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Ruling

Subject: Death benefit payment made from a superannuation fund

Question:

Are you a death benefit dependant of the Deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

No.

This ruling applies for the following period:

Year ending 30 June 2009

The scheme commences on:

1 July 2008

Relevant facts and circumstances

The Deceased passed away late in the 2007-08 income year.

The Deceased, who is your father, was born in the 1940s.

You reside with your spouse and your children.

The Deceased did not reside with you.

Details of your gross income for the three income years preceding the Deceased's death have been ascertained from the relevant Notices of Assessment.

Details of your spouse's gross income for the three income years preceding the Deceased's death have been ascertained from the relevant Notices of Assessment.

Details of the Deceased's gross income for the three income years up to and including the date of death have been ascertained from the relevant Notices of Assessment.

You have provided various statements from a stock and station agent. These statements, which relate to an account, held with them in your name, detail transactions associated to stock sales.

You state that these transactions represent the sales of stock owned by the Deceased and that the Deceased used the proceeds to provide you with small cash handouts to you to help with living expenses.

The Deceased was a member of the Fund, a complying superannuation fund.

In a letter to you from the Fund in the 2008-09 income year, it states:

Death benefit

Member: [the Deceased]

We are pleased to enclose a cheque for [amount] representing the amount payable to you from [the Fund] following the death of [the Deceased]. …

…Tax has been deducted from your benefit as follows:

· Account Balance [amount]

· Plus Insured Benefit [amount]

· Gross Benefit [amount]

· Less PAYG Tax [amount]

· Less Benefit Payment Fee [amount]

· Net Benefit Payable [amount]

A PAYG Superannuation Payment Summary - death benefit issued by the Fund indicates the following amounts:

· Tax free component [amount]

· Taxable component - taxed element [amount]

· Taxable component - untaxed element [amount]

· Tax withheld [amount]

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195.

Income Tax Assessment Act 1997 Section 302-200.

Income Tax Assessment Act 1997 Subsection 302-200(1).

Income Tax Assessment Act 1997 Subsection 995-1(1).

Reasons for decision

Summary of decision

You were not financially dependant on the Deceased. The Deceased did not contribute all or a major amount of necessary financial support to you.

You are not a dependant of the Deceased with the definition of 'death benefits dependant'.

Detailed reasoning

Death Benefits Dependant in relation to the Superannuation Death Benefit

Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether or not the person that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

Where a person receives a superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income.

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

In this case, you were not the Deceased's spouse, former spouse or the Deceased's child aged less than 18.

Consequently, it is necessary to determine whether, at the time of death, you and the Deceased had an 'interdependency relationship' or, alternatively, you were financially dependant upon the deceased.

Interdependency relationship

Under section 302-200 of the ITAA 1997 two persons (whether or not related by family) have an 'interdependency relationship' if:

(a) they have a close personal relationship; and

(b) they lived together; and

(c) one or each of them provides the other with financial support; and

(d) one or each of them provides the other with domestic support and personal care.

In your case, you and the Deceased did not have an interdependency relationship as you did not reside with the Deceased. Whilst the Deceased provided you with some degree of financial support by in the form of small cash handouts, the Deceased did not provide you with domestic support or personal care. Further, there is no evidence of a close personal relationship existing between you and the Deceased.

Financial dependency

As it has been determined that you and the Deceased did not have an interdependency relationship at the time of death, we must now consider whether you were financially dependant on the Deceased at the time of death.

According to the Macquarie Dictionary, one meaning of the term 'dependant' is 'a person to whom one contributes all or a major amount of necessary financial support'.

In the CCH Macquarie Concise Dictionary of Modern Law a dependant is defined as being 'a person substantially maintained or supported financially by another'.

In both dictionary definitions the emphasis is on the fact that the financial support or maintenance is substantial. In determining whether a person is a dependant it is necessary to establish the actual level of financial support that was provided to that person by the deceased. This is because dependence is assessed on the basis of the actual fact of dependence or reliance on the earnings of another for support. This is a question of fact (Aafjes v. Kearney¹ per Chief Justice Barwick).

In Administrative Appeals Tribunal (AAT) Case [2000] AATA 8², Senior Member Fayle in considering the definition of 'dependant' in relation to former section 27AAA of the ITAA 1936 stated:

The Act is primarily concerned with commercial and financial matters "… An Act relating to the imposition, assessment and collection of tax upon incomes". As such, a question of dependency should be construed within that context. The relevant question in this sense is whether the applicants were financially dependent on their son at the relevant time.

Where the level of financial support provided to a person is substantial then that person can be regarded as a dependant. So a financial dependant is considered to be a person to whom another person contributes all or a major amount of necessary financial support. If the level of financial support provided is insignificant or minor, then the person cannot be regarded as a dependant.

In the Victorian Supreme Court case of Fenton v. Batten, Justice Fullager made the following comments regarding dependency:

The word dependant is, in a true sense a technical term. If the evidence established that the alleged dependant relied on or relies on another as the source wholly or in part of his or her existence then dependence is established. Questions of scale of living do not enter into the matter in the absence of some such statutory enactment.

These comments made in Fenton v. Batten when read in the context with the facts established in that case, would tend to confirm the definition of dependant contained in the CCH Macquarie Dictionary of Modern law and the meaning quoted above from the Macquarie Dictionary.

In the full High Court case of Kauri Timber Co. (Tas) Pty Ltd v. Reeman, Justice Gibbs (as he then was) in speaking of 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.

Handing down the decision in Re Malek v. Federal Commissioner of Taxation (Malek), Senior Member Pascoe of the AAT further clarified the meaning of the word dependant, stating:

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 supplied by the taxpayer was able to demonstrate that the financial support received from her deceased son had been significant. The son had accepted responsibility for mortgage repayments, maintenance and other expenses of the unit in which the taxpayer lived.

Taking into account all of the above, it is considered that financial dependence occurs where a person is wholly or substantially maintained financially by another person. The point to be considered is whether the facts show that the beneficiaries depended or relied on the earnings of the deceased for their day to day sustenance.

If the financial support provided merely supplements the person's income and represents quality of life payments, then it would not be considered substantial support. What needs to be determined is whether or not the person would be able to meet their daily basic necessities (shelter, food, clothing, etc.) without the additional financial support.

In this case, you are a child of the Deceased. The point to be considered is whether the facts show you depended or relied on the earnings of the Deceased for your day to day sustenance at the time of the Deceased's death.

You state that the Deceased provided you with small cash handouts financed from the sale of stock to help you with your living expenses. However, whilst the evidence you have provided shows that you were in receipt of income from the sale of stock, the proceeds of which was credited to an account in your name with a stock and station agent located in another State, it does not indicate the actual ownership of the stock.

Even if it is accepted that the stock was owned by the Deceased, the level of support provided from the sale of the stock amounted to less than between 5% and 10% of the combined income of both yourself and your spouse. Further, these payments were not regular or periodic.

On the basis of the facts presented, it cannot be said that these payments can be regarded as representing substantial financial support. The level of financial support provided by the Deceased is, at best, minimal in light of the overall household income. Therefore it is concluded that you would have been able to meet your basic necessities without the additional financial support of the Deceased.

In view of the above it is considered you were not financially dependant on the Deceased at the time of the Deceased's death. Therefore, you are not a dependant of the Deceased within the definition of 'death benefit dependant' in accordance with section 302-195 of the ITAA 1997.

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