Family trusts, bucket companies and Bendel: what private groups should review

Family trusts are receiving renewed attention for two reasons. First, the Government has announced a proposed 30% minimum tax for discretionary trusts from 1 July 2028, with exceptions and transitional relief expected to apply. Secondly, the High Court's decision in Commissioner of Taxation v Bendel has clarified an important Division 7A issue for unpaid present entitlements owed to corporate beneficiaries.

These developments are connected, but they should not be treated as the same issue. The proposed trust tax reform is about the future tax treatment of discretionary trust income. Bendel is about whether a corporate beneficiary's unpaid present entitlement is, without more, a Division 7A loan back to the trust.

This update is most relevant to family groups, private businesses, investment groups and professional service groups that operate through discretionary or family trusts.

It is particularly relevant where a trust distributes income to a related company, often referred to as a bucket company, and the amount is left unpaid or retained within the group.

Under the proposed trust tax reform, some discretionary trust income may be subject to a minimum 30% tax rate. This may reduce the tax benefit of distributing income to beneficiaries on lower marginal rates and may change the attractiveness of some corporate beneficiary arrangements.

Separately, the High Court in Bendel confirmed that, on the facts of that case, an unpaid present entitlement owed to a corporate beneficiary was not automatically a loan for Division 7A purposes. This is a helpful decision for some private groups, but it does not mean unpaid entitlements can be ignored. The result may depend on the trust deed, resolutions, accounting treatment, whether the company has called for payment and how funds have been used.

Clients with family trusts should review their trust deed, annual distribution resolutions, UPE balances, corporate beneficiary arrangements and Division 7A documentation. The review should consider both historical positions and future structure.

For groups using bucket companies, it will be important to distinguish between Bendel-related UPE issues and the separate proposed trust minimum tax. A favourable outcome on one issue does not remove the need to review the other.

The trust tax reforms remain subject to detailed implementation. Bendel is a High Court decision, but the ATO response and any legislative response should be monitored. Clients should not restructure, unwind trusts or change distribution strategies based only on general commentary.

If your group uses a family trust or company beneficiary, please contact us so we can review your position and identify any practical steps before year-end or before the proposed reforms commence.