Edited version of private ruling

Authorisation Number: 1011901453320

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Ruling

Subject: Superannuation death benefit - interdependency and financial dependency

Question

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

Answer

No.

This ruling applies for the following period:

2010-11 income year.

The scheme commences on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Deceased is your child.

The Deceased passed away during 2009.

You state that the Deceased left home at the age of 18. From 2006, until their death, the Deceased resided at a property which was owned by you.

You also state that the Deceased was diagnosed with a medical condition at age 18, and hospitalised. After their release they received intermittent treatment over the next number of years.

You advise that the Deceased passed away after the occurrence of a number of events.

You are the mother of the Deceased.

Your residential address has been separate from the Deceased since they left home at the age of 18.

In the 20XX calendar year, the Deceased entered a spousal relationship with the spouse residing with the Deceased. Neither person supported the other financially. During 20XX, this relationship ceased and their spouse moved out.

During 20XX, the Deceased lost their employment and had no further income. They were living on their savings and money provided by you. They were not paying rent.

You state that the Deceased only registered for Centrelink payments the month before their death.

From 2006, you paid for a number of expenses for their. This included car expenses, a holiday, and cash gifts.

You state that after the Deceased lost their employment and their relationship ceased, you and their friend were the only people supporting them emotionally.

Reasons for decision

Summary

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 were not in an interdependency relationship with the Deceased at the time of death as you and the deceased were not living together and had not done so for several years.

Accordingly, you are not a death benefits dependant of the Deceased as defined.

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 or not the person that receives the superannuation death benefit is a death benefits dependant of the deceased 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 death benefits 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 they died; or

(d) any other person who was a dependant of the deceased person just before he or they died.

In this case, you were neither the Deceased's spouse, former spouse or child of the Deceased under age 18. Consequently it will be necessary to determine if you were in an interdependency relationship with the Deceased just before they died or if you were financially dependant upon the deceased. If neither of these can be established then you will not be a death benefits dependant of the Deceased.

Interdependency relationship

For superannuation death benefits made after 30 June 2007, the term 'interdependency relationship' is defined in section 302-200 of the ITAA 1997.

Section 302-200 of the ITAA 1997 states:

(1) 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.

(2) In addition, 2 person (whether or not related by family) also have an interdependency relationship under this section if:

(a) they have a close personal relationship; and

(b) they do not satisfy one or more of there requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and

(c) the reason they do not satisfy the other requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability;

(3) The regulations may specify:

(a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship under this section; and

(b) circumstances in which 2 persons have, or do not have, an interdependency relationship under this section.

As noted in the facts, from 2006 until their death in mid 2009 the Deceased was not residing with you. Therefore, the requirement that the two persons live together has not been satisfied (paragraph 302-200(1)(b) of the ITAA 1997).

Further, subsection 302-200(2) of the ITAA 1997 will not apply as there is no evidence that the requirement that the two persons live together was not satisfied because of a physical, intellectual or psychiatric disability.

All the conditions under subsection 302-200 of the ITAA 1997 must be satisfied in order for there to be an interdependency relationship. As you do not satisfy paragraph 302-200(1)(b) there was no interdependency relationship between you and the Deceased just before the date of death.

Financial dependency

To qualify as a death benefits dependant, where an interdependency relationship cannot be established, 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 (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; (1976) 50 ALJR 454; (1976) 8 ALR 455; [1976] WCR (NSW) 18; [1976] HCA 5, per Chief Justice Barwick).

Senior Member Fayle of the Administrative Appeals Tribunal (AAT), in Case [2000] AATA 8, (2000) 43 ATR 1273; (2000) 2000 ATC 129; [2000] AATA 8, in considering the definition of 'dependant' in relation to former section 27AAA of the Income Tax Assessment Act 1936 (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 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, 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) 128 CLR 177; (1973) 47 ALJR 184; [1972-73] ALR 1266; [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. Commissioner of Taxation (Cth) Case [1999] AATA 678; (1999) 42 ATR 1203, (1999) 99 ATC 2294 (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.

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 person 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 your case, whilst there is evidence to show that you provided financial support to the Deceased, there is little, if any, evidence of financial support provided by the Deceased 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.

As you were not financially dependant on the Deceased, nor in an interdependency relationship with the Deceased, just before their death, you are not a death benefits dependant as defined under section 302-195 of the ITAA 1997.