Edited version of private advice

Authorisation Number: 1052245926090

Date of advice: 14 June 2024

Ruling

Subject: Superannuation death benefit - financial dependency

Question 1

Is 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 dependent of the deceased person just before she died?

Answer

Yes.

This ruling applies for the following periods:

Income year ending 30 June 2023

The scheme commences on:

1 July 2022

Relevant facts and circumstances:

1.    The deceased was the parent of the beneficiary.

2.    The deceased died in month 20xx (Date of Death)

3.    The beneficiary was born in 19xx and was therefore older than 18 years when the deceased died.

4.    The deceased was the sole member of a self-managed superannuation fund (the Fund).

5.    The deceased and the beneficiary were the directors of the corporate trustee of the Fund.

6.    The beneficiary and the spouse, between them, had taxable income of $XXX for the 20xx-xx financial year.

7.    On 7 June 20xx and 30 August 20xx, the beneficiary received death benefit payments totalling $x,xxx,xxx from the Fund, in the form of cash, property transfer, and share transfer. The fund withheld tax of $xxx,xxx from these payments.

8.    It has been stated that the beneficiary, with their family (a spouse, and child) moved from the home on XX month 20xx, to live with the deceased until the Date of Death.

9.    It was further stated that the reason for this move was to enable the beneficiary to perform carer duties for the deceased, including carrying out all household chores and helping with the dispensing of medication, it being stated that the deceased was diagnosed with a terminal medical condition on XX month 20xx.

10.  The following statements have been made to support that the beneficiary was financially dependent on the deceased:

•         The deceased paid a total of $XXX for a bathroom renovation for the beneficiary's property.

•         The beneficiary received monthly payments totalling $XXX from the deceased across the 20xx and 20xx financial years, to pay bills and everyday expenses.

•         The deceased provided the beneficiary with ongoing assistance by way of regular monthly payments of expenses incurred on the beneficiary's credit card, such as groceries, utilities, council, water rates, insurances.

•         The deceased made a lump sum payment of $XXX to discharge the mortgage on the beneficiary's property.

•         The deceased paid all household expenses while the beneficiary lived with her.

11.  The following documentation was provided in support of the ruling application:

•         Statutory Declaration of the beneficiary.

•         Bank statements of the deceased across the 20xx and 20xx financial years.

•         'Internet Banking Receipt Details' showing transfers from the deceased's bank to the beneficiary, totalling $XXX, over a 12-month period

•         Supporting statement from the beneficiary regarding the financial support provided to her by the deceased.

12.  In response to requests for further information, the following statements were provided:

•         The beneficiary had previously moved out of the parents' home to start their own family but lived directly across the street from the deceased, before moving back to take care of the deceased during the illness.

•         Apart from the deceased and the beneficiary's family (XX, the spouse, and the child), no one else lived at the deceased's home during the period up until the Date of Death.

•         The beneficiary's property was vacant during the period up until the Date of Death.

•         The beneficiary's spouse was not employed for the period xx/xx/xxxx to xx/xx/xxxx.

•         The beneficiary received a Carer Allowance from Centrelink for taking care of the deceased.

•         The beneficiary and their spouse receive passive income from ownership of 'low rent' property.

•         On xx/xx/xxxx, a partial payment was made to the beneficiary's personal bank account in the amount of $xxx,xxx. This was made up of an off-market transfer of $xxx,xxx, less tax of $xx,xxx, which was put aside for potential payment if the beneficiary was found not to be a dependant for tax purposes.

•         On xx/xx/xxxx, a second payment was made to the beneficiary's personal bank account, in the amount of $x,xxx,xxx.xx, with tax of $xxx,xxx withheld. This was made up of a number of payments, plus a property transfer.

1.    In response to requests for documentation, the following was provided:

•         Death certificate of the deceased showing the Date of Death and place of residence.

•         Loan statement for the period xx/xx/xxxx to xx/xx/xxxx, addressed to the beneficiary at the deceased's address, showing a receipt of $XXX on xx/xx/xxxx. This payment reduced the account balance to $XX.

•         Transaction History for the period xx/xx/xxxx to xx/xx/xxxx, showing receipt of the amount of $XXX on xx/xx/xxxx'.

