From www.taxinstitute.com.au: The Full Federal Court ruled in favour of Mr. Bendel, determining that an unpaid present entitlement owed to a corporate beneficiary is not classified as a loan under subsection 109D(3) of Division 7A of the Income Tax Assessment Act 1936.

The court found that an obligation to repay, distinct from merely an obligation to pay, is necessary to establish a loan, leading to potential implications for taxpayers and advisers regarding UPEs and their tax treatment.

The Australian Taxation Office may still appeal this decision, which introduces uncertainty for the future interpretation of UPEs under Division 7A.