Private ruling: Death benefits dependant
Date of advice: 26 July 2024
Published: 9 September 2024
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is the Beneficiary a death benefits dependant of the Deceased in accordance with 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? | A1: No.

Relevant facts and circumstances: The Beneficiary is the adult child of the Deceased. The Deceased died on XX XXXX 20XX (Date of Death). The Beneficiary was born on XX XXXX 19XX and therefore was older than 18 years when the Deceased died. The Beneficiary received a death benefit payment from the Deceased's superannuation fund (the Fund), in the amount of $XXX,XXX.XX. There is no evidence of any tax being withheld from the payment. The Beneficiary applied for a private ruling, providing the following statements in support of their contention that they were financially dependent on the Deceased: • The Deceased's superannuation fund recognised a dependant relationship with the Beneficiary • The Beneficiary meets all the tests outlined in a provided document, entitled 'Super death benefits - who is a dependant for tax purposes?' (both under an interdependency relationship and as a financial dependant) • The Beneficiary was not working and was completely reliant on the Deceased for financial support. The following documentation was provided in support of the ruling application: • Email from the Fund's claims area dated X April 20XX.The email refers to the final figure being paid to the Beneficiary's bank account, and shows the following benefit components: o Tax Free $XXX,XXX.XX o Taxable $XXX,XXX.XX o Total $XXX,XXX.XX o Tax $0 o Net Payment $XXX,XXX.XX The email also contains the following statements: Any other taxes related matters they must seek independent tax & financial advice as we are not tax accountants and we have not deducted any taxes the beneficiary must pay to ATO. All we can tell you this is the final amount we are paying $XXX,XXX.XX based on the account balance as of today $XXX,XXX.XX. Once we make the payment, we will issue payment Lump sum form which will have taxable & tax-free components. • 'Dependency form' for the Estate of the Deceased, submitted to the Fund by a financial adviser, signed by the Beneficiary on X November 20XX, listing the Beneficiary as 'Dependant 1'. A handwritten note on the form states 'This was the submission to the super fund & the basis on which the death benefit was paid out classified as a dependant'. • 'Application for XXXXX Pension', signed by the Deceased on X August 20XX, listing the Beneficiary as the nominated beneficiary. The form states 'Your nominated beneficiary is not recorded as binding until the Binding nomination of beneficiaries form is signed, witnessed, dated, received by XXXX Service Centre and validated.' • A document from a financial institution, entitled 'Super death benefits - who is a dependant for tax purposes?' The document explains the difference between a tax dependant and a super dependant, explains the requirements of tax dependency under both interdependency and financial dependency, and contains references to edited versions of private rulings on tax dependency. • Certified copy (XX June 20XX) of the Beneficiary's licence, expiry date XX XXXX 20XX, showing an address of the rental property confirmed as co-tenanted by the Beneficiary and the Deceased. In response to a request for further information, the following statements were provided: • No one other than the Beneficiary and the Deceased lived at the above rental property, for the period XX July 20XX to XX October 20XX. • The Beneficiary did not receive any passive income (rental income, interest, share dividends, other investment income) for the period XX July 20XX to XX October 20XX. • The Beneficiary received fortnightly Services Australia payments, averaging $XXX.XX, for the period XX July 20XX to XX October 20XX. • The Beneficiary did not have any properties in their name. In response to a request for documentation, the following was provided: • Death certificate of the Deceased, showing date of death of XX XX 20XX and place of residence as the rental property co-tenanted by the Beneficiary and Deceased. • An Exit Statement from the Deceased's superannuation fund, for the Deceased's Services Australia payments, for the period XX August 20XX to XX January 20XX, with an exit date of XX January 20XX. The statement lists the Beneficiary as the lone beneficiary for the account, based on a binding nomination, and shows the following: o Total benefit $XXX,XXX.XX o Benefit payments ($XXX,XXX.XX) o Account value as of XX January 20XX $0.00 o Beneficiary details • A letter from XXXX, dated XX January 20XX, addressed to the Beneficiary, confirming the payment of an amount of $XXX,XXX.XX from the Deceased's Services Australia payments to the Beneficiary's bank account. • Residential Tenancy Agreement for the property at XXXXXXX, made on XX September 20XX, listing both the Beneficiary and the Deceased as tenants. The agreement was signed by both the Beneficiary and the Deceased, as the tenants (undated). The agreement is for the period XX September 20XX to XX September 20XX. • A Services Australia statement for the Beneficiary, requested on XX June 20XX, confirming the rejection of an application for Services Australia payment 2 and the following Services Australia payment 3: o $XX.XXX for the period XX July 20XX to XX June 20XX o $X,XX for the period XX July 20XX to XX October 20XX • Residential Rental Agreement for the property at XXXXXXXXXX, made on XX August 20XX, listing the Beneficiary as the 'Primary Tenant' and the Deceased as the 'Secondary Tenant'. The agreement was signed by the Beneficiary on XX August 20XX, and the Deceased on XX August 20XX. The agreement is for the period XX