The ATO will seek to argue before the High Court that its position on the treatment of unpaid present entitlements (UPE) from a unit trust is correct after leave to appeal an earlier decision in the full Federal Court was granted late last week.
The regulator was granted special leave to appeal the outcome of Commissioner of Taxation v Bendel [2025] FCAFC 15, which was handed down on 19 February and has since raised questions about whether unpaid present entitlements from unit trusts still qualify as loans under Division 7A of the Income Tax Assessment Act (ITAA) and in turn the Superannuation Industry (Supervision) (SIS) Act.
The initial case challenged a long-standing ATO ruling based on the concept of a financial accommodation included in ITAA Division 7A and that a UPE was a loan from the recipient to the unit trust, however, the court narrowed the meaning of financial accommodation to exclude UPEs.
In making that decision, the full Federal Court dismissed the tax commissioner’s appeal from the earlier decision of the Administrative Appeals Tribunal, which also found that an amount was not subject to Division 7A as UPE because it did not involve the concept of a ‘repayment’ under the relevant provisions.
The case has implications for SMSFs due to commonalities between the ITAA and SIS Act where the expanded definition of loan in the latter is almost identical to that in the ITAA and the concept is almost identical.
Since the legal ruling in February, the ATO has maintained it would not change its view on the issue while it was waiting for the outcome of its appeal to the High Court.
In April, ATO private wealth client experience deputy commissioner Louise Clarke said the regulator would maintain its current compliance approach until the appeal process was completed and the High Court action resolved.
SMSF practitioners and clients have also been encouraged to comply with the ATO’s current stance and not rely on the Bendel decision as the particulars of the case would be re-examined.
