Edited version of private advice

Authorisation Number: 1051539529986

Date of advice: 15 August 2019

Ruling

Subject: Interdependency

Question

Was the son a death benefits dependant of the Deceased as defined in paragraph 302-195(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 20XX.

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

·   The Deceased died in April 20XX.

·   The Deceased was a widower and has two adult children.

·   The son did not live with the Deceased at the time of her death.

·   As a result of the Deceased's death, the trustees of the Superannuation Fund paid a lump sum death benefit to the Deceased's estate.

·   The Deceased (together with her husband prior to his death) had provided regular and continuous financial support to the son throughout his adult life in the form of both:

-   goods such as clothing, car and tyres, furniture (including bed, television, chest of drawers, curtains etc) and appliances (including refrigerator, washing machine etc) as and when the need arose; and

-   cash

·   The son relied on this support to meet his day to day living expenses to the extent that he was unable to from his own means.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Regulations 1997 Regulation 302-200.01

Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for decision

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person who 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.

The term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997 which states:

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 son is the adult child of the Deceased, paragraphs 302-195(1)(a), (b) and (c) of the ITAA 1997 are not applicable in this case.

You have contended that the son was a financial dependent of the Deceased, per paragraph 302-195(1)(d) of the ITAA 1997.

You have confirmed that the son did not live with the Deceased just prior to her death. As such, we will only consider whether the son is a financial dependent under paragraph 302-195(1)(d) of the ITAA 1997.

Financial dependency

A person may also qualify as a death benefits dependant where they were a dependant of the deceased person just before he or she died, per paragraph 302-195(1)(d) of the ITAA 1997.

According to the Macquarie Dictionary (2000 multimedia edition), 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. Kearney (1976) 180 CLR 199, per Chief Justice Barwick).

Senior Member Fayle of the Administrative Appeals Tribunal (AAT), in Case [2000] AATA 8, 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 dependant 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 is insignificant or minor, beyond a level of subsistence, then the person should not be characterised as a dependant in terms of paragraph 302-195(1)(d) of the ITAA 1997.

In the case of Aafjes v Kearney (1976) 180 CLR at page 207 Gibbs J cited the High Court case of Kauri Timber Co (Tas) Pty Ltd v Reeman (1973) 128 CLR 77 at pages 188-189, and further clarified uncertainty concerning dependency noting

...but it does not follow from it that a person who in fact receives some support from one person cannot properly be said to be wholly dependent on another. It is not the mere fact of receipt of support but the dependence or reliance upon another to provide it that matters. [Emphasis added]

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 their 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, 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 (1973) 128 CLR 177, 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. Commissioner of Taxation (Cth) Case [1999] AATA 678 (Malek), Senior Member Pascoe 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 their 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 their 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.

That dependency involves more than the mere receipt of support, but also reliance on it, was affirmed by Hamilton J in Griffiths v Westernhagen [2008] NSWSC 851, [58]:

For a relationship of dependency to be established, there must be more than the mere giving of money. Rather there must be a relationship where one party relies on the other for what is required for their ordinary living.

The tenor of the case law noted above refers to a level of dependency to maintain the dependant's ordinary living (Griffiths v Westernhagen), normal standards of living (Malek's case) and relying on another as a means of subsistence (Kauri Timber Co (Tas) Pty Ltd).

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.

In this case, the point to be considered is whether the facts show The son depended or relied on the payments from the Deceased to maintain his ordinary standard of living at the time of the Deceased's death.

The son's main source of income was a disability pension from the Australian Government. The son currently receives $916 per fortnight from his pension.

The Deceased made regular payments to the son of $100 per week to supplement his pension payments. In prior years the amount per week was $80 per week.

Statutory declarations have been provided by two parties declaring the support provided by the deceased to the son in relation to various household expenses. These included:

-   Car expenses, such as fuel, maintenance costs, insurance

-   Telephone

-   Electricity

-   Water and Sewerage

-   Money for prepared meals as he could not do a meal plan

-   Clothing

-   Furniture and whitegoods.

Therefore, it can be said that the Deceased provided continuous support for the son to supplement his personal income and maintain his quality of life.

As the son was reliant on this support he meets the test for financial dependency, and as such will be treated as death benefit dependent within the meaning in paragraph 302-195(1)(d) of the ITAA 1997.

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