Edited version of private advice

Authorisation Number: 1052008850695

Date of advice: 30 August 2022

Ruling

Subject: Superannuation death benefit - financial dependency

Question

Was the Beneficiary a death benefits dependant of the Deceased according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being financially dependent upon the Deceased?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Beneficiary is the parent of the Deceased and the executor of the Deceased Estate.

The Deceased died in late 20XX.

You have provided a copy of a payment summary from early 20XX issued by the Deceased's superannuation fund in respect of a superannuation lump sum death benefit to the Deceased Estate.

You applied for a private ruling in early 20XX.

You provided the information in the facts listed below.

In a letter dated mid-20XX, you advised that there was no interdependency relationship between the Deceased and the Beneficiary.

You have advised that, at the Deceased's date of death, the Beneficiary received financial support and income from a superannuation income stream and government benefits.

The Deceased received income from their employment.

It was contended that the Beneficiary initially lived rent-free in a property provided to them by a now-deceased family member for a continuous period of XX years.

The Deceased owned a rental property ("the first property"), which you have advised that the Beneficiary moved into in 20XX to be closer to their family.

You have contended that the Beneficiary resided at these premises from 20XX onwards, and did not pay any rent to the Deceased for the duration of their stay.

The Beneficiary provided a statutory declaration in mid-20XX, stating that the Beneficiary and the Deceased moved into a property ("the second property") in late 20XX.

The following details have been provided about the purchase of the second property:

•         You have provided a copy of a settlement statement for the second property. This statement shows that settlement occurred in late 20XX.

•         The Beneficiary's statutory declaration in mid-20XX stated that they had provided half of the funds to the purchase of the second property, and that they had received these funds from a family member's estate.

•         You have advised that the Deceased paid the balance of the purchase price, stamp duty, legal fees and other costs of acquisition.

•         The property was held solely in the Deceased's name.

•         You have contended that the Beneficiary was ineligible for finance as they did not have sufficient income to service the loan.

The following details have been provided about the expenses for the second property:

•         You have advised, in conjunction with the Deceased Estate's lawyers, that the Deceased held 2 loan facilities in relation to the property.

•         Copies of the Deceased's bank statements you have provided show two lots of monthly loan repayments paid by the Deceased from late 20XX to late 20XX.

•         You have contended that the Deceased paid the insurance, council rates and body corporate fees ("property fees") from settlement up until six months preceding death, and the Beneficiary then took over payment of these property fees for those final six months.

•         Copies of the Beneficiary's bank statements and corresponding invoices you have provided show that the Beneficiary paid these property fees for the majority of 20XX, and also paid strata and utilities for the second property in 20XX.

•         You have provided copies of the Deceased's bank statements which show monthly payments from the Beneficiary, titled 'Rent', from late 20XX to late 20XX. You have advised that these payments from the Beneficiary were to assist the Deceased in meeting loan repayments and the property fees for the second property.

In an email to us dated mid-20XX, you contended that the Beneficiary paid for their own groceries, utilities and general living expenses.

You have advised that the Deceased was deployed overseas from 20XX to 20XX, 20XX to 20XX, and January 20XX to October 20XX, and you have provided a copy of the Deceased's tribute by their employer in support of this statement.

It was contended that the Beneficiary would receive and attend to correspondence on behalf of the Deceased whilst they lived overseas, and that the Beneficiary would also look after the Deceased's pet during this time.

You have advised that, when the Deceased was not deployed overseas, they would return to City A where they would either live in the first property if it was not tenanted, or with the Beneficiary in the second property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-145

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)(a)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(b)

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

Income Tax Assessment Act 1997 Section 995-1

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

Reasons for decision

Summary

In this case, the Beneficiary is not considered a financial dependant of the Deceased for the purpose of section 302-195 of the ITAA 1997. Accordingly, the Beneficiary is not a death dependant of the Deceased.

Detailed reasoning

Meaning of death benefits dependant

Section 302-60 of the ITAA 1997 provides that a superannuation lump sum death benefit received by a dependant of the deceased is not assessable income and is not exempt income.

Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant of the person who has died as:

(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 definition under paragraph 302-195(1)(d) of the ITAA 1997 is inclusive and therefore includes a person who is considered a dependant within the ordinary meaning of the term as noted in established case law. The Macquarie Dictionary defines 'dependant' as a person to whom one contributes all or a major amount of necessary financial support.

The definition under paragraph 302-195(1)(d) of the ITAA 1997 is inclusive and therefore includes a person who is considered a dependant within the ordinary meaning of the term as noted in established case law. The Macquarie Dictionary defines 'dependant' as a person to whom one contributes all or a major amount of necessary financial support.

There are a number of case law decisions that specify what is required to establish financial dependency. Specifically, the definition of dependency was addressed and interpreted in the High Court case of Kauri Timber Co (Tasmania) Pty Ltd v. Reeman (1973) 47 ALIR 184 (Kauri Timber); Gibbs J in speaking to previous cases on the issue of dependency stated that:

"The principle underlying these authorities is the actual fact of dependency or reliance on the earnings of another for support that is the test"

Further, in Kauri Timber, at page 189, it was stated that the question of dependency is governed by factual and not theoretical considerations.

That dependency involves more than the mere receipt of support, but also reliance on it, was affirmed by Hamilton J in Griffiths v Westernhagen [2008] NSWSC 851:

"For a relationship of dependency to be established there must be more than the mere giving of money. Rather there must be a relationship where one party relied on the other for what is required for their ordinary living."

Senior Member Pascoe in Re Malek v Federal Commissioner of Taxation [1999] AATA 678 (Malek) in providing his view on the meaning of dependence stated:

"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 the matter of Malek the Tribunal made reference to the earlier authority of Simmons v White (1899) 1 QB 1005 and the statement from Romer LJ who stated that dependants:

"must be dependants in the proper sense of the work, and not merely persons who derive a benefit from the earnings of the deceased."

Further, in Malek, the evidence provided demonstrated that the deceased was responsible for the mortgage repayments, maintenance and other expenses of the residence in which both the deceased and the dependant lived. The Tribunal considered that the amounts provided by the deceased was significant.

The Federal Court upheld a decision of the Superannuation Complaints Tribunal in Harris v Trustee Commonwealth Superannuation Scheme (2006) 151 FCR 169 that a separated spouse was not wholly or substantially dependent on a deceased member for the purpose of receiving a superannuation benefit. In that case the separated spouse had an annual income of $26,000 and received $100 per fortnight from her separated husband at the time of his death. The Federal Court agreed that a finding that this level of support did not amount to substantial financial dependency was fair and reasonable.

The matter of Fenton v Batten [1948] VLR 422 considered partial dependency. In that case the definition of 'protected person' in the relevant regulations included a female partially dependent upon a discharged member of the Forces, as well as being partly dependent upon a pension payable in the consequence of the death of a person who had been a member of the Forces. Partially or partly dependant is not concept within section 302-195 of the ITAA which relies on the ordinary meaning of dependant being a person who is wholly or substantially dependant.

Based on the evidence provided, we cannot be satisfied that the Beneficiary was a person who was reliant on substantial regular and continuous financial support from the deceased for their ordinary living expenses just before the Deceased passed away, as:

•         The Beneficiary paid a lump sum of close to half of the total purchase price for the second property;

•         The Beneficiary received a weekly income from government support and superannuation payments;

•         The Beneficiary was able to meet their normal living expenses, including groceries and utilities, without the financial support of the Deceased;

•         The Beneficiary was able to make regular contributions to the Deceased, and made those contributions from late 20XX up until a week before the Deceased's death;

•         The Beneficiary was able to meet the property fees for the second property for the majority of 20XX, as well as paying for strata and utilities expenses.

From the evidence, it appears that there is nothing more to suggest that arrangement entered into by the Beneficiary and the Deceased was anything more than an arrangement of mutual convenience between a parent and adult child, rather than one of financial dependency.

Accordingly, we are not satisfied that, in this case, the Beneficiary was financially dependent on the Deceased at the time of death for the purpose of paragraph 302-195(1)(d) of the ITAA 1997.

Consequently, the taxable component of the superannuation lump sum death benefit paid to the Beneficiary is assessable income, taxed under section 302-145 of the ITAA 1997.