Edited version of your written advice

Authorisation Number: 1012927976516

Date of advice: 15 December 2015

Ruling

Subject: Death benefits dependant

Question

Is your client a death benefits dependant of the deceased under section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Income year ended 30 June 20ZZ

Income year ended 30 June 20AA

The scheme commences on:

1 July 2007

Relevant facts and circumstances

The Deceased passed away in the 20WW-20XX income year.

The Deceased was under the age of 25 years old at the date of death.

The Deceased's parent, the Beneficiary, was entitled to a distribution from the Deceased's estate.

The Beneficiary received a superannuation lump sum death benefit payment in the 20YY-ZZ income year from superannuation Fund A.

You provided a PAYG payment summary for the income year ended 30 June 20ZZ which details the Fund A non-dependant death benefit payment and the total tax withheld.

The Beneficiary also received a superannuation lump sum death benefit payment in the 20ZZ-AA income year from superannuation Fund B.

You provided a PAYG payment summary for the income year ended 30 June 20AA which details the Fund B non-dependant death benefit payment and the total tax withheld.

The Deceased resided with the Beneficiary before the Deceased passed away.

The Deceased and the Beneficiary had always resided together.

You also provided the following information:

• The Beneficiary was a single parent in receipt of government benefits for the income years in which the Deceased died and prior.

• At the time of the Deceased's death the Beneficiary was not employed.

• At the time of the Deceased's death, the Beneficiary lived in government subsidised housing with the Deceased and other dependent children under 18 years of age.

• The Deceased would contribute their employment income minus a specified amount which was allocated towards the Deceased's expenses.

• The Beneficiary was not in receipt of any other income, other than the government benefits and the financial support provided by the Deceased.

• The Beneficiary had minimal assets.

The Beneficiary's net income position was negative at the end of the 20WW-XX income year despite the income contributed by the Deceased.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 subsection 302-195(1)

All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision

Summary

Your client (the Beneficiary) is a death benefits dependant of the Deceased under as your client was financially dependent on the Deceased.

Detailed reasoning

Death benefits dependant

Subsection 302-195(1) 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.

The facts of this case rule out the Beneficiary as being a death benefits dependant of the Deceased on the basis of paragraphs 302-195(1)(a), 302-195(1)(b) or 302-195(1)(c).

Therefore, in order for the Beneficiary to be a death benefits dependant of the Deceased, dependency under paragraph 302-195(1)(d) will need to be established.

Financial dependency

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) 8 ALR 455, Barwick CJ at 456).

In Case [2000] AATA 8, (2000) 43 ATR 1273, Senior Member Fayle, in considering the definition of dependant in relation to section 27AAA of the Income Tax Assessment Act 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.(emphasis added)

Where the level of financial support provided to a person is substantial then that person can be regarded as a dependant. Thus, 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 (Fenton v. Batten), 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 at 180, 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 Malek v. Federal Commissioner of Taxation [1999] AATA 678, 42 ATR 1203, 99 ATC 2294 (Malek's Case), Senior Member Pascoe of the Administrative Appeals Tribunal 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 Malek's 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 a 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.

The facts of this case show that the Beneficiary's only income in the 20WW-XX income year was receipt of a government benefit.

The Beneficiary lived with the Deceased and other dependent children under the age of 18 years old. The Deceased would contribute their employment income to the Beneficiary of which a set amount was allocated directly towards the Deceased's expenses.

It is therefore clear that the Deceased provided financial support to the Beneficiary to assist with normal standard of living expenses. The Beneficiary could not meet the expenses of basic necessities without that additional financial support. Given that the Beneficiary was not employed in the relevant income year, had other dependent children and had minimal assets, the Beneficiary clearly relied on the regular contribution of income from the Deceased in order to maintain that standard of living.

It is important to note that even after taking into account the significant amount contributed by the Deceased, the Beneficiary was still unable to meet all their costs for the relevant income year based on total income received.

Based on the facts of this case, the Beneficiary was financially dependent on the Deceased at the time of the Deceased's death. Therefore, the Beneficiary is considered to be a dependant of the deceased within the definition of 'death benefit dependant'.