•         Bank statements for the beneficiary, for the period xx/xx/xxxx to xx/xx/xxxx, showing amounts varying from $XX to $XX received from the deceased in regular (monthly) intervals, totalling $XXX. There are no other receipts of a similar size, other than a deposit of Carer Allowance from Centrelink for $XX.

•         Bank statement for the beneficiary's spouse, for the period xx/xx/xxxx to xx/xx/xxxx, showing salary payments totalling $XX for the 20xx-xx income year. The statement showed a transfer of $XX from the deceased on xx/xx/xxxx, and salary payments of $XXX for the 2023 financial year, up until the Date of Death inclusive.

•         Pages 1, 3, 4, 5, 6, 7 of a 10-page bank statement, in the name of the deceased and her husband, for the period xx/xx/xxxx to xx/xx/xxxx, showing relevant transfers totalling $XXX.

•         Pages 1-7 of a 10-page bank statement, in the name of the deceased and her husband, for the period xx/xx/xxxx to xx/xx/xxxx, showing relevant transfers totalling $XXX.

•         Pages 1-2 of an 8-page bank statement, in the name of the deceased and the spouse, for the period xx/xx/xxxx to xx/xx/xxxx, showing a transfer of $XXX.

•         Pages 1 and 4 of a 4-page credit card statement for the period xx/xx/xxxx to xx/xx/xxxx in the name of the deceased's husband, showing a transfer of $XX.

•         Pages 1 and 2 of a 2-page credit card statement of Account for the period xx/xx/xxxx to xx/xx/xxxx in the name of the deceased's spouse, showing a payment of $XX.

•         Tax invoices covering the period xx/xx/xxxx to xx/xx/xxxx, in the amount of $XXX, referencing payments in relation to bathroom renovations at the beneficiary's property.

•         Share Transfer Form signed by the beneficiary as both seller/executor/trustee and buyer/beneficiary/new trustee on xx/xx/xxxx, for the transfer of $xxx,xxx of shares from the Fund's corporate trustee, on that same date.

•         Bank statement in the name of the Fund's corporate trustee, as trustee for the Fund, for the period xx/xx/xxxx to xx/xx/xxxx.

•         Transfer document from the Lands Titles Registration Office of the relevant state, dated xx/xx/xxxx, showing the transfer of 'the whole of the land in CT Volume xxxx Folio xx' from the corporate trustee of the fund to the beneficiary, for consideration of $xxx,xxx. The document states 'the transferor acknowledging receipt of the consideration transfers to the transferee the estate and interest specified in the land described', and shows a lodgement date of xx/xx/xxxx, and a registration date of xx/xx/xxxx.

•         Property Report for the above property, dated xx/xx/xxxx.

•         Email to the beneficiary from a real estate agent, dated xx/xx/xxxx, referencing the above property report and advising the above property would be expected to sell in the vicinity of $xxx,xxx - $xxx,xxx in the current market.

•         Bank statement for the Fund's corporate trustee, as trustee for the Fund, for the period xx/xx/xxxx to xx/xx/xxxx.

•         Bank statement for the Fund's corporate trustee, as trustee for the Fund, for the period xx/xx/xxxx to xx/xx/xxxx.

•         Bank statement of the beneficiary for the period xx/xx/xxxx to xx/xx/xxxx.

•         Printout of 'PAYG Payment Summary - Superannuation Lump Sum', for the year ending 30 June 20xx, dated xx/xx/xxxx, lodged electronically on xx/xx/xxxx, with the beneficiary as the payee and the Fund as the payer.

•         Printout of 'PAYG Payment Summary - Superannuation Lump Sum', for the year ending 30 June 20xx, dated xx/xx/xxxx, lodged electronically on xx/xx/xxxx, with the beneficiary as the payee and the Fund as the payer.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 302-145

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02

Reasons for decision:

Summary:

The beneficiary was a dependent of the deceased just before the deceased died. Paragraph 302-195(1)(d) of the ITAA 1997 is satisfied and therefore, the beneficiary is a death benefits dependant of the deceased.

Detailed reasoning

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) of the ITAA 1997 do not apply.

As the beneficiary had previously moved out of the family home, and no longer lived permanently with the deceased, as is required by paragraph 302-200(1)(b) of the ITAA 1997 (and there is no information to suggest that the reason they did not live together is that either or both of them suffer from a physical, intellectual or psychiatric disability, as required by paragraph 302-200(2)(c) of the ITAA 1997), the requirements of paragraph 302-195(c) of the ITAA 1997 (interdependency relationship) cannot be satisfied. Therefore, it is necessary to consider paragraph 302-195(1)(d) of the ITAA 1997 - a 'dependant' of the deceased person just before he or she died.

The definition of 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.

There are a number of case law decisions that specify what is required to establish financial dependency. Specifically, the definition of dependency was addressed and interpreted in the High Court case of Kauri Timber Co (Tasmania) 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 that it is the actual fact of dependence or reliance on the earnings of another for support that is the test.

This was also reflected in Edwards v Postsuper Pty Ltd [2007] FCAFC 83 where the Full Court of the Federal Court agreed with the Tribunal that while the deceased provided many gifts to his family, it did not consider that would make the appellants and their family financially dependent on the deceased.

Senior Member Pascoe in Re Malek v Federal Commissioner of Taxation [1999] AATA 678 in providing his view on the meaning of dependence stated:

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.

Personal bank and loan statements show the address of the beneficiary as the deceased's residence for the period x July 20xx to x December 20xx.

Bank statements show the address of the beneficiary as the deceased's residence for the later period x June 20xx to x December 20xx.

Bank statements of the beneficiary's spouse show the above address for the period x January to 31 March 20xx.

No statements have been provided for the beneficiary for the period which includes the Date of Death (xx month 20xx).

While it is not necessary for a deceased and beneficiary to live together during the period up to and including the date of death in order for the Beneficiary to be a death benefits dependant due to financial dependency, it is considered to be more likely where the parties live together.

The above evidence suggests that the beneficiary lived with the deceased for a reasonable period prior to the deceased's death, even if it does not definitively confirm they lived together at the Date of Death.

It has been stated that the deceased paid all household expenses while the beneficiary lived with her. While this statement cannot be definitively verified, the provided bank statements of the beneficiary show no evidence of her making any payments towards major household expenses such as rates, water, or electricity, nor any evidence of any form of rent or board being paid.

Internet Banking Receipt Details over a 12-month period from xx/xx/xxxx to xx/xx/xxxx, show regular transfers from the deceased's (joint) bank account to the beneficiary, totalling some $XXX, with the majority of these transfers containing references to the beneficiary's credit cards, or bank accounts.

The beneficiary's provided bank statements confirm the majority of the above payments, totalling some $XXX over the period.

With the exception of a deposit of Carer Allowance, there were no receipts of a similar size from any other payment source during this period.

A Loan Statement and Transaction History for the beneficiary's property show the receipt of an amount of $XXX, which discharged the home loan on that property.

Corresponding documents in the form of bank statements for the deceased verify that this payment came from the deceased's account.

Evidence has been provided, in the form of invoices, bank statements and credit card statements, in support of the claim that the deceased paid a substantial amount towards bathroom renovations for the beneficiary's property.

Invoices totalling $XXX were provided. Of this amount, $XXX was able to be verified, by means of cross-checking bank statements and referencing invoices. The remainder of $XXX was unable to be verified as being paid by the deceased, as the documentation showed these payments being made from an account in the name of the deceased's spouse (the beneficiary's other parent) only.

Regardless, the majority of the claimed payments have been verified by third party documentation and were able to be cross-checked to show both the outgoing payment, and the receipt of that payment. These payments were both substantial in amount, and regular in their frequency.

In addition, given the lack of other regular sources of income for the beneficiary (and their spouse) over the relevant period (including the spouse being unemployed for a substantial portion of that period), it is considered that the beneficiary was substantially reliant on regular and continuous financial support from the deceased for her ordinary living expenses.

Conclusion

Based on the evidence provided, the Commissioner is satisfied that the beneficiary was a person who was substantially reliant on regular and continuous financial support from the deceased for her ordinary living expenses.

As a result, paragraph 302-195(1)(d) of the ITAA 1997 is satisfied, and the beneficiary is a death benefits dependant of the deceased.

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