What the High Court win - and the 2026 Budget - mean for your trust structure

This week, Australian taxpayers won a major victory against the ATO. The High Court handed down its decision in Bendel v Commissioner of Taxation, ruling that unpaid present entitlements (UPEs) from a trust to a corporate beneficiary, your so-called “bucket company”, are not loans under Division 7A.

It’s a big deal. Fifteen years of ATO position, overturned. Champagne all round.

Well… perhaps hold the cork in for a moment.

Because while the Bendel decision was landing, Treasurer Jim Chalmers was quietly doing his own thing in the May Budget. And what he announced for trusts and bucket companies is, shall we say, a rather elegant counterbalance. (link to article May Budget #2 the new minimum tax on discretionary trusts)

First, the win - what Bendel actually means

The short version: when a family trust distributes income to a company beneficiary but doesn’t physically transfer the cash, that unpaid amount (the UPE) has long been treated by the ATO as a loan - triggering complex compliance obligations and, if you got it wrong, a deemed unfranked dividend.

The High Court said: no it isn’t. A UPE is an obligation to pay, not an obligation to repay. And Division 7A, properly read, only applies to the latter.

For the past 15 years, accountants across the country have been diligently documenting sub-trust arrangements and complying loan agreements on UPEs - largely because not doing so invited an ATO audit. That administrative burden? Potentially no longer required for UPEs going forward.

That’s genuinely good news for business owners with trust structures. It simplifies things.

Now, the sting in the tail

The 2026-27 Federal Budget announced a 30% minimum tax on discretionary trusts, starting 1 July 2028.

Here’s how it works:

- The trustee pays 30% tax on trust income at the trust level

- Individual beneficiaries get a non-refundable credit for that tax

- Corporate beneficiaries (your bucket company) get nothing - no credit whatsoever

That last point is doing a lot of heavy lifting. The bucket company strategy worked because income could be “parked” in a company at 25-30% tax, generating franking credits and deferring personal tax. Under the new rules, the trust pays 30% first, the company then pays tax again on the same income when it receives it - and gets no offset.

Early estimates put the combined effective tax rate on income cycled through a bucket company at somewhere between 55% and 60%. The government has been pretty open that this is exactly the point.

So where does that leave you?

The honest answer is: it depends on your structure, and it’s worth a proper review before 2028.

A few things worth noting:

- The Budget measure is not yet law. Consultation is expected before legislation is introduced. There’s a chance the detail changes - particularly around how corporate beneficiaries are treated.

- Rollover relief is on the table. The government has proposed a 3-year window (2027–2030) to restructure out of discretionary trusts with reduced tax consequences. That’s a meaningful concession.

- The Bendel win doesn’t give you a free pass. Other anti-avoidance rules - particularly Section 100A - can still apply to trust distributions. Don’t assume the all-clear without advice.

- Existing loan arrangements need careful thought. If you’ve been running complying loan agreements on your UPEs, unwinding them isn’t straightforward. Get advice before you touch anything.

The big picture

The Bendel decision is a genuine win for taxpayers, and it has real practical implications for how trust structures are administered. But it lands in the same week as a Budget that fundamentally changes the economics of distributing to a corporate beneficiary.

The tax law, as ever, giveth and taketh away; occasionally in the same news cycle.

If you have a family trust with a bucket company, now is a good time to have a conversation about whether your current structure still makes sense in a post-2028 world. The window to restructure with favourable tax treatment won’t stay open forever.

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