Tax News and Updates July 2026

No.

Article

Link

1.

High Court rejects ATO’s Division 7A UPE position in Bendel

The High Court has dismissed the Commissioner’s appeal in Commissioner of Taxation v Bendel [2026] HCA 18, confirming that an unpaid present entitlement (UPE) owing to a corporate beneficiary is not, without more, a loan for the purposes of Division 7A.

In a 5:2 majority decision, the Court rejected the Commissioner’s longstanding view that a corporate beneficiary’s decision not to call for payment of a UPE amounted to the provision of financial accommodation, giving rise to a deemed dividend.

A key aspect of the decision was the Court’s detailed examination of the trust deed, trustee resolutions and trust accounts. The majority held that no debtor-creditor relationship arose between the trustee and the corporate beneficiary and that the relevant entitlements were held on separate trusts rather than remaining part of the trust fund.

The Court also rejected both limbs of the Commissioner’s “loan” argument. First, the provision of financial accommodation required some anterior transfer of value or pecuniary assistance. Secondly, mere inaction or acquiescence in non-payment did not constitute a transaction that, in substance, effected a loan.

Importantly, the majority considered the Commissioner’s position difficult to reconcile with Division 7A’s specific provisions dealing with UPE arrangements, noting that Parliament had previously considered the issue and adopted a different legislative approach.

The decision is a significant victory for taxpayers and is expected to result in changes to the Commissioner’s public guidance, including TD 2022/11. However, the ATO has previously indicated that arrangements involving retained UPEs may still be examined through the lens of section 100A.

The decision provides long-awaited clarity on the operation of Division 7A and corporate beneficiary UPEs, although taxpayers should continue to review trust arrangements carefully in light of the Commissioner’s ongoing focus on trust integrity measures and the broader trust reforms announced in the 2026–27 Federal Budget.

Commissioner of Taxation v Bendel (M47-2025) [2026] HCA 18.pdf

2.

ATO issues decision impact statement regarding Bendel

The ATO has released a Decision Impact Statement (DIS) in response to the High Court's decision in Commissioner of Taxation v Bendel [2026] HCA 18, accepting that a corporate beneficiary's unpaid present entitlement (UPE), without more, is not a loan for the purposes of Division 7A.

In the DIS, the ATO acknowledges that where a corporate beneficiary has taken no relevant action in relation to its UPE, the Commissioner will no longer treat the UPE as a Division 7A loan, regardless of whether the amount is held on a separate trust. However, the ATO emphasises that the characterisation of a UPE remains highly fact-dependent, requiring consideration of the trust deed, trustee resolutions, accounting records and any subsequent dealings with the entitlement.

Importantly, the ATO has confirmed that the decision does not eliminate the potential application of other provisions, including Subdivision EA and s 100A. In particular, the Commissioner considers that Subdivision EA may apply where trust funds representing a corporate beneficiary's entitlement are used for the benefit of shareholders or their associates.

The ATO has also clarified that arrangements where UPEs have subsequently been satisfied, converted into loans or otherwise dealt with in a manner falling within s 109D(3) will continue to be assessed according to their legal character. Existing complying Division 7A loan arrangements will not be unwound as a consequence of Bendel.

The DIS is a significant concession by the Commissioner following the final rejection of the ATO's longstanding UPE position. However, the ATO has signalled that trust arrangements involving corporate beneficiaries will continue to attract scrutiny, particularly under Subdivision EA and s 100A.

Commissioner of Taxation v Bendel [2026] HCA 18 (Published 26 June 2026) | Legal database

3.

CGT and negative gearing reforms enacted

The Government’s flagship CGT and negative gearing reforms have now become law, with the relevant Bills receiving Royal Assent on 26 June 2026.

The reforms implement the Budget measures announced on 12 May 2026, including the replacement of the 50% CGT discount with a cost base indexation regime from 1 July 2027 and the introduction of a 30% minimum tax on capital gains. Transitional provisions will apply to split pre and post 1 July 2027 gains, including for pre-CGT assets.

Negative gearing will also be significantly restricted from 1 July 2027. For residential properties acquired on or after 12 May 2026, rental losses will generally be quarantined and unable to offset salary, business or other investment income. Concessions remain available for new residential dwellings.

The legislation also introduces the $250 Working Australians Tax Offset from the 2028 income year and a $1,000 standard deduction for work related expenses from the 2027 income year.

Senate amendments

Before passage, the legislation was amended in the Senate following negotiations with the Australian Greens and crossbenchers.

A notable addition is a new restriction on SMSF limited recourse borrowing arrangements (LRBAs). From 45 days after Royal Assent, SMSFs will only be able to use new LRBAs to acquire business real property, effectively preventing the use of future LRBAs for residential property investments. Existing arrangements and certain refinancings are grandfathered.

Other amendments include:

• removing ministerial discretion to determine additional asset classes eligible for CGT discount treatment;
• increasing the turnover threshold for the small business 50% active asset reduction from $2 million to $10 million from 1 July 2027;
• preserving incentives for deductible gifts by reducing gains subject to the 30% minimum tax where deductible gifts have been made;
• replacing ministerial discretion regarding minimum tax exemptions with a statutory list of exempt payments, including certain pensions and social security payments;
• narrowing ministerial discretions relating to the negative gearing loss quarantining regime; and
• embedding the formula for calculating the Working Australians Tax Offset directly in the legislation.

The enactment of the reforms marks one of the most significant changes to the taxation of capital gains, residential property investment and trusts in recent years.

Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 – Parliament of Australia

Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026 – Parliament of Australia

4.

