Edited Version of Private Advice

Authorisation Number: 1052288098802

Date of advice: 30 August 2024

Ruling

Subject: Death benefits dependant

Is 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 a person who was a dependant of the Deceased just before they died?

Answer:

Yes.

Summary:

The Beneficiary was a dependant of the Deceased just before they died. Paragraph 302-195(1)(d) of the ITAA 1997 is satisfied and therefore, the Beneficiary is a death benefits dependant of the Deceased.

This ruling applies for the following period:

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances:

The Beneficiary is the adult child of the Deceased.

The Deceased passed away on DDMM 20YY (Date of Death).

During the 20YY-YY income year, the Beneficiary received death benefits from the Deceased's superannuation fund.

The Beneficiary applied for a private ruling on DDMM 20YY.

The following statements have been made regarding the relationship between the Beneficiary and the Deceased:

•         The Beneficiary lived with the Deceased.

•         The Deceased provided full financial support throughout the Beneficiary's life.

•         The Beneficiary required this financial support from the Deceased as they were unemployed and undertaking studies.

•         The Beneficiary did not pay for any household related bills or expenses. All household expenses were covered by the Deceased.

•         The Beneficiary did not pay any rent to reside with the Deceased.

•         The Beneficiary did not own any significant assets.

•         The Deceased provided the Beneficiary financial support, evidence of this has been provided for the period of DDMM 20YY to DDMM 20YY. The Deceased provided the Beneficiary a total of $xx,xxx over this period. This total can be broken down as below:

           i.      ... paid by the Deceased for the Beneficiary approximately totalling $x,xxx;

           ii.      Transfer of funds from the Deceased to the Beneficiary for living expenses approximately $x,xxx;

           iii.      Miscellaneous expenses made on behalf of the Beneficiary by the Deceased totalling to approximately $x,xxx.xx.

•         The purpose of the financial support was to pay for the Beneficiary's living expenses, ...

•         According to the information available to the ATO, in the financial years ended 30 June 20YY and 30 June 20YY, the Beneficiary had low investment income - X under $20 in each of the year with nil employment income and nil government allowance.

In support of the application, the Beneficiary provided the documentation listed below:

•         Multiple bank statements of the Deceased's bank account, covering the period of 20YY to 20YY, which show financial support provided.

•         Multiple bank statements of the Beneficiary's bank account, covering the period of 20YY to 20YY, which show financial support receipts.

Relevant legislative provisions:

Income Tax Assessment Act 1997 section 302-10

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 section 302-200

Income Tax Assessment (1997 Act) Regulations 2021 section 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 section 302-200.02

Taxation Administration Act 1953 Schedule 1section 12-85

Reasons for decision:

Detailed reasoning

Meaning of death benefits dependant

1.    Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

2.    A superannuation death benefit is defined in section 307-5 of the ITAA 1997 as:

a.            A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

3.    A superannuation lump sum is described in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream, as defined in section 307-70 of the ITAA 1997.

4.    The taxable component of a superannuation death benefit paid as a lump sum to a non-dependant beneficiary is assessable income and is taxed under section 302-145 of the ITAA 1997.

5.    Where a person who was a dependant of the deceased receives a superannuation death benefit paid as a lump sum, the death benefit is not assessable income and is not exempt income, under section 302-60 of the ITAA 1997.

6.    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:

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.

7.    As the Beneficiary is the adult child of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable.

8.    There is no suggestion of interdependency relationship under paragraph 302-195(1)(c) being satisfied, it is therefore necessary to consider if the Beneficiary was a dependant of the Deceased just before they died, as per paragraph 302-195(1)(d) of the ITAA 1997.

9.    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.

10.    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.

11.    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.

12.    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 person's 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.

13.    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 were significant.

14.    In this case, the information available to the ATO shows that the Beneficiary only had extremely limited investment income in the relevant years. Without any significant assets that may potentially provide necessary financial support, it is reasonable to believe that the Beneficiary had financial dependency on other sources. We therefore considered relevant financial support that the Deceased provided to the Beneficiary.

15.    The evidence provided shows a pattern of regular and continuous financial support during the relevant period prior to the Deceased's passing. The financial support consisted of funds being transferred to the Beneficiary's bank account, and the living expenses paid by the Deceased on behalf of the Beneficiary.

16.    The regular payments to the Beneficiary's bank account and the living expenses paid on behalf of the Beneficiary contributed to a significant proportion of the Beneficiary's living expenses, akin to the test in Kauri Timber.

17.    In addition, it is accepted that the Deceased contributed to the household expenses, including bills, and provided the accommodation to the Beneficiary rent-free. We consider that these benefits also formed part of the regular and continuous financial support provided to the Beneficiary.

Conclusion

18.    Based on the evidence provided, the Commissioner is satisfied that the Beneficiary is a person who was substantially reliant on regular and continuous financial support from the Deceased, for their ordinary living expenses.

19.    As a result, paragraph 302-195(1)(d) of the ITAA 1997 is satisfied, and the Beneficiary is a death benefits dependant of the Deceased.