Private ruling: Death benefits – financial dependency
Date of advice: 14 September 2018
Published: November 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: 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)? | A1: Yes. | Q2: Is Taxpayer B a death benefits dependant of the deceased in accordance with section 302-195 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: The Deceased passed away in the 20XX-XX income year. The Deceased was not married and had no partner at the time of death. The Deceased did not have any biological children. Taxpayer A is the adult de facto child of the Deceased. Taxpayer B is the adult child of Taxpayer A. Both persons are beneficiaries of the Deceased. Taxpayer B is the sole executer of the Deceased’s estate (the Estate). In 20XX probate was granted. The Deceased and Taxpayer A resided at a property located in an Australian state (property X) for more than two decades. In the late 1980s, the Deceased relocated to another state for employment where the Deceased resided until passing away. From the late 1980s until death, the Deceased would often visit Taxpayer A and Taxpayer A’s family at property X and would stay longer during holiday periods. Taxpayer A has an illness which has made it difficult to sustain gainful employment or studies since 20XX. Taxpayer B is under a legal disability. Taxpayer B is unable to work and resides with Taxpayer A. Taxpayer A is Taxpayer B’s legal guardian. Taxpayer A’s partner has been unable to work due to a medical condition for several years. You have provided the income and expenses of Taxpayer A at the date of death, and for the preceding year. You have provided the expenses of Taxpayer B at the date of death. Taxpayer B receives a disability support pension. The Deceased leased property X to Taxpayer A at a reduced rate. All annual outgoings associated with the property were paid in full by the Deceased, including insurance, rates, land tax and repairs. The Deceased owned a vehicle, which was used exclusively by Taxpayer A and their family. The Deceased continued to own the vehicle and paid for the registration costs until their death. The Deceased paid for a number of family holidays for Taxpayer A and their family. The Deceased provided interest free loans and gifts to Taxpayer A. The Deceased did not provide direct financial support to Taxpayer B as all funds were provided directly to Taxpayer A to meet Taxpayer B’s living expenses and medical costs. A PAYG payment summary – superannuation lump sum was provided to show a payment from the Deceased’s superannuation fund to the estate.

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 and Taxpayer B are each a death benefits dependant of the Deceased under section 302-195 of the ITAA 1997 as each person was 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) of the ITAA 1997 are relevant in determining whether Taxpayer A and Taxpayer B are death benefits dependants of the Deceased. Therefore, in order for Taxpayer A and Taxpayer B to each be a death benefits dependant of the Deceased, dependency under paragraph 302-195(1)(d) of the ITAA 1997 will need to be established. That is, whether they were financially dependent on the Deceased. | Detailed Reasoning - Financial dependency: The Commissioner considers 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. Based on the evidence provided, it is considered that Taxpayer A and Taxpayer B are each financially dependent on the Deceased just before the Deceased died because: ● the Deceased provided ongoing financial assistance that was regular and relied upon, such as the significantly discounted rent; ● the financial support made by the Deceased was not supplementary to the income of Taxpayer A and Taxpayer B; and ● Taxpayer A and Taxpayer B would not have been able to meet their daily necessities and medical costs without the additional financial support provided by the Deceased. Consequently, Taxpayer A and Taxpayer B are death benefits dependants for the purposes of section 302-195 of the ITAA 1997.