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Edited version of private advice
Authorisation Number: 1051921581630
Date of advice: 17 November 2021
Subject: Superannuation death benefit - financial dependency
Was the Beneficiary a death benefits dependant of the Deceased according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being a financial dependent of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997?
Are the superannuation lump sum death benefits received by the Beneficiary excluded from assessable income under section 302-60 of the ITAA 1997?
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.
The Deceased died in the 20XX income year.
The Beneficiary was older than 18 years when the Deceased died.
The Beneficiary received a death benefit payment from the Deceased's self-managed superannuation fund.
For the following reasons this benefit was paid to the Beneficiary's legal personal representatives.
• At young age the Beneficiary suffered a mental illness and was unable to complete high school.
• From that age the Beneficiary resided with the Deceased and due to the mental illness, was unable to undertake any secondary or tertiary study or engage in any work opportunities.
From the age approximating late 20's, the Beneficiary moved into a residential home for people suffering mental illness and began claiming a disability pension.
After several years at the residential home, the Beneficiary moved into shared houses/apartments and continued to be supported by the residential home fellowship.
During this time, the Deceased and the Deceased's spouse contributed financially towards many of the Beneficiary's living expenses, including ensuring that essential bills such as private health insurance were always paid.
The Beneficiary was hospitalised a number of times in a specified period, including under involuntary hospitalisation provisions of the Public Health Act.
In the mid 19XX's, the Deceased and their spouse, along with the Beneficiary's sibling purchased a property at for the Beneficiary to live in so that there was no longer a need for the Beneficiary to live in shared houses/apartments.
The property was originally purchased 75% in the Beneficiary's name and 25% in the name of the Beneficiary's sibling. The deposit (and all incidental costs, such as legal fees and stamp duty) were funded by the Deceased and their spouse and all mortgage repayments on the property were funded by the Deceased.
The 25% interest in the property was retained by the Beneficiary's sibling to provide financial security by ensuring that the Beneficiary could not sell or mortgage the property without a family member's consent.
The Beneficiary's sibling died in 20XX and the 25% interest in the property held by the Beneficiary's sibling was transferred to the Beneficiary's other surviving sibling.
The property purchased for the Beneficiary remains the Beneficiary's main residence.
Until the date of her death, the Deceased provided the Beneficiary with the following ongoing financial support by making payments for:
• private health insurance premiums
• house and contents insurance premiums
• the vehicle registration and insurance premiums
• dentist visits and other similar medical expenses
• repairs and maintenance for the Beneficiary's property
• rates for the Beneficiary's property; and
• various other expenses as they have arisen from time to time.
The Beneficiary was never engaged in paid employment and for the last XX years her only income was her disability pension and financial support from the Deceased.
To support the above the applicant provided an extract of the financial support that had been provided to the Beneficiary from the Deceased Estate and a medical diagnosis from Beneficiary's medical practitioner listing the Beneficiary's medical conditions.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 302-60
Income Tax Assessment Act 1997 Section 302-195
Reasons for decision
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.
Consequently, the taxable component of the superannuation lump sum death benefit paid to the Beneficiary is not assessable income or exempt income, as per section 302-60 of the ITAA 1997.
Meaning of death benefits dependant
Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' 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.
As the Beneficiary is the adult child of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.
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  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 applicant provided sufficient evidence to show that the Beneficiary was financially dependent on the Deceased. As in Malek's case, the Deceased accepted responsibility for the Beneficiary's living expenses and other expenses, such as various insurances, 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.
Where a person who was a dependant of the deceased receives a superannuation death benefit paid as a lump sum, the death benefit is not assessable income and is not exempt income, under section 302-60 of the ITAA 1997.