Edited version of private advice

Authorisation Number: 1051919952394

Date of advice: 16 November 2022

Ruling

Subject: Superannuation death benefit - financial dependency

Question 1

Is the beneficiary a death benefits dependant of the deceased for the purpose of subsection 302-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), due to being a person who was a financial dependant of the deceased person just before she died?

Answer

Yes.

Question 2

Is a superannuation income stream benefit paid to a beneficiary that is a death benefits dependant of the deceased a not assessable income and not exempt income for the purpose of section 302-65 of the ITAA 1997, if the deceased was over the age of 60 at the time of her death?

Answer

Yes.

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The beneficiary is the adult child of the deceased.

In 20XX, the deceased was diagnosed with terminal illness.

From this time on, the beneficiary, here and there, travelled interstate to the deceased home to support and care for the deceased. The beneficiary was employed during this time.

In April 20XX, upon the agreement with her parent, the beneficiary resigned from her job so she could provide more care and support to the deceased. In exchange, the deceased agreed that she will provide the beneficiary with a financial support during this time.

From this time on, the beneficiary frequently travelled interstate to her parent's home to provide care and support to her parent on a part-time basis. This included taking her to medical appointments and caring for her during and following her treatments.

In exchange, the deceased transferred three lump sum payments from her bank account to the beneficiary's bank account.

The beneficiary used the above-mentioned money to pay for her mortgage and other daily living expenses.

In March 20XX, it was announced by the relevant state government that the state borders will close the following day due to the Covid-19 pandemic.

From this time on, the beneficiary moved interstate and stayed at the deceased home and provided full-time palliative care and domestic support to her parent until her death.

The beneficiary's income in the 20XX-XX and 20XX-XX income years supports the financial dependency.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 section 302-65

Reasons for decision

Summary

In this case the beneficiary is considered a financial dependent of the deceased for the purpose of section 302-195 of the ITAA 1997. Accordingly, the beneficiary, is a death benefit dependant of the deceased.

If this beneficiary receives a superannuation income stream benefit because of the death of the deceased of whom she is a death benefits dependant, that income stream is not assessable income and not exempt income for the purpose of section 302-65 of the ITAA 1997, as the deceased was over the age of 60 at the time of her death.

Detailed reasoning

Superannuation death benefits

Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependent' has the meaning given by section 302-195 of the ITAA 1997.

Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as follows:

A death benefits dependant, of a person who has died, is:

a)    the deceased person's spouse or former spouse; or

b)    the deceased person's child, aged less than 18; or

c)    any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or

d)    any other person who was a dependant of the deceased person just before he or she died.

The definition of a death benefits dependant does not stipulate the nature or degree of dependency required to be a dependant of the deceased person in paragraph 302-195(1)(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

The determination of financial support is a question of fact. In determining whether a person is a dependant it is necessary to establish the actual level of financial support because dependence is assessed based on the dependence or reliance on the earnings of another person for support.

The definition of dependency was addressed and interpreted in the High Court case of Kauri Timber Co (Tas) Pty Ltd v Reeman (1973) 47 ALIR 184; Gibbs J in speaking to previous cases on the issue of dependency stated that:

The principle underlying these authorities is the actual fact of dependence or reliance on the earnings of another for support that is the test.

Where the financial level of support provided to a person is substantial then that person can be regarded as financially dependent. If the level of financial support is insignificant or minor, then the person cannot be characterised as a dependant.

In the matter of Re Malek v. Federal Commissioner of Taxation [1999] AATA 678 Senior Member Pascoe clarified financial dependence:

In my view, the question is not to be decided by counting up the dollars required to be spent on the necessities of life for [Mrs Malek], then calculating the proportion of those dollars provided by the [son] and regarding her as a dependant only if that proportion exceeds 50%...In my view, the relevant financial support is that required to maintain the persons normal standard of living and the question of fact to be answered is whether the alleged dependant was reliant on the regular continuous contribution of the other person to maintain that standard.

In Malek the evidence provided by the applicant was able to demonstrate that the financial support received from her deceased son had been significant. The son accepted responsibility for mortgage repayments, maintenance and other expenses related to the applicant's residential premises.

In this case, the beneficiary provided evidence to show that she resigned from her job to care for the deceased and that she was financially dependent on the deceased for more than a year. As in Malek's case, the deceased accepted responsibility for the beneficiary's mortgage repayments and other expenses, such as, groceries, utilities, and car related costs.

Accordingly, we are satisfied that in this case the beneficiary was financially dependent on the deceased at the time of death for the purpose of paragraph 302-195(1)(d) of the ITAA 1997.

Section 302-65 of the ITAA 1997 then states that:

A superannuation income stream benefit that you receive because of the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income in either or both of the following cases:

(a) you are 60 years or over when you receive the benefit;

(b) the deceased died aged 60 or over.

Hence, if this beneficiary receives a superannuation income stream because of the death of the deceased then that income stream is not assessable income and is not exempt income for the purpose of section 302-65 of the ITAA 1997, as this beneficiary is a death benefits dependant of the deceased that was over 60 years at the time of her death.