August 20XX to XX August 20XX. • The following bank statements of the Beneficiary: XXXXXXXX Bank account 1 statements for the following periods: o XX March 20XX to XX August 20XX (Statement 9) o XX September 20XX to XX February 20XX (Statement 10) o XX March 20XX to XX August 20XX (Statement 11) o XX September 20XX to XX February 20XX (Statement 12) XXXXXXXX Bank account 2 statements for the following periods: o XX June 20XX to XX September 20XX (Statement 34) o XX September 20XX to XX December 20XX (Statement 35) o XX December 20XX to XX March 20XX (Statement 36) o XX March 20XX to XX June 20XX (Statement 37) o XX June 20XX to XX September 20XX (Statement 38) o XX September 20XX to XX December 20XX (Statement 39) The Beneficiary's account 1 shows the following relevant payments and transfers: XX March 20XX to XX August 20XX: • Income (Services Australia payment 3) $X,XXX.XX • Transfer from Deceased $XXX • Utilities/rent/food $0 XX September 20XX to XX December 20XX: • Income (Services Australia payment 3) $X,XXX.XX • Transfer from Deceased $XXX • Utilities/rent/food $X,XXX.XX XX December 20XX to XX March 20XX: • Income (Services Australia payment 3) $X,XXX.XX • Transfer from Deceased $XXX • Utilities/rent/food $X,XXX.XX XX March 20XX to XX June 20XX: • Income (Services Australia payment 3) $X,XXX.XX • Transfer from Deceased $XX • Utilities/rent/food $X,XXX.XX XX June 20XX to XX September 20XX: • Income (Services Australia payment 3) $X,XXX.XX • Transfer from Deceased $X,XXX • Utilities/rent/food $X,XXX.XX XX September 20XX to XX October 20XX: • Income (Services Australia payment 3) $X,XXX.XX • Transfer from Deceased $X,XXX • Utilities/rent/food $X,XXX.XX • The following bank statements of the Deceased: XXXXXXXXXX Bank account 3 statements for the following periods: o XX May 20XX to XX July 20XX (Statement 59) o XX August 20XX to XX October 20XX (Statement 60) The above statements show the following relevant payments and transfers: XX May 20XX to XX July 20XX • Income (Service Australia payment) $X,XXX.XX • Transfer from Beneficiary $XXX • Utilities/rent/food $X,XXX.XX XX August 20XX to XX October 20XX • Income (Service Australia payment) $X,XXX.XX • Transfer from Beneficiary $XX • Utilities/rent/food $X,XXX.XX XXXXXXXXXX Bank account 4 statements for the following periods: o XX July 20XX to XX December 20XX (Statement 3) o XX December 20XX to XX May 20XX (Statement 4) XXXXXXXXXX Bank account 1 statements for the following periods: o XX April 20XX to XX October 20XX (Statement 16) o XX October 20XX to XX April 20XX (Statement 17) o XX April 20XX to XX October 20XX (Statement 18) XXXXXXXXXX Bank account statements for the following periods: o XX July 20XX to XX September 20XX o XX October 20XX to XX December 20XX The above statements show the following relevant payments and transfers: XX July 20XX to XX September 20XX • Income Superannuation pension $XX,XXX • Transfer from Beneficiary $XXX • Utilities/rent/food $XXXX.XX XX October 20XX to XX December 20XX • Income (superannuation pension) $XXX • Transfer from Beneficiary $XXXX • Utilities/rent/food $XXXX XXXXXXXXX Bank Limited Access account statements for the following periods: o XX July 20XX to XX September 20XX o XX October 20XX to XX December 20XX The above statements show the following relevant payments and transfers: XX July 20XX to XX September 20XX • Transfer to Beneficiary $XXX • Rent $X,XXX XX October 20XX to XX December 20XX • Transfer from Beneficiary $X,XXX • Rent $X,XXX

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: Section 302-60 of the Income Tax Assessment Act 1997 (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 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195(1) 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. As the Beneficiary is the adult child of the Deceased, paragraphs 302-195(a) and (b) of the ITAA 1997 are not applicable. The definition of death benefits dependant does not stipulate the nature or degree of the 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. 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." 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." 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. 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 were significant. In this case, the provided bank statements show that the Beneficiary was in receipt of fortnightly payments from Centrelink/Services Australia, throughout the 20XX income year. These payments continued into the 20XX income year and were still being received at the Date of Death. Bank statements provided show that the Beneficiary was making regular rent payments for the property they co-tenanted with the Deceased, as well as paying for essentials such as food, clothing, and medical expenses. The Beneficiary also paid for personal expenses, including hydro and streaming services. The Deceased's bank statements show limited evidence of financial support being provided to the Beneficiary; certainly not of an amount, or a regularity, that would constitute financial dependence. The amounts provided by the Deceased to the Beneficiary were very small, in comparison to the income the Beneficiary was receiving from Services Australia payments. In addition, the Beneficiary transferred money to the Deceased at times. While it is accepted that both parties provided a degree of financial support to each other, it is not accepted that the Beneficiary was financially dependent on the Deceased. The Beneficiary had sufficient income to support themselves financially and was not financially dependent on the Deceased to pay for their ordinary living expenses. | Detailed Reasoning - Conclusion: 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 her ordinary living expenses. 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.