Edited version of your written advice

Authorisation Number: 1051217051834

Date of advice: 24 April 2017

Ruling

Subject: Death benefits dependants

Question 1

Is Taxpayer A a death benefits dependant of the deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Is Taxpayer B a death benefits dependant of the deceased in accordance with section 302-195 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20ZZ

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

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

The Deceased was not married and had no partner at the time of death.

Taxpayer A and Taxpayer B are beneficiaries and children of the Deceased.

Taxpayers A and Taxpayer B are 18 years of age or older at the time of the Deceased's death.

You have advised that at the date of death, Taxpayer A:

● was mainly on Government benefits

● worked in various jobs on a part-time or short term contract basis; and

● did not earn enough money to support themselves.

Taxpayer A's taxable income for the two income years preceding the Deceased's death was provided. This included Government allowances and payments in the 20WW-XX income year.

You advised that at the time of death, Taxpayer A lived with relatives and had resided with the relatives from a young age.

The relatives provided Taxpayer A with a room and paid for all expenses including food, schooling, clothing, and medical expenses.

The Deceased provided some ad hoc support to Taxpayer A based on needs and affordability. These amounts are provided.

Taxpayer A owns a number of items purchased by the Deceased and a list of these items is provided.

You advised that at the date of the Deceased's death, Taxpayer B:

● lived with a relative.

● was studying full-time at a tertiary institution and the Deceased paid this expense.

● for a period prior to the Deceased's death, Taxpayer B would stay over at the Deceased's residence a number of days a week during the study semester. Sometimes Taxpayer B stayed longer as they also did their studying assignments there.

● when Taxpayer B stayed with the Deceased, a room and all meals were provided.

● be driven whenever possible by the Deceased to the tertiary institution.

● have their travel pass and prepaid mobile card topped up by the Deceased.

● was provided with a number of items which were purchased by the Deceased.

You state Taxpayer B was dependent on the Deceased and another relative, and was not earning an income prior to the Deceased's death.

At the time of the Deceased's death, Taxpayer B was no longer in receipt of Child Support payments which ceased the day before Taxpayer B's 18^th birthday.

You advised that the Deceased supported Taxpayer B by contributing towards ad hoc expenses. A list of expenses is provided.

In respect of Taxpayer B, a Child Support Assessment from the Department of Human Services shows that the Deceased paid child support for a period during 20WW and 20XX.

Documentation provided shows that superannuation death benefit payments made from superannuation funds of which the Deceased was a member were paid the Estate of the Deceased in the 20XX-YY and 20YY-ZZ income years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 302-195

Reasons for decision

Summary

Taxpayer A is not a death benefits dependant of the Deceased under section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997) as they were not financially dependent on the Deceased.

Taxpayer B is a death benefits dependant of the Deceased as they were financially dependent on the Deceased.

Detailed reasoning

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.

Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as follows:

(1) 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 show that neither paragraphs 302-195(1)(a), 302-195(1)(b) or 302-195(1)(c) are relevant in determining whether Taxpayer A or Taxpayer B were death benefits dependants of the Deceased.

Therefore, in order for Taxpayer A and Taxpayer B 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 8 ALR 455, Barwick CJ at 456).

In Case [2000] AATA 8, 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.

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.

The 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] (1973) 47 ALJR 184; [1972-73] ALR 1266; (1973) 128 CLR 177 at (CLR) 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 42 ATR 1203, 99 ATC 2294 (Malek's 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 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 beneficiaries will be examined separately.

Taxpayer A

Taxpayer A is the child of the Deceased and was 18 years of age or older at the time of the death of the Deceased.

For the year ended 30 June 20XX Taxpayer A received an assessable income amount and did not reside with the Deceased. Further, Taxpayer A's expenses which included items such as accommodation, utilities, food and other items were covered by the relatives with whom Taxpayer A resided.

Whilst the Deceased provided support for Taxpayer A's upkeep, this was not done in a formal or regular manner. Rather, the Deceased provided ad hoc amounts to Taxpayer A based on needs and affordability.

Importantly, as expenses were covered by the relatives, and Taxpayer A was in receipt of Government benefits, the financial support provided by the Deceased supplemented Taxpayer A's personal income and merely represented quality of life payments.

There is nothing to indicate that the Deceased's support was significant enough that Taxpayer A would not have been able to maintain their normal standard of living without it. In other words, Taxpayer A was not reliant on the contributions of the Deceased to meet daily necessities.

In view of the above, Taxpayer A is not considered to be financially dependent on the Deceased at the time of the Deceased's death.

Taxpayer B

Taxpayer B is a child of the Deceased and was 18 years old or older at the time of the death of the Deceased.

Based on the facts Taxpayer B resided with a relative and did not derive any income. However, for a period prior to the Deceased's death, Taxpayer B would stay over at the Deceased's residence up to a number of days a week.

When Taxpayer B stayed with the Deceased, the Deceased provided for all living expenses, including accommodation and food, and paid for textbooks and other materials associated with Taxpayer B's studies.

Further, the Deceased contributed amounts towards Taxpayer B's upkeep and also contributed regular child support payments in the year preceding death. These payments were regular and relied upon by way of reimbursement to the relative for expenses incurred in supporting Taxpayer B.

In this case, while Taxpayer B's relative contributed substantially to their upkeep, this does not negate the Deceased's contributions. Taxpayer B clearly relied on the contributions from the Deceased in order to maintain their standard of living. As Taxpayer B was not in receipt of any income, the expenses of basic necessities would not have been met without the additional financial support from the Deceased.

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