Private ruling: Superannuation death benefit - financial dependency
Published: June 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 6 July 2011

Ruling: Q1: Were the parents of the deceased financially dependent upon the deceased at the time of death? | A1: No

Relevant facts and circumstances: The deceased died in the 2010-11 income year. The deceased migrated to Australia a number of years ago and was an Australian resident for income tax purposes. The deceased was employed at the time of his death. The deceased was a member of an Industry Superannuation Scheme (the Fund). The Fund paid a superannuation death benefit to the trustee of the deceased estate. The PAYG payment summary - superannuation lump sum payment shows that the entire amount is a taxable component - taxed element. The beneficiaries of the deceased estate are the deceased's parents. The deceased's parents reside overseas. The deceased's parents are both superannuation pensioners in receipt of an overseas pension. The parents state that the deceased sent them monies from Australia. The majority of the monies sent by the deceased to the parents was towards the purchase of land and for some living expenses. The deceased's parents built a duplex apartment on the purchased land. The property is in the name of the parent. The deceased's parents are living in the apartment. One of their children and a grandchild are living in the family home with them. The deceased's parents' only income is their pensions. The deceased's parents state that based on the advice received from their accountant, the average expenses of pensioners in the city they live is approximately a few hundred Australian dollars per monthly, not including medical expenses.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 302 | Income Tax Assessment Act 1997 Section 302-195 | Income Tax Assessment Act 1997 Subsection 302-200(1) | Income Tax Assessment Act 1997 Paragraph 302-200(1)(a). | Income Tax Assessment Act 1997 Paragraph 302-200(1)(b). | Income Tax Assessment Act 1997 Paragraph 302-200(1)(c). | Income Tax Assessment Act 1997 Paragraph 302-200(1)(d). | Income Tax Assessment Act 1997 Subsection 302-200(2)

