Edited version of private advice

Authorisation Number: 1052328167868

Date of advice: 8 November 2024

Ruling

Subject: Death benefits dependant

Question

Was the beneficiary a death benefits dependant of the deceased person 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

No.

This ruling applies for the following period:

Year ending 30 June 2023

The scheme commences on:

1 July 2022

Relevant facts and circumstances:

1.    The Beneficiary is the adult child of the deceased person.

2.    The Deceased died on XX December 20XX.

3.    The Beneficiary was born on XX July 19XX and was therefore older than 18 years when the Deceased died.

4.    The Beneficiary received a death benefit payment from the Deceased's Estate.

5.    Your nominated tax agent applied for a private ruling, providing the following statements in support of your contention that you were financially dependant on the Deceased:

A trust return for the Deceased's estate showing a distribution to the taxpayer - a death benefit superannuation lump sum payment amounting to $XXX,XX.

A statement detailing the history of the Beneficiary:

                                          i.    The Beneficiary lost their partner to terminal illness in 20XX.

                                         ii.    The Beneficiary then fell into a period of depression and XXXX

                                        iii.    The Beneficiary was evicted from their rental and commenced living with the Deceased in 20XX.

                                       iv.    The Deceased supported the Beneficiary both financially and emotionally during this time.

                                         v.    In 20XX, the Deceased purchased a residential property for the Beneficiary to live in.

                                       vi.    During the years 20XX to 20XX, no rent was charged for use/living at the property and the Deceased paid all the rates and insurance of the property.

                                      vii.    In January 20XX, the Beneficiaries partner moved into the property.

                                     viii.    During 20XX to 20XX the Beneficiary and their family were receiving Parenting payments.

                                       ix.    In 20XX, the Beneficiary's partner commenced employment and has continued working whilst the Beneficiary is a stay-at-home parent for their child born in 20XX.

6.    Your application also provided the income for both the Beneficiary and their partner.

7.    In response to a request for further information, the following was provided:

a.    A death certificate for the Deceased, showing date of death of XX December 20XX and place of residence.

b.    Bank statements for the Beneficiary spanning from April 20XX to December 20XX showing transactions between the Beneficiary the Deceased as follows:

                                          i.    XX March 20XX a credit from the Deceased's account to the Beneficiaries of $X,XXX

                                         ii.    XX July 20XX a credit from the Deceased's account to the Beneficiaries of $XXX

                                        iii.    XX February 20XX a credit from the Deceased's account to the Beneficiaries of $X,XXX

                                       iv.    XX May 20XX a credit from Lynette's account to Andrew's of $XX

                                         v.    XX September 20XX a credit from the Deceased's account to Beneficiaries of $XXX.

c.     Bank statements provided for the Beneficiary, showed regular income from employment.

d.    Insurance statements from Elders Insurance for the residence of XX XXX XXXXX XX, XXXXXX XXX 37XX in the Deceased's name as an Owner/Occupier for the following years:

                                          i.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

                                         ii.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

                                        iii.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

                                       iv.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

                                         v.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

                                       vi.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

                                      vii.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

                                     viii.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

                                       ix.    Period of Insurance: 30/10/20XX To 30/10/20XX - $XXX.XX

8.    You advised that you were unable to provide the bank records for the Deceased as requested.

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:

The Beneficiary is not a death benefits dependant of the Deceased as defined in section 302-195 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

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.    The definition of death benefits dependant does not stipulate the nature or degree of dependency required to be a dependant of the deceased person in paragraph 302-195(1)(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

9.    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.  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."

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 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."

13.  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."

14.  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.

15.  In this case, the provided bank statements show that the Beneficiary was in receipt of regular wage payments from XXXXX, throughout the 20XX to 20XX income years and these were still being received at the Date of Death.

16.  Bank statements provided for the Beneficiary, show that the Beneficiary received a total of 4 transfers from the Deceased over the span of 4 years. There were no regular payments and no documentation was supplied to support continuous payment of living expenses.

17.  The insurance statements provided show that the property located at XX XXX XXXXXX XX, XXXXXX XXX 37XX was listed as having the Deceased as the owner/occupier and that the Deceased was paying for the insurance to cover the investment.

18.  While it is accepted that the Beneficiary was living at the property that the Deceased purchased and not paying any board, insurance, or rates on the property, it is not accepted that the Beneficiary was financially dependent on the Deceased.

19.  The Beneficiary had sufficient income to support themselves financially and was not financially dependent on the Deceased to pay for their ordinary living expenses.

Conclusion

20.  Based on the evidence provided, the Commissioner is not satisfied that the Beneficiary was a person who was substantially reliant on regular and continuous financial support from the Deceased for his ordinary living expenses.

21.  As a result, paragraph 302-195(1)(d) of the ITAA is not satisfied, and the Beneficiary is not a death benefits dependant of the Deceased.