Private ruling: Death benefit - financial dependency
Published: June 2012
Ruling period: 2011-12 income year.
Date scheme commenced: 1 July 2011

Ruling: Q1: Is your client a death benefits dependant of the deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: The Deceased passed away in the 2011-12 income year. The Deceased is the child of your clients, Parent 1 and Parent 2. The Deceased was residing on a full time basis with their family. The Deceased's family comprised Parent 1, Parent 2 and two siblings under age 18. The Deceased resided at this address for approximately six years preceding their death. The Deceased did not own any assets at the time of their death, apart from their superannuation entitlements and a bank account. The assets owned by Parent 1 and Parent 2 are: · Two cars. · Parent 1's superannuation entitlements. · Parent 2's superannuation entitlements. The following expenses were incurred in respect of the entire family for the 2009-10, 2010-11 and 2011-12 income years: · Telephone; · Electricity; · Food and groceries; · Car insurance and registration approximately; · Clothing, medical and other personal needs; and · Entertainment. After commencing employment, the Deceased agreed to contribute certain amounts towards the groceries and household bills. These amounts were paid in cash to Parent 2. The Deceased was a member of a complying superannuation fund. A PAYG Superannuation Lump Sum Payment Summary issued by the Deceased's superannuation fund indicates an amount was made to your client. The payment summary shows the type of death benefit paid as 'NONDEPENDANT'. A similar payment was made to Parent 2.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 302-195. | Income Tax Assessment Act 1997 Section 302-200. | Income Tax Assessment Act 1997 Subsection 302-200(1). | Income Tax Assessment Act 1997 Subsection 995-1(1).

Reasons for decision: Detailed Reasoning - Summary of decision: You were not financially dependant on the Deceased. The Deceased did not contribute all or a major amount of necessary financial support to you. You are not a dependant of the Deceased with the definition of 'death benefits dependant'. | Detailed Reasoning - Detailed reasoning: Death Benefits Dependant in relation to the Superannuation Death Benefit 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 or not 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. Where a person receives a superannuation death benefit and that person was a dependant of the deceased, it 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. Section 302-195 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. | Detailed Reasoning - Financial dependency: To qualify as a death benefit made to a dependant under subsection 302-195(d) of the ITAA 1997, dependency based on financial dependency will need to be established. Therefore, we will consider whether your client was financially dependant on the Deceased. 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 (1976) 180 CLR 199; (1976) 50 ALJR 454; (1976) 8 ALR 455; [1976] WCR (NSW) 18; [1976] HCA 5, per Chief Justice Barwick). In Administrative Appeals Tribunal (AAT) Case [2000] AATA 8 , (2000) 43 ATR 1273; (2000) 2000 ATC 129, [2000] AATA 8 Senior Member Fayle in considering the definition of 'dependant' in relation to former 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 son 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 provided 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) 128 CLR 177; (1973) 47 ALJR 184; [1972-73] ALR 1266; [1973] HCA 8, 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 Re Malek v. Federal Commissioner of Taxation (1999) 42 ATR 1203, (1999) 99 ATC 2294; [1999] AATA 678 ( Malek ), Senior Member Pascoe of the 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 , 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 the beneficiaries 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. In this case, your client was a Parent of the Deceased. The point to be considered is whether the facts show your client depended or relied on the earnings of the deceased for their day to day sustenance at the time of the Deceased's death. From the facts provided, the Deceased contributed towards household bills and groceries. These household expenses were that of the entire household of five persons. The financial support provided by the Deceased amounted to less than 20% of all the family's household expenses during the period the Deceased was working up to the date of death. Despite these payments being regular and periodic, they are not considered significant. Instead the payments are like any other adult child who was living at home and paying board. On the basis of the facts presented, it cannot be said that these payments can be regarded as representing substantial financial support. The level of financial support provided by the Deceased is, at best, minimal in light of the overall household expenditure. Therefore it is concluded that your client would have been able to meet their basic necessities without the additional financial support of the deceased. In view of the above it is considered your client was not financially dependant on the Deceased at the time of the Deceased's death. Therefore, your client is not a dependant of the Deceased within the definition of death benefit dependant in accordance with section 302-195 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.