From colemangreig.com.au: The Full Court of the Federal Court of Australia dismissed the Commissioner’s appeal in the Bendel case, affirming that an unpaid present entitlement from a discretionary trust to a corporate beneficiary does not qualify as a loan under section 109D(3) of the Income Tax Assessment Act 1936.

The court ruled that there is a distinction between an obligation to repay and a mere obligation to pay, and that a debtor-creditor relationship alone does not constitute a loan.

This decision provides greater flexibility for discretionary trusts in allocating income to corporate beneficiaries without the risk of Division 7A deemed dividend issues.