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Authorisation Number: 1011812787215

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Ruling

Subject: Superannuation death benefit - financial dependency

Questions

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

Advice/Answers

No.

This ruling applies for the following period

Year ending 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are the Deceased's child.

You are over 18 years of age.

You did not live with the Deceased at the time of the Deceased's death.

At the time of the Deceased's death you were a full time student.

The Deceased provided you with some degree of support in the form of advice and encouragement in your studies. However, the Deceased was in extremely poor health prior to their death and as a result it was very difficult for them to provide you with personal care.

You state that the Deceased was not in a position to provide physical assistance.

For the year ended 30 June 2009 you were in receipt of assessable income. Whilst the Deceased provided support for your upkeep this was not done in a formal sense. Support from the Deceased was neither regular nor continuous. The Deceased provided irregular amounts to you.

The Deceased's irregular payments were by way a reimbursement for the expenses incurred by another person in supporting you.

You hold no assets jointly with the Deceased.

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 benefit 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 the person that receives the superannuation death benefit is a dependant of the deceased or not 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 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.

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

In addition you and the Deceased did not have an interdependency relationship as you did not reside with the Deceased. The Deceased provided you with some degree of support by in the form of advice and encouragement in your studies. However, the Deceased was in extremely poor health prior to their death and as a result it was very difficult to provide you with personal care. Further, you also state that the Deceased was not in a position to provide physical assistance. It is considered that overall, a close personal relationship did not exist between you and the Deceased.

Financial dependency

To qualify as a death benefit made to a dependant, where an interdependency relationship cannot be established, dependency based on financial dependency will need to be established.

Therefore, we will now consider whether you were financially dependant on the Deceased.

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. Kearney (1976) 180 CLR 199; (1976) 50 ALJR 454; (1976) 8 ALR 455; [1976] WCR (NSW) 18; [1976] HCA 5, per Chief Justice Barwick).

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 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 is insignificant or minor, then the person cannot be regarded as a dependant.

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.

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 (1973) 47 ALJR 184; [1972-73] ALR 1266; (1973) 128 CLR 177; [1973] HCA 8, 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 Case [1999] AATA 678; (1999) 42 ATR 1203, (1999) 99 ATC 2294 (Maleks Case), Senior Member Pascoe of the Administrative Appeals Tribunal (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 Maleks Case, 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 the Deceased's child. 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.

On the basis of the facts it is considered that you were not dependant on the Deceased.

For the year ended 30 June 2009 you were in receipt of assessable income. Whilst the Deceased provided support for your upkeep this was not done in a formal sense. Support from the Deceased was neither regular nor continuous. Rather, the Deceased provided irregular amounts to you. The financial support provided merely supplemented your personal income and merely represents quality of life payments.

In addition, the Deceased's irregular payments were by way a reimbursement to for the expenses incurred by another person in supporting you. Hence it cannot be said that the Deceased was the one who contributed all or a major amount of necessary financial support to you. That is, you were not substantially maintained or supported financially by 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 with the definition of death benefit dependant in accordance with section 302-195 of the ITAA 1997.