, whether held on a separate trust or otherwise, is not a loan to the trustee of that trust.”

For the reasons set out by the Tribunal in its “Reasons for Decision” (summarised above), I agree with the Tribunal’s conclusion and, as a former Senior Member of the Tribunal, I am of the view that it reached the “correct and preferable” decision (Re Becker and Minister for Immigration and Ethnic Affairs (1977) ALD 158; Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 at 589).

The Australian Taxation Office (ATO) position

The ATO’s position is that, in many circumstances, an unpaid present entitlement will be a “loan” under s 109D(3) of the ITAA: Taxation Ruing TR 2010/3 (withdrawn)[1], Practice Statement Law Administration PSLA 2010/4 (withdrawn) and Taxation Determination TD 2022/11.

The Tribunal’s decision in this matter is clearly at odds with the ATO’s position. This is noting that the Tribunal, as an independent statutory merits review body, isn’t bound by the ATO’s administrative rulings and determinations.

Where to from here?

The Tribunal is an administrative body created by statute, namely the Administrative Appeals Tribunal Act . It “stands in the shoes” of the Commissioner and conducts a complete merits review of the Commissioner’s decision (usually the Commissioner’s objection decision). It is not a court.[2] Consequently, a decision of the Tribunal, whilst binding on the Commissioner, is not binding in law.

The Commissioner may choose to appeal the Tribunal’s decision to a single Judge of the Federal Court, but can only do so on a question of law (not fact). The Commissioner has 28-days from the date of the Tribunal’s decision (28 September 2023) in which to appeal. Any decision made by the Federal Court will be binding in law.

This raises the question of what happens if the Commissioner decides not to appeal. In short, we will have to wait for another unpaid present entitlement case to be brought before the Tribunal or Federal Court.

Tribunal members are not bound to follow other Tribunal decisions. However, unless persuaded that an existing decision is plainly wrong, they generally do follow for reasons of consistency and sound administration.[3] In my experience, ordinary “Members” will follow the decisions of “Senior Members” and/or “Deputy Presidents.”

Further, in my experience, a single Judge of the Federal Court will usually follow the Tribunal’s decision (especially the decision of a Senior Member and/or Deputy President). However, they are not strictly bound to do so.[4]

Finally, it remains to be seen whether the Commissioner will withdraw TD 2022/11 following the Tribunal’s decision in this matter. I suspect not and that the Commissioner will wait for further Tribunal decisions or some case law on this issue.

To discuss the potential implications of this decision or for taxation advice regarding a Trust, please contact Coleman Greig’s Taxation & Superannuation Law experts. 


[1] Although withdrawn, TR 2010/3 continues to apply to unpaid present entitlements before 1 July 2022.

[2] The Australian Constitution provides for strict separation of administrative and judicial power under Chapter 11 and Chapter III, respectively.  At the federal level the executive cannot exercise the power of the judiciary/Courts. Conversely, the judiciary/Courts cannot exercise administrative.

[3] The Hon. Justice Duncan Kerr Chev LH, “Tax Dispute Resolution: The TRIBUNAL Perspective”, Tax Bar Association of Victoria, 4 June 2013.

[4] Ibid.



Send an enquiry

Any personal information you provide is collected pursuant to our Privacy Policy.


More posts

Bendel vTax Commissioner
Bendel v Commissioner of Taxation

Did the Administrative Appeals Tribunal make the “correct and preferable decision” and where to from here? In a recent case, the Administrative Appeals Tribunal (Tribunal)

Salvage Lien attempt fails

Volkswagen Financial Services Australia Pty Ltd v Atlas CTL Pty Ltd ( Receivers and Managers Appointed)(in liquidation) [2022] NSWSC 573. In this case administrators, then

Charitable gift in a Will

The gift may be a specific asset but more commonly is either a specified amount or a percentage of your estate to the charitable organisation.

© 2024 Coleman Greig Lawyers   |  Liability limited by a scheme approved under Professional Standards Legislation. ABN 73 125 176 230