- Authorisation Number: 1012514239815
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Ruling
Subject: Death benefit - dependency
Question
Is your client a dependant of the deceased in accordance with section 302-60 of the Income Tax Assessment Act 1997 (ITAA 1997), giving consideration as to whether they were financially dependent on the deceased?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
Your client is over 18 years of age.
They are the child of the deceased who passed away during the relevant income year.
During the relevant income year, your client received a superannuation lump sum death benefit payment from the deceased's superannuation fund (the Fund).
A PAYG payment summary was provided to your client advising that the lump sum payment of X was made up of the following components:
Taxable component:
- Taxed element A
- Untaxed element B
Tax free component: C
Total tax withheld: D
During the 20XXincome year your client was advised by the Fund that the Fund had incorrectly calculated the tax components of the payment.
Your client was provided with a revised PAYG payment summary which detailed the correct components of the payment to be:
Taxable component:
- Taxed element A
- Untaxed element B
Tax free component: C
Total tax withheld: D
As the revised taxable component was mostly comprised of an element untaxed in the fund, your client was advised that there was insufficient PAYG tax withheld from the payment.
The withholding tax shortfall is approximately Y.
After your client was provided with the revised PAYG payment summary they made enquiries with their accountant who advised your client that no tax should have been payable on the superannuation lump sum payment as they were a dependant of the deceased.
Prior to your client obtaining legal advice in relation to the death benefit distribution, they signed a statutory declaration stating that they were not financially dependent on the deceased.
However, your client has since stated that they were not properly informed of the definition of financially dependent and believed they were being questioned as to whether they were wholly financially dependent on the deceased, in which case they were not as at the time your client was in receipt of a disability pension and their partner was working.
Your client has stated that the deceased assisted them and their spouse financially from 200Y to the date of death.
Your client has advised that they did struggle financially and most of the time managed to live within their means. However, when they could not live within their means the deceased would assist them.
Your client can only substantiate two occasions of financial assistance as deposits were made directly to their bank account whereas other assistance was in the form of cash.
Your client's parent has provided a written statement advising that on numerous occasions, the deceased gave them money to use for your client's sibling's uniform expenses and was instructed to give half of the money to your client.
With regards to the above, your client has stated that this assistance was provided to them when the deceased would return your client's sibling's home after school holidays. The two dates your client can recall this occurring were the 200X Christmas school holidays and 200Y Easter school holidays. Your client has stated that they cannot recall exact amounts but they believe the payments would have been approximately X or less.
Your client has stated that during the 200Y income year, the deceased provided them with baby items including a sit and spin table, clothes, bibs and toys to assist your client with their young child.
When the health of the deceased deteriorated during 200Y, they provided your client with money so your client could extend their visit with the deceased. During this time your client was also provided with food.
Whilst your client has stated they were not wholly financially dependent on the deceased, they provided your client with financial assistance when they needed it.
Your client has provided the following disability pension income details:
Year ended 30 June 2009 A
Year ended 30 June 2010 B
Your client has provided the following details of their spouse's taxable income:
Year ended 30 June 2008 A
Year ended 30 June 2009 B
Year ended 30 June 2010 C
Your client was unable to provide an estimate of their household expenses.
At the time of the death, your client did not reside with the deceased.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 995-1
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 302-200(2)
Income Tax Assessment Act 1997 Subsection 302-200(3)
Reasons for decision
Summary
Your client was not considered to be financially dependent on the deceased at the time of the deceased's death. Therefore they are not a dependant of the deceased within the definition of death benefit dependant in section302-195 of the ITAA1997.
Detailed reasoning
Death Benefits Dependant in relation to the Superannuation Death Benefit
Subsection995-1(1) of the ITAA1997 states that the term 'death benefits dependant' has the meaning given by section302-195 of the ITAA1997. Section302-195 of the ITAA1997 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 section302-200 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.
Under paragraph302-200(1)(b) of the ITAA1997 an interdependency relationship requires, among other things, that the two persons live together.
In this case, your client did not live with the deceased prior to the date of death. Accordingly, there was no interdependency relationship between the deceased and your client.
Where an interdependency relationship cannot be established, dependency based on financial dependency will need to be established.
Financial dependency
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]AATA8, 43ATR1273, Senior Member Fayle, in considering the definition of dependant in relation to section27AAA of the ITAA1936, 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 is insignificant or minor, then the person cannot be regarded as a dependant.
In the Victorian Supreme Court case of Fenton v. Batten [1949]ALR69; [1948]VLR422, 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 Dictionaryof 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)47ALJR184; [1972-73]ALR1266; (1973)128CLR177 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 (Maleks 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, 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 Maleks 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 (shelter, food, clothing, etc.) without the additional financial support.
As your client was over 18 years of age at the time of the death of the deceased, the main issue to be considered is whether the facts demonstrate that your client depended or relied on the earnings of the deceased for their day to day sustenance up until the date of death.
Based on the facts it is clear the deceased provided your client with some financial assistance from 200X to the date of death. However, when you compare the amounts provided by the deceased with the income amounts your client received from other sources, being the disability pension and their spouse's wage, it cannot be said that the support was significant enough that your client would not have been able to maintain their normal standard of living without it. Further, due to the irregularity of the payments provided it cannot be argued that your client was reliant on the regular continuous contribution of the deceased to maintain that standard.
As such, the support provided by the deceased would more appropriately reflect an income supplement and based on the Maleks Case, your client would not be considered be to be wholly or substantially maintained financially by the deceased.
In view of the above, your client was not considered to be financially dependent 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 section302-195 of the ITAA1997.