Edited version of your written advice

Authorisation Number: 1013101333878

Date of advice: 6 October 2016

Ruling

Subject: Superannuation death benefits

Questions

Is a person (the Beneficiary) a death benefits dependant of a deceased person (the Deceased) in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period

Income year ending 30 June 2017

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

The Deceased died in the 20XY-XZ income year leaving an amount in their superannuation fund (the Fund).

The Fund is a complying self-managed superannuation fund.

The Beneficiary is a child of Deceased. They are the intended beneficiary of the Deceased's death benefit.

The Beneficiary is over 18 years old and is divorced without children.

Prior to the Deceased's death, the Beneficiary was living with the Deceased in a house jointly owned by the Deceased and another child of Deceased.

The Beneficiary did not pay rent while living with the Deceased and was not required to contribute towards any household expenses.

At the time of the Deceased's death, the Beneficiary's income consisted of a government allowance.

The Deceased continued to make provisions for the Beneficiary by setting aside a specified amount to be used to maintain the Beneficiary during the administration of the Deceased's estate.

The Beneficiary has not been able to hold stable employment for the past XX years.

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 995-1(1).

Reasons for decision

Summary of decision

The Beneficiary was a 'dependant' of the Deceased just before they died. As such, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Detailed reasoning

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.

Section 302-195 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.

*To find definition of asterisked terms, see the Dictionary, starting at section 995-1.

Clearly, the Beneficiary does not satisfy paragraphs (a) and (b) of section 302-195 of the ITAA 1997. Therefore paragraphs (c) and (d) must be considered to determine if the Beneficiary had an 'interdependency relationship' with the Deceased just before they died; and/or was a 'dependant' of the Deceased just before they died.

Interdependency relationship

The term interdependency relationship is defined in section 302-200 of the ITAA 1997. Subsection 302-200(1) of the ITAA 1997 states:

Subject to subsection (3), for the purposes of this Subdivision, 2 persons (whether or not related by family) have an 'interdependency relationship' if:

(a) they have a close personal relationship; and

(b) they live 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.

The facts of the case do not indicate that the Deceased and the Beneficiary had an interdependency relationship as defined in subsection 302-195(1) of the ITAA 1997. In particular, there is no evidence that the Deceased and the Beneficiary provided each other with domestic support and personal care to the extent and nature envisaged by the legislation.

Therefore, the Beneficiary must satisfy the ordinary meaning of the word 'dependant' if they are to be treated as a death benefits dependant of the Deceased.

Meaning of 'dependant'

According to the Macquarie Dictionary, a 'dependant' is:

1. one who depends on or looks to another for support, favour, etc 2. a person to whom one contributes all or a major amount of necessary financial support.

Butterworth's Australian Legal Dictionary defines 'dependant' as 'a person who depends on another, wholly or substantially'.

In the Victorian Supreme Court case of Fenton v. Batten [1949] ALR 69; [1948] VLR 422, 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.

In Case [2000] AATA 8, (2000) 43 ATR 1273; 2000 ATC 129, Senior Member Fayle in considering the definition of dependant in relation to section 27AAA of the Income Tax Assessment Act 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.

Handing down the decision in Re Malek v. Federal Commissioner of Taxation Case [1999] AATA 678; (1999) 42 ATR 1203, (1999) 99 ATC 2294, Senior Member Pascoe of the Administrative Appeals Tribunal 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 person's 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 the current case, it is clear that the Deceased provided regular continuous financial support to the Beneficiary. However, what must be shown is that the Beneficiary depended or relied on that support to maintain their normal standard of living at the time of the Deceased's death.

Assessing the circumstances holistically, we consider that the Beneficiary did rely on the support provided by the Deceased to maintain their normal standard of living at the time of the Deceased's death. Our view is based on the following:

(a) the Beneficiary has not been able to hold stable employment for a number or years prior to the Deceased's death and their only income was a government allowance;

(b) The Beneficiary lived with the Deceased;

(c) the Beneficiary did not pay rent or contribute to any the household expenses while they lived with the Deceased; and

(d) the Deceased had set aside funds to ensure that the Beneficiary had financial support during the probate period after their death.

Therefore, the Beneficiary is considered to be a dependant of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997.

Consequently, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

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