- The deceased passed away in 2016.
- The deceased had no spouse or children at the time of his death.
- He had been residing and working in Australia for several years.
- A superannuation lump sum was paid to his estate consisting of a Taxable Component Taxed Element and a Taxable Component Untaxed Element.
- The only beneficiaries of the deceased’s estate and the ultimate beneficiaries of the superannuation death benefit were his father and mother who resided overseas.
- While the deceased was living, his father and mother received a small state pension and they would take out loans to supplement their income. The deceased would regularly send payments to his father and mother which they used to pay off their debts.
At first glance it might be assumed that the parents of the deceased could not be death benefits dependants. After all, they resided overseas. (However there is no requirement in the superannuation death benefit rules that requires a dependant to be an Australian tax resident.)
Just to recap, subsection 302-195(1) of the Income Tax Assessment Act 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.
In this case, the relevant paragraph to examine in determining whether the deceased’s parents were dependants is paragraph 302-195(1)(d) of the ITAA 1997. The Commissioner and the Courts have long taken the view that a ‘dependant’ is anyone who is financially dependent on the deceased just before their passing.
An examination of the concept of ‘financial dependency’ is thus required. The Commissioner has frequently cited two cases in this regard.
- In the Victorian Supreme Court case of Fenton v. Batten  ALR 69;  VLR 422. Fullagher J stated:
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.
- Senior Member Pascoe of the Administrative Appeals Tribunal (AAT) further clarified the meaning the concept in Malek v. Federal Commissioner of Taxation  AATA 678, 42 ATR 1203, 99 ATC 2294:
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 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.
In this case, the beneficiaries were required to show evidence including:
- financial records confirming their monthly income;
- a detailed breakdown of their monthly expenditure;
- evidence of their debts;
- evidence of the deceased making regular payments to pay off his parents’ debt including bank transfer forms and bank passbook statements.
In making his decision, the Commissioner noted:
- The beneficiaries received only one source of income which was insufficient to live off. They relied on the deceased to meet their daily living expenses.
- The beneficiaries were reliant on the regular continuous contributions from the deceased to maintain their normal standard of living.
Given this, the Commissioner ruled that the beneficiaries satisfied the requirements of paragraph 302-195(1)(d) of the ITAA 1997 and were therefore ‘death benefits dependants’ of the deceased.
Please note: The facts of each case will differ. In many cases the LPR would not be able to definitively conclude whether a beneficiary is a death benefits dependant. In such cases, we recommend that the LPR consider applying for a Private Binding Ruling from the Commissioner.
Feel free to contact our team should you want to discuss this topic further and potentially have clients who may be in this situation.
This publication is not intended to be and should not be used as a substitute for taking taxation advice in any specific situation. The information in this publication may be subject to change as taxation, superannuation and related laws and practices alter frequently and without warning. Neither BNR Partners Pty Ltd, our employees or agents are responsible for any errors or omissions or any actions taken or not taken on the basis of this publication.