So is the Full Federal Court decision in Bendel’s case good news for bucket companies?  We will have to wait and see as we will explain.

The Full Federal Court has just handed down a 3-0 decision in favour of bucket companies (being companies that receive trust distributions).  The judges’ decision ruled in favour of distributions by trusts to companies not being a loan and therefore by extension not coming under Division 7A.

So what do we do now?

Nothing.

We wait.

We wait until 19^th March by which time the ATO must seek leave to appeal the case to the High Court.

Will the ATO appeal?

On the one hand they have just lost the case 3-0 before some of the country’s most senior judges.  Their chances appear slim.

On the other hand, the ATO has a lot to loose so may well appeal.  And if they appeal, we wait for certainty until the appeal is heard by the High Court.

The ATO may also seek to have the law amended.

So for the time being, we wait and see.

If this decision of the Full Federal Court holds or is upheld by the High Court or the law not subsequently changed, this means either that distributions to bucket companies:-

• Do not have to be paid out in full to bucket companies before the year of a loan’s Tax Return is lodged to paying interest or
• If not fully paid out, ensuring subsequent payments comply with an interest and principal repayment formula.

This is particularly good news for small businesses as they will be able to retain funds to meet working capital needs – rather important with all the cost and cash flow pressures being experienced by small businesses.

We will keep you posted.