ATO finalises DIS following Hall decision

The ATO has finalised its Decision Impact Statement following its successful appeal in FC of T v Hall [2026] FCAFC 43, a case concerning the deductibility of home office occupancy expenses and home-to-work travel expenses incurred during the COVID-19 lockdowns.

The taxpayer, an ABC sports producer, claimed deductions for a portion of the rent paid on his Melbourne residence and for car expenses incurred travelling between his home and workplace. The Administrative Review Tribunal initially allowed the claims, but the Full Federal Court reversed that decision.

The Full Court held that the rent expenses retained their essential character as private or domestic expenditure and were therefore not deductible under s 8-1 of the ITAA 1997. Similarly, the travel expenses remained non-deductible home to work travel, as they were incurred to place the taxpayer in a position to earn income rather than in the course of earning it.

In the DIS, the ATO states that the decision supports its existing views on the deductibility of occupancy expenses and work-related travel expenses. The Commissioner is reviewing whether updates are required to TR 93/30, TR 2021/1 and related employee guidance to reflect the Full Court’s reasoning.

Importantly, the ATO emphasises that an employer requirement to work from home, or the practical necessity of doing so during the pandemic, does not of itself make occupancy expenses deductible. The key question remains whether part of the home has the character of a place of business, rather than merely being a location from which work is performed.

The ATO also reiterates that performing some employment duties at home will not ordinarily convert travel between home and a regular workplace into deductible travel. Such expenses generally remain a prerequisite to commencing income-earning activities and are therefore private in nature.

The DIS confirms that the extraordinary circumstances of the COVID-19 pandemic did not alter these established principles governing the deductibility of home office occupancy costs and home-to-work travel expenses.

Commissioner of Taxation v Hall [2026] FCAFC 43 (Published 17 June 2026) | Legal database

5.

TPB issues guidance on AML/CTF obligations for tax practitioners

The Tax Practitioners Board (TPB) has released a factsheet outlining how the expanded anti-money laundering and counter-terrorism financing (AML/CTF) regime will interact with existing obligations under the Tax Agent Services Act 2009 (TASA), ahead of the new requirements commencing on 1 July 2026.

The factsheet highlights that many AML/CTF obligations overlap with existing professional obligations, but emphasises that tax practitioners must continue to comply with both regulatory frameworks.

Key points include:

• compliance with AML/CTF client identification requirements will generally satisfy the TPB’s minimum proof-of-identity requirements for client verification
• reporting suspicious matters to AUSTRAC under the AML/CTF regime will not breach a practitioner’s confidentiality obligations under the TASA Code of Professional Conduct
• record-keeping obligations under the AML/CTF and TASA regimes remain separate, although the same records may often be used to satisfy both requirements
• existing processes used to meet TASA obligations may be leveraged or expanded to satisfy AML/CTF due diligence and training requirements
• practitioners remain responsible for compliance where functions are outsourced, including ensuring appropriate due diligence is exercised under both regimes
• separate reporting obligations apply under each regime, with TASA focusing on misconduct by registered tax practitioners and AML/CTF obligations focusing on suspicious client conduct. In some cases, the same conduct may trigger obligations under both frameworks.

The TPB also emphasises the importance of undertaking appropriate risk assessments and ensuring policies, procedures, staff training and client verification processes are in place before the expanded AML/CTF regime commences.

The factsheet serves as a practical reminder that tax practitioners will need to integrate AML/CTF compliance into existing governance and professional obligations rather than treat it as a standalone regime.

TPB releases factsheet to help registered tax practitioners prepare for expanded AML/CTF regime | Tax Practitioners Board

6.

PAYG withholding schedules updated for 2026–27

The Commissioner has issued the Taxation Administration (Withholding Schedules) Instrument 2026, updating the PAYG withholding schedules that employers and other withholding entities must use from 1 July 2026.

The instrument contains 15 withholding schedules setting out the formulas and procedures for calculating amounts to be withheld from payments under the PAYG withholding system.

The schedules facilitate the collection of:

• income tax
• Medicare levy
• Higher Education Loan Program (HELP) debts
• Student Start-up Loans
• Australian Apprenticeship Support Loans
• VET Student Loans
• Financial Supplement repayments

The new instrument repeals and replaces the Taxation Administration (Withholding Schedules) Instrument (No 2) 2025.

Key changes

All 15 schedules have been updated to reflect:

• revised individual income tax rates applying for the 2026–27 income year
• increased Medicare levy low-income thresholds
• annual indexation of study and training support loan repayment thresholds
• updated repayment rates and thresholds for relevant loan schemes

Taxation Administration (Withholding Schedules) Instrument 2026 - Federal Register of Legislation

7.

Car expenses cents per kilometre rate increases for 2026–27

The Commissioner has determined that the cents per kilometre rate for work-related car expense deductions will increase from 88 cents to 91 cents per kilometre for the 2027 financial year.

The new rate is contained in the Income Tax Assessment (Cents per Kilometre Deduction Rate for Car Expenses) Determination 2026 and applies to taxpayers who use the cents per kilometre method to calculate deductions for work-related car expenses.

The 91 cent rate comprises:

• a base rate of 89 cents per kilometre; and
• a one-off uplift of 2 cents per kilometre to reflect fuel price pressures and broader economic uncertainty.

The Commissioner is required to have regard to average operating costs when determining the rate. For future income years, the rate will be reviewed having regard to CPI movements and prevailing operating costs.

The Determination applies from 1 July 2026 and replaces the previous determination, which prescribed a rate of 88 cents per kilometre for both the 2024/25 and 2025/26 income years.

Income Tax Assessment (Cents per Kilometre Deduction Rate for Car Expenses) Determination 2026 - Federal Register of Legislation