Reasons for decision: Summary: It is considered that the parents were neither financially dependent nor in an interdependency relationship with the deceased immediately prior to, and at the time of the deceased's death. Therefore the parents are not considered to be dependants of the deceased. Accordingly, the superannuation death benefit received by the trustee of the deceased estate will not attract the additional concession available to a 'death benefits dependant', but rather is assessable to the trustee of the deceased's estate. The amounts ultimately distributed from the estate to the parents will not be taxable in their hands as the amounts will represent distributions of corpus of the estate. | Detailed Reasoning - Superannuation death benefits: Division 302 of the Income Tax Assessment Act 1997 (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 or not and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit. Section 302-195 of the ITAA 1997 defines 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. | Detailed Reasoning - Interdependency relationship: Under subsection 302-200(1) of the ITAA 1997 an interdependency relationship is defined as: | Detailed Reasoning - Two persons (whether or not related by family) have an interdependency relationship under this section if:: (a) they have a close personal relationship; and (b) they live together; and (c) one or each of them provides the other with financial support; and (d) one or each of them provides the other with domestic support and personal care. Subsection 302-200(2) of the ITAA 1997 states: | Detailed Reasoning - In addition, 2 persons (whether or not related by family) also have an interdependency relationship under this section if:: (a) they have a close personal relationship; and (b) they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and (c) the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability. All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternately both the condition in paragraph 302-200(1)(a) and the condition in subsection 302-200(2), must be satisfied for you to be able to claim that you have an interdependency relationship. It is proposed to deal with each condition in turn. | Detailed Reasoning - Close personal relationship:: The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997. It states that two persons (whether or not related by family) must have a close personal relationship. In this case, the beneficiaries are the parents of the deceased. The relationship between the parents and the deceased was a normal familial relationship that a person would expect between parents and an offspring. Whilst both the beneficiaries and the deceased may have intended to remain an important part of each others lives, it is reasonable to assume that the relationship would have changed significantly over time. As noted in the facts, the deceased migrated to Australia a number of years ago. This clearly demonstrates that the deceased's relationship with his or her parents had already changed and they were living independent lives. In light of the foregoing, it is not accepted that a close personal relationship existed between the parents and the deceased at the time of death as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997. | Detailed Reasoning - Living together:: The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997, and states that two persons live together. The facts show that the deceased had left the family home and became an Australian citizen a number of years ago and was living on a permanent basis in Australia. The deceased's parents reside overseas. Prior to and at the time of the deceased's death the parents and the deceased were not living together therefore it is considered that the requirement specified in paragraph 302-200(1)(b) has not been satisfied in this instance. | Detailed Reasoning - Financial support:: The third requirement to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, and states that one or each of these two parties provides the other with financial support. It is clear from the facts presented that the deceased did provide the parents with some financial support. Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied in this instance. | Detailed Reasoning - Domestic support and personal care:: The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, and states that one or each of these two persons provides the other with domestic support and personal care. In discussing the meaning of domestic support and personal care, paragraph 2.16 of the SEM states: Domestic support and personal care will commonly be of a frequent and ongoing nature. For example, domestic support services will consist of attending to the household shopping, cleaning, laundry and like services. Personal care services may commonly consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person. Consistent both with the ordinary meaning of the words 'domestic support and personal care' in the context of paragraph 302-200(1)(d) of the ITAA 1997, and with the meaning of these words as discussed in paragraph 2.16 of the SEM, it is considered that the parents did not provide the deceased with significant personal care services or domestic support as they were living separately in a different country. On the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied in this instance. | Detailed Reasoning - Application of subsection 302-200(2):: Essentially, this subsection ensures that where two people have a close personal relationship, however, because of the physical, intellectual or psychiatric disability of one of both of them, they do not satisfy one or more of the requirements in paragraphs 302-200(1)(b) to (d) of the ITAA 1997, they will still be considered to have an interdependent relationship. However, the initial mandatory requirement of subsection 302-200(1)(a) of the ITAA 1997 has not been met, so consideration of subsection 302-200(2) is not necessary in this instance. As it is considered that an interdependency relationship did not exist, the issue of whether the parents were financially dependant upon the deceased will now be examined. | Detailed Reasoning - Financial dependency:: For a beneficiary to be financially dependent upon the deceased it must be demonstrated that the beneficiary was actually dependent upon the deceased for maintenance and support. Further it must be established that the level of financial support provided by the deceased, up to the time of the deceased's death, was substantial in that the deceased contributed all or a major amount of the beneficiary's financial support. If the level of financial support is insignificant or minor, then the beneficiary cannot be regarded as a dependant. According to the Macquarie Dictionary, one meaning of the term dependant is a person to whom one contributes all or a major amount of necessary financial support. In the CCH Macquarie Concise Dictionary of Modern Law a dependant is defined as being a person substantially maintained or supported financially by another. In both dictionary definitions the emphasis is on the fact that the financial support or maintenance is substantial. In determining whether a person is a dependant it is necessary to establish the actual level of financial support that was provided to that person by the deceased. This is because dependence is assessed on the basis of the actual fact of dependence or reliance on the earnings of another for support. This is a question of fact ( Aafjes v. Kearney 8 ALR 455, Barwick CJ at 456). In Case [2000] AATA 8, 43 ATR 1273, Senior Member Fayle, in considering the definition of dependant in relation to section 27AAA of the ITAA 1936, stated: The Act 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. The relevant question in this sense is whether the applicants were financially dependent on their offspring at the relevant time. Where the level of financial support provided to a person is substantial then that person can be regarded as a dependant. So a financial dependant is considered to be a person to whom another person contributes all or a major amount of necessary financial support. If the level of financial support is insignificant or minor, then the person cannot be regarded as a dependant. In the Victorian Supreme Court case of Fenton v. Batten [1949] ALR 69; [1948] VLR 422, Justice Fullager made the following comments regarding dependency: The word dependant is, in a true sense a technical term. If the evidence established that the alleged dependant relied on or relies on another as the source wholly or in part of his or her existence then dependence is established. Questions of scale of living do not enter into the matter in the absence of some such statutory enactment. These comments made in Fenton v. Batten when read in the context with the facts established in that case, would tend to confirm the definition of dependant contained in the CCH Macquarie Dictionary of Modern law and the meaning quoted above from the Macquarie Dictionary. In the full High court case of Kauri Timber Co. (Tas) Pty Ltd v. Reeman [1973] (1973) 47 ALJR 184; [1972-73] ALR 1266; (1973) 128 CLR 177 at (CLR) 180, Justice Gibbs (as he then was) in speaking of previous cases on the issue of dependency stated that: The principle underlying these authorities is the actual fact of dependence or reliance on the earnings of another for support that is the test. Handing down the decision in Malek v. Federal Commissioner of Taxation 42 ATR 1203, 99 ATC 2294 (Malek's Case), Senior Member Pascoe of the Administrative Appeals Tribunal (AAT) further clarified the meaning of the word dependant, stating: In my view, the question is not to be decided by counting up the dollars required to be spent on the necessities of life for [Mrs Malek], then calculating the proportion of those dollars provided by the [son] and regarding her as a dependant only if that proportion exceeds 50%...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 Malek's Case, the evidence supplied by the taxpayer was able to demonstrate that the financial support received from her deceased son had been significant. The son had accepted responsibility for mortgage repayments, maintenance and other expenses of the unit in which the taxpayer lived. Taking into account all of the above, it is considered 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 (e.g. shelter and food etc.) without the additional financial support. In the present case, the beneficiaries of the deceased estate were the parents of the deceased. The deceased was an adult child at the time of the deceased's death. Hence the point to be considered is whether the facts show the parents depended or relied on the earnings of the deceased for their day to day sustenance at the time of the deceased's death. On the basis of the facts provided it is considered that the parents were not financially dependant on the deceased. The combined pension income the deceased's parents would have been sufficient to meet their daily needs and basic necessities without the additional financial support of the deceased. It is noted that the majority of the monies sent by the deceased to the parents was towards the purchase of land. The property where the parents live is in the name of the deceased's parent. It is considered that the facts of this case are not similar to the facts that were set out in Malek's Case, even though there is a common feature of the deceased having made contributions towards buying land and meeting the expenses of the household. The information provided by the parents does not demonstrate that the financial support received from the deceased had been significant. Instead, the information provided shows that the deceased essentially contributed a minor level of financial support to the parent's daily household expenses. It should be noted that the minor level of financial support provided by the deceased not only provided financial support to the parents but also to other family members living in the family home. In Malek's Case, the taxpayer was able to demonstrate that the financial support she had received from her deceased son was significant, in view of the fact that her deceased son had accepted responsibility of substantial and significant outlays such as mortgage repayments, maintenance and other expenses of the home in which the taxpayer had lived. The minor level of financial support provided to the parents by the deceased merely supplemented the parents' income and represented 'quality of life' payments, thus cannot be considered to be substantial support. Accordingly, it is considered that the parents were neither financially dependent nor in an interdependency relationship with the deceased immediately prior to, and at the time of the deceased's death. Therefore the parents are not considered to be dependants of the deceased within the definition of death benefit dependant in section 302-195 of the ITAA 1997. Accordingly, the superannuation death benefit received by the trustee of the deceased estate will not attract the additional concession available to a 'death benefits dependant', but rather is assessable to the trustee of the deceased's estate. The amounts ultimately distributed from the estate to the parents will not be taxable in their hands as the amounts will represent distributions of corpus of the estate.

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