Edited version of private advice

Authorisation Number: 1052187560814

Date of advice:8 December 2023

Ruling

Subject: Superannuation death benefits dependent

Question

Is the beneficiary a death benefits dependant of the deceased person at the time of their death according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being a dependent of the deceased person just before they died?

Answer:

No.

This ruling applies for the following periods

Income year ending 30 June 2022

Income year ending 30 June 2023

Income year ending 30 June 2024

The scheme commences on:

1 July 2021

Relevant facts and circumstances:

The deceased was the Parent 1 of the beneficiary.

The deceased died in January 20YY (Date of Death).

The beneficiary was born on xx/xx/20YY and was therefore older than 18 years when the deceased died.

The deceased was the sole member of his self-managed superannuation fund.

The deceased's will left the net assets of his estate equally to his three children, one of which was the beneficiary.

On the Date of Death, the beneficiary lived with their parent 2 (the former spouse of the deceased) and elder sibling. It was stated that the deceased moved out of this address in 20YY.

The beneficiary provided the following statements in relation to their relationship with the deceased:

•         The beneficiary did not live with the deceased, but met with the deceased on a regular basis.

•         The deceased had a binding child support agreement with the beneficiary's Parent 2, which expired when the beneficiary turned 18. After its expiry, the deceased continued to pay a monthly amount of $xxxx.xx.

•         The beneficiary received a monthly allowance of $xxx, as evidenced by bank statements provided, for a period of six months up to the Date of Death.

•         The deceased paid for the beneficiary's expenses for extracurricular school activities.

•         The deceased planned to pay for the beneficiary's university fees.

•         The deceased included the beneficiary under his private health insurance plan and paid for her out-of-pocket medical expenses.

•         The beneficiary had low levels of taxable income in the period up to the Date of Death.

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 section 302-200

Income Tax Assessment (1997 Act) Regulations 2021 section 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 section 302-200.02

Reasons for decision:

Summary:

The beneficiary was not a dependent of the deceased person just before they died. Paragraph 302-195(1)(d) of the ITAA 1997 is not satisfied and therefore, the beneficiary is not a death benefits dependant of the deceased.

Detailed reasoning

Meaning of death benefits dependant

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.

As the beneficiary is the adult child of the deceased, paragraphs 302 195(1)(a) and (b) of the ITAA 1997 do not apply.

As the beneficiary and the deceased did not live together, as is required by paragraph 302-200(1)(b) of the ITAA 1997 (and there is no information to suggest that the reason they did not live together is that either or both of them suffer from a physical, intellectual or psychiatric disability, as required by paragraph 302-200(2)(c) of the ITAA 1997), the requirements of paragraph 302-195(c) of the ITAA 1997 (interdependency relationship) cannot be satisfied. Therefore, it is necessary to consider paragraph 302-195(1)(d) of the ITAA 1997 - a 'dependant' of the deceased person just before he or she died.

The definition under paragraph 302-195(1)(d) of the ITAA 1997 is inclusive and therefore includes a person who is considered a dependant within the ordinary meaning of the term, as noted in established case law. 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. Gibbs J, in speaking to previous cases on the issue of dependency, stated that:

The principle underlying these authorities is that it is the actual fact of dependence or reliance on the earnings of another for support that is the test.

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 person's 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.

The beneficiary was living with their parent 2 and sibling at the Date of Death. There is no evidence, or suggestion, of their having any liability to contribute towards the major expenses of the household, such as the mortgage, or rates.

The beneficiary's parent 2 had taxable income of $xx,xxx for the 2021 financial year and $xx,xxx for the 2022 financial year. It is considered that they had the means to provide substantial financial support to the beneficiary.

The beneficiary was also working part-time in recent years, and so earned income to contribute towards their regular ongoing personal expenses.

While there is some evidence to support that the beneficiary received a reasonable degree of financial support from the deceased, it is not considered that financial dependency has been proved. For financial dependency to be established, there must be more than the mere giving of money - there must be a relationship where one party relies on the other for what is required for their ordinary living.

Conclusion

In this case, based on the evidence provided, the Commissioner is satisfied that the beneficiary was not a person who was substantially reliant on regular and continuous financial support from the deceased for their ordinary living expenses.

As a result, paragraph 302-195(1)(d) of the ITAA 1997 is not satisfied, and the beneficiary is not a death benefits dependant of the deceased.