The ATO will not alter its position on the treatment of unpaid present entitlements (UPEs) from unit trusts despite a recent court case challenging its position, and will maintain its compliance approach while awaiting an appeal to the High Court.
ATO deputy commissioner private wealth client experience Louise Clarke addressed the decision in the case of Commissioner of Taxation v Bendel [2025] FCAFC 15 noting it ran counter to the regulator’s long held position, and as such it would challenge the court’s decision.
“For more than 15 years, the ATO has had a published view about the tax consequences of UPEs owing to corporate beneficiaries,” she said on the regulator’s website.
“The Bendel case is the first time that the ATO’s longstanding view has been considered by the courts. In February, the Full Federal Court reached a decision that is contrary to the ATO’s published position.
“We’ve sought special leave to appeal this decision to the High Court because the decision is of wide interest and will impact many private company taxpayers.”
Clarke added that as a result of the appeal process the ATO’s position would remain unchanged until further notice.
“Our published Interim Decision Impact Statement explains that we don’t intend to revise our current views relating to private company entitlements to trust income, as detailed in Taxation Determination 2022/11: Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of ‘financial accommodation’?, until the appeal process is exhausted.”
The deputy commissioner also addressed the timeframe of the appeal process and confirmed any further action from the regulator would depend on the success of the appeal.
“I won’t second guess the workings of the High Court. However, we can anticipate that they’ll decide whether to grant the commissioner special leave to appeal in the next few months.
“If the High Court decides to hear our appeal, the whole process could take a little while, allowing for a hearing to be scheduled and the High Court time to consider its decision.”
“If the High Court chooses not to hear our appeal, we will, as a priority and almost immediately, publish practical guidance for taxpayers by updating our Decision Impact Statement. Of course, over a period of weeks and months, we will also review and update relevant ATO guidance products.”
She encouraged taxpayers to review the Interim Decision Impact Statement on the case and to seek independent advice adding the ATO would not take action against people who have acted in accordance with the current law.
“If a taxpayer has been following the ATO guidance and if they continue to do so, then they will have certainty regardless of the outcome of the High Court proceedings. That is, they will not be facing the prospects of a deemed dividend or potential application of other integrity provisions,” Clarke stipulated.
“Of course, it is up to individual taxpayers to decide their approach post the Full Court’s decision. However, any decision needs to be made with knowledge of the relevant risks and their individual circumstances.”