Edited version of private advice

Authorisation Number: 1052284493056

Date of advice: 10 September 2024

Ruling

Subject: Death benefits dependant - financial dependency

Question 1

Is the Applicant a death benefits dependant of the Deceased under paragraph 302-195(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No

Question 2

Will section 302-60 of the ITAA 1997 apply to the superannuation lump sum death benefit of the Deceased that is received by the Applicant?

Answer 2

No

This ruling applies for the following periods:

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.              the Applicant was over 18 years of age in X 2023.

2.              The Deceased, the Applicant's sibling, passed away on X X 2023 (the Date of Death).

3.              According to a statement made by the Applicant (the Statement)

•                with the help from X for the deposit, the Deceased purchased a residential property (the House) in X in 201X.

•                ... the Applicant's family resided in the House since the settlement of the property purchase.

4.              In recent years, the Applicant runs a X business (the Business).

5.              The Applicant's representative contends that the Applicant was a financial dependant of the Deceased, mainly for the below reasons:

the Deceased

(a)           provided the House to the Applicant's family, in the form of the right to reside;

(b)           paid for outgoings in relation to the House, including those that would normally be paid for by a tenant...;

(c)            paid personal liabilities of the Applicant and the Applicant's Spouse, including X bills and X liabilities

(d)           gifted a car to the Applicant

(e)           provided various ad hoc gifts to cover the Applicant's living expenses

6.              The Applicant was not able to provide any written agreement in relation to the rent arrangement.

7.              In relation to the requested period of the last 12-month before the Date of Death, the below (relevant) supporting evidence is provided by the Applicant's representative:

•                the bank statements of the Deceased's personal bank account, X Statements - Investment Loan Account and X Account (the Deceased's Bank Statements) of a period that cover longer than 12-month before the Date of Death:

...

The Deceased's Bank Statements show that the Deceased made regular deposits into the 'Investment Loan Account', which are likely the repayments for the loan of the House.

The Deceased's bank statements also show that the Deceased received some amounts described as 'rent'.

•                the bank statements of the Applicant's X Account for a period of approximately 12-month, as below:

...

The Applicant's Bank Statements show some transactions of 'rent paid' (which matched with the 'rent' as in the Deceased's bank statements) in the periods that these bank statements cover. ...

8.              In the last 12-month before the Date of Death, as evidenced by the Applicant's Bank Statements and the Deceased's Bank Statements, the rent totalled $X (the Rent Taken) from multiple transactions.

9.              The Applicant estimated that the market value of the rent for the House is $X per week. We found that based on a property website, the House is a 3-bedroom property, and it estimates a $X per week of 'market value of rent' with 'high confidence', which can be converted to around $X of annual rent (for the entire house).

10.          The Applicant's representative provided the relevant utility and council rate invoices, along with the Deceased's Bank Statements as the support, it is accepted that in the period of longer than 12-month before the Date of Death, the Deceased regularly paid for

•                the utility invoices of the House;

•                council rate instalments of the House.

11.          It's been claimed that the Deceased gifted a car to the Applicant. But the Applicant was unable to provide any evidence to support this claim.

12.          No evidence has been provided to show the Deceased paid for various ad hoc gifts to cover the Applicant's living expenses.

Summary of the financial support

13.          Based on the available evidence, in the last 12 months before the Date of Death, the Applicant's family received an estimated $20,000 of financial support from the Deceased.

The Applicant's family income

14.          Based on ATO held information, the Applicant's income dominantly came from 'the Business', ... While the Applicant has not lodged the 2022 and 2023 income tax returns, the Applicant provided the estimated 'net income' of $X for 2022 financial year and $X for 2023 financial year.

15.          According to ATO held information, the Applicant's Spouse's lodged 2023 income tax return which shows 'Government allowances' of $X along with 'salary and wages' of $X.

Assumption

16.          The Applicant will receive superannuation lump sum death benefit from the Deceased's superannuation fund.

17.          Paragraph 302-195(1)(a), paragraph 302-195(1)(b) or paragraph 302-195(1)(c) of the ITAA 1997 are not satisfied.

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

Reasons for decision

Question 1

Is the Applicant a death benefits dependant of the Deceased under paragraph 302-195(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

We are not satisfied that the Applicant (which includes the Applicant's family) was financially dependent on the Deceased just before the point of death for the purpose of paragraph 302-195(1)(d) of the ITAA 1997.

Detailed reasoning

18.          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.

19.          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.

20.          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

21.          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.

22.          This was also reflected in Edwards v Postsuper Pty Ltd [2007] FCAFC 83 where the Full Court of the Federal Court agreed with the Tribunal that while the deceased provided many gifts to his family, it did not consider that would make the appellants and their family financially dependent on the deceased.

23.          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

24.          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.

25.          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.

26.          In the case of Confidential v Deputy Commissioner of Taxation [2000] AATA 8 Senior Member Fayle stated:

The ITAA 1936 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.

27.          In that particular case the Tribunal found that, at the relevant time, the applicants' financial support came primarily and principally from the husband's employment rather than from the deceased.

28.          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.

Application

29.          In this case, although the Applicant's family was in receipt of some financial support from the Deceased, it is difficult to conclude that 'one party relied on the other for what is required for their ordinary living', where the Applicant continued running the Business and the Applicant's Spouse was in receipt of the government allowances and started earning salary and wages. It seems more reasonable to conclude that the family mostly relied on their family income (inclusive of the government allowances), for their ordinary living.

30.          In considering the requirement 'more than the mere receipt of support', we tend not to believe that the situation of this case met this requirement, as the financial support from the Deceased merely supplemented the family income of the Applicant's family.

31.          Based on the information in ATO systems, the Applicant's Spouse's income in the 12 months before the Date of Death was estimated to be around $X. The Applicant has provided estimated business income but it has not been evidenced. Based on this estimate, the business income was around $X in the 12 months prior to the Date of Death so the estimated family income was not less than $25,000 for this period. However, the business income is not evidenced so it can't be relied upon and would be in our view, the minimum amount the family received for that period.

32.          In comparing the value of the family income 'not less than $25,000' (or higher) and the financial support that has been evidenced from the Deceased (estimated to be around $20,000), it also seems more reasonable to believe that it was the family income that contributed to the maintaining of the family's 'normal standard of living', and they were more reliant on their family income to maintain that standard.

33.          Further, we note that, in the 12 months prior to the Date of Death, both the frequency and amount of the 'rent' increased closer towards the Date of Death, significantly reducing the level of financial support (which is required to be 'regular and continuous') provided by the Deceased. The fact that the Applicant's Spouse began earning a salary from approximately X months prior to the Date of Death, further reduces the Applicant's reliance on support from the Deceased towards the Date of Death.

34.          Accordingly, we are not satisfied that, in this case, the Applicant was financially dependent on the Deceased just before the point of death for the purpose of paragraph 302-195(1)(d) of the ITAA 1997.

Conclusion

35.          As the Applicant does not meet paragraph 302-195(1)(d) of the ITAA 1997 as explained above, and paragraph 302-195(1)(a), paragraph 302-195(1)(b) or paragraph 302-195(1)(c) of the ITAA 1997 are not satisfied, the Applicant is not considered a death benefits dependant of the Deceased.

Question 2

36.          Will section 302-60 of the ITAA 1997 apply to the superannuation lump sum death benefit of the Deceased that is received by the Applicant?

Summary

37.          As determined in Question 1 that the Applicant is not considered a death benefits dependant of the Deceased, section 302-60 of the ITAA 1997 does not apply.

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