Edited version of private ruling

Authorisation Number: 1011813536096

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Ruling

Subject: Death benefits dependency and financial dependency

Question

Was your client financially dependant on the deceased at the time of the deceased's death in accordance with paragraph 302-195(1)(d) of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2010.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

Your client, who was over age 55 but under age 65 during the 2009-10 income year, resided at the residence of your client's parent. Your client's parent had been suffering from a medical condition for several years, and your client was the parent's full-time carer.

A number of years ago your client's parent moved to a nursing home and your client became responsible for the maintenance and upkeep of the residence. Also in the same year your client's spouse passed away.

The deceased, who was under age 55, passed away during the 2007-08 income year. Your client was the parent of the deceased, who did not leave a will. Prior to the deceased's death, they had resided with your client at the residence for several years. In the income years prior to the date of the deceased's death, and on the date of death, only your client and the deceased resided at this address.

At the time of death, the deceased was not married or in a relationship, and was divorced from a previous marriage. The deceased did not have any children and had no dependants.

Prior to and at the time of death, the deceased was a Government employee. Details of the deceased's income for the relevant income years up to the date of death were obtained.

In the year your client's spouse passed away, your client's only source of income was a welfare allowance.

Your client was not engaged in any employment in the relevant income years, and at the time in the 2008-09 income year your client made a statutory declaration, your client was on a different welfare allowance.

A number of eligible termination payments (ETPs) were made to your client during the income year before the year in which the deceased passed away. Each of these ETPs is made up entirely of a taxed element of a post-June 83 component. Also during this income year your client received welfare payments and interest.

In the income year in which the deceased passed away, a number of superannuation lump sum payments were made to your client. Details of each superannuation lump sum were obtained. Also during this income year your client received welfare payments and interest.

Your client declared in a statutory declaration that during the period the deceased lived with your client, your client relied on the deceased's income to help pay bills and maintain the residence. Your client also affirmed that the deceased made regular cash contributions for food, bills, maintenance and other living expenses.

Your client provided details of annual household running expenses in the statutory declaration.

Your client affirmed in the declaration that these household expenses were generally paid with the cash your client received from the deceased, and with a credit card. You have advised that payment of these expenses was split equally between your client and the deceased.

Your client further declared that the deceased had special dietary requirements, and provided details of food purchases for the household. Your client also affirmed that the money the deceased contributed was used to pay for these purchases. You have also advised that these payments were split equally between the parties.

Your client further declared in the declaration that some of the money received from the deceased was used to pay for repairs and maintenance of the residence.

Details of assets owned solely by the deceased at the time of the deceased's death were provided.

Your client declared in the declaration that your client personally attended to the payment of the deceased's medical expenses, other miscellaneous bills, and the deceased's funeral expenses. Your client paid these bills with their own money.

You have advised the assets your client had owned during the relevant income years.

Several months later your client's parent passed away. After the death of your client's parent, the residence was no longer in the name of your client's parent.

Letters of administration of the deceased's estate (the estate) were subsequently granted to your client. Details of outstanding loans the estate were provided in the statutory declaration.

Your client sought to recover the deceased's entitlements in a number of superannuation funds, and applications for the payment of a superannuation lump sum death benefit in respect of the deceased were made to each of the superannuation funds.

Your client provided the statutory declaration to the trustee of one superannuation fund to support the application. A number of further statutory declarations were also provided. The trustee paid a lump sum death benefit to your client on the basis that your client was a dependant of the deceased.

However, the other superannuation fund (the fund) did not accept your client's grounds for interdependency, and a superannuation lump sum death benefit was paid in respect of the deceased by the fund during the 2009-10 income year.

A PAYG payment summary-superannuation lump sum for the 2009-10 income year discloses that the death benefit was paid to the estate and that no tax was withheld from the death benefit. The PAYG Payment Summary also shows the entire death benefit as a taxed element of a taxable component.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195,

Income Tax Assessment Act 1997 Subsection 302-195(1),

Income Tax Assessment Act 1997 Paragraph 302-195(1)(d), and

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

Summary

Your client was not financially dependent on the deceased prior to and at the time of the deceased's death. Consequently, it is considered that your client is not a death benefits dependant of the deceased in accordance with the applicable legislation.

Detailed reasoning

Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to superannuation death benefits paid from complying superannuation funds after 1 July 2007, and governs the taxation treatment of superannuation lump sum death benefits received by death benefits dependants and non-dependants. The term 'death benefits dependant' is defined in subdivision 302-D of the ITAA 1997.

'Death Benefits Dependant' in relation to the superannuation death benefit

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. Therefore the death benefits dependency of a person is defined in subsection 302-195(1) of the ITAA 1997. In particular, paragraph 302-195(1)(d) of the ITAA 1997 defines a death benefits dependant, of a person who has died, as:

any other person who was a dependant of the deceased person just before he or she died.

Financial Dependency

Where the dependency of a person is based on financial dependency, the death benefits dependency of the person must be established in accordance with paragraph 302-195(1)(d) of the ITAA 1997. Therefore for your client to be considered to be a death benefits dependant of the deceased, it is necessary to examine whether they were financially dependent upon the deceased.

According to The Macquarie Dictionary (2001, revised 3^rd edition, The Macquarie Library Pty Ltd NSW and [Multimedia], version 5.0.0, 1/10/2001) one meaning of the term dependant is:

a person to whom one contributes all or a major amount of necessary financial support.

In The Butterworths Australian Legal Dictionary (1997, Reed International Books Australia Pty Ltd trading as Butterworths) a dependant is defined as being:

a person who depends on another, wholly or substantially, for his or her survival, maintenance or financial support.

In both of these dictionary definitions the emphasis is on the fact that the financial support or maintenance is substantial.

The courts have also placed an emphasis on the fact that the financial support or maintenance had to be substantial.

In determining whether a person is a dependant, the courts have found that it was necessary to establish the actual level of financial support that was provided to that person by the deceased.

This is because dependence was assessed on the basis of the actual fact of dependence or reliance on the earnings of another for support. The courts have also held that being a dependant referred to a financial dependency, to an extent that one person relied on another to maintain their normal standard of living. This issue is a question of fact.

It is the Commissioner's view that dependence occurs where a person is wholly or substantially maintained financially by another person. In this context, where the level of financial support provided to a person is substantial then that person can be regarded as a dependant. Where a person's income is sufficient to cover their basic needs, they will not normally be considered to be financially dependant on another.

Your client was the parent of the deceased who was an adult sibling at the time of their death.

The point which has to be considered, then, is whether your client 'depended or relied on' the deceased's earnings for their day to day sustenance at the time of the deceased's death.

Your client was not financially dependant on the deceased

Details of the deceased's income for the relevant income years were obtained.

In the year your client's spouse passed away, your client's only source of income was a welfare allowance.

In the income year before the year in which the deceased passed away, your client's total income in was made up of a number of eligible termination payments, welfare payments and interest.

In the income year in which the deceased passed away, your client's total income (including amounts from non-taxable sources) was comprised of a number of superannuation lump sum payments (which included a number of tax-free components), welfare payments and interest.

Although your client's welfare allowance income was less than the deceased's income in the year your client's spouse passed away, your client's income was comparable with, and slightly more than, the deceased's income in each of the two subsequent income years, respectively.

In the statutory declaration, your client provided details of annual household running expenses. In addition, your client provided details of food purchases for the household. From this information the approximate total annual household and living expenses of your client and the deceased in each of the relevant income years were ascertained. No details of the expenses your client incurred on repairs to, and maintenance, of your client's residence in these income years were provided.

Your client and the deceased shared the household and living expenses of the residence. In the statutory declaration, your client declared that the deceased made regular cash contributions for food, household bills and maintenance and repairs of the residence. In addition, you have advised that the payment of these household and living expenses was split equally between the parties.

An examination of the information provided shows that your client was not substantially dependent upon the deceased prior to and at the time of at the time of the deceased's death. Instead the information provided shows that the deceased contributed financial support to your client's annual household and living expenses during the relevant income years, which was not required to cover their normal household and living expenses. In each of these income years, it is apparent that your client's total income (including tax-free amounts) exceeded their annual household expenses.

No evidence was provided to show that in the relevant income years, your client needed financial support from the deceased to maintain their normal standard of living.

Rather, an examination of the financial contributions the deceased made to your client in these income years shows that for the most part, these contributions were not made for necessities.

Therefore it is considered that your client was reliant upon their own income in these income years to meet their daily needs and basic necessities.

These financial arrangements between your client and the deceased are regarded as part of their domestic and/or familial arrangements. However it is considered that these arrangements do not show financial dependency between the parties concerned.

Essentially, the financial contributions the deceased made to your client supplemented your client's income and represented 'quality of life' payments, and hence cannot be considered to be 'substantial financial support'. Therefore in this case, the facts show that your client was not financially dependent on the deceased prior to and at the time of the deceased's death.

Conclusion

Consequently, your client is not considered to be a death benefits dependant of the deceased within the meaning of paragraph 302-195(1)(d) of the ITAA